Legal Alerts

California Court Concludes that Piece-Rate Workers Be Paid an Hourly Wage for Non-Piece-Rate Work

The California Court of Appeal issued a decision in Gonzalez v. Downtown LA Motors, LP holding that an employer who employs piece-rate workers must separately compensate those employees at or above the minimum wage for each hour of non-piece-rate work completed. This decision is expected to have widespread impact on California employers who utilize piece-rate systems to incentivize workers to increase their productivity. 

The employer, Downtown LA Motors, LP (“DTLA”), compensated its service technicians on a piece-rate basis by using a “flag hour” compensation system. Each technician had a flag rate, and each repair job was assigned a set number of flag hours regardless of how long the technician actually took to complete the repair job. Technicians only accrued flag hours for repair work. At the end of each pay period, DTLA multiplied the flag rate by the flag hours to compute a technician’s total compensation. If that amount fell short of the minimum wage for the actual hours worked, DTLA paid the technician minimum wage for the actual hours worked, rather than the flag rate.

The plaintiff, Oscar Gonzalez, brought a wage and hour class action lawsuit against DTLA, claiming that DTLA violated California law by failing to pay technicians the minimum wage during the period they were on the clock but waiting for repair orders or otherwise were performing other nonrepair tasks. DTLA argued that it was not required to pay technicians a separate hourly minimum wage for such time because it ensured that technicians’ total compensation for a pay period never fell below the minimum wage for the actual hours worked. After a bench trial, the trial court entered judgment for the class, and DTLA appealed.

On appeal, the California Court of Appeal rejected DTLA’s practice of “averaging” total compensation over total hours worked. The court relied on Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, which involved utility workers who were paid an hourly rate for “productive” field work on utility poles but not for “nonproductive” tasks such as traveling from job site to job site, loading vehicles, and attending safety meetings. Armenta held that the use of such an “averaging” method to determine an employer’s minimum wage obligation violates California law. As such, the Court of Appeal concluded that technicians were entitled to separate hourly compensation for time spent waiting for repair work or preforming other nonrepair tasks directed by DTLA during their shifts. 

The Gonzalez decision is another unfortunate blow to employers in California. Going forward, California employers who utilize any form of piece-rate compensation plan should revisit the compensation structure and ensure their piece-rate workers are paid separate hourly wage for any time spent on non-piece-rate work.

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