California Piece-Rate Employees Entitled to Compensation for Each Hour Worked

Gonzalez v. Downtown LA Motors, No. B235292 (April 2, 2013): A California Court of Appeal recently held that automobile service technicians who were paid on a “piece-rate” basis should have been paid their minimum hourly wage for the waiting time between repairs. The court held that the employer, Downtown LA Motors (DTLA), a Mercedes Benz dealership, violated the California Labor Code through illegal “pay averaging,” and that the employer was required to pay a separate hourly rate for any time that the mechanics were not actively engaged in repairs.

DTLA paid the technicians based on a piece-rate system that allowed a set amount of time for each repair called “flag hours”—regardless of how long it took to actually do the repair. At the end of the 80-hour pay period, the flag hours were multiplied by each technician’s hourly rate, which was based on the technician’s experience (between $17 to $32 per flag hour). DTLA supplemented the wages if they did not average out to the minimum wage for 80 hours.

A class action lawsuit was filed by 108 service technicians who claimed that they were entitled to minimum wages for the waiting time between repairs. During the waiting time, the technicians were “expected to perform non-repair tasks, including obtaining parts, cleaning their work stations, attending meetings, traveling to other locations to pick up and return cars, reviewing service bulletins, and participating in on-line training.” There was a significant period of time between repair jobs for which no flag hours were accrued. The technicians won at trial and received a judgment of over $1.5 million for their waiting time from April 2002 to June 2008.

The California Court of Appeal affirmed the decision, noting that California Wage Order No. 4-2001 states: “Every employer shall pay to each employee, on the established payday for the period involved, not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise.” The wage order also defines “hours worked” as “the time during which an employee is subject to the control of an employer, and includes all the time the employee is suffered or permitted to work, whether or not required to do so.” In interpreting the wage order, the court relied on Armenta v. Osmose, Inc. in which the Court of Appeal held that “the obligation to pay minimum wages attaches to each and every separate hour worked during the payroll period.” The class also prevailed on a related claim that DTLA willfully failed to timely pay all wages due to employees who were fired or quit their employment based on the wages owed for the unpaid hours worked on the piece-rate system.

Initially the decision was issued as unpublished but the court ordered it to be published on April 2, 2013.

According to a shareholder in the San Francisco office of Ogletree Deakins: “This decision extends the questionable holding of Armenta—a contract hours case—to all workers compensated on a piece-rate basis. The Gonzalez court specifically holds that the wage order provision stating that the hourly minimum wage must be paid ‘for all hours worked in the payroll period…’ really means ‘for each hour worked during any period of time.’ This would be an excellent case for review by the California Supreme Court to address this court’s clearly incorrect reading of this long standing wage order provision. Until such review takes place, however, all employers that pay employees on a piece-rate basis must seriously consider utilizing a base minimum wage for all hours worked to which some form of piece-rate incentive would be added.”