Piece Work Compensation Is a Wreck Waiting to Happen

The Perils of New Labor Code Section 226.2 for Trucking, Auto Repair and Other Industries

“Piece work” compensation or “piece rate” is payment for work based on production. For decades, this method has worked to benefit worker and management in many industries. It has become common for trucking companies to pay drivers by the mile or by the delivery, for auto repair shops to pay mechanics by the task accomplished, and for service companies to pay technicians by the number of jobs completed. Businesses have been able to set their workers’ pay rates proportional to the enterprise’s overall income generated from production while employees, commonly paid well above industry norms for their efforts, tended to be more invested in company success.

California’s Courts Changed the Rules for Piece Work Pay in 2013: Of course, piece work would only be acceptable if the compensation generated exceeded the applicable minimum wage. Overturning long-term workplace presumptions, two 2013 California Court of Appeal decisions (Gonzales v. Downtown L.A. Motors and Bluford v. Safeway) directed that acceptable piece work arrangements are not a simple matter of averaging an employee’s total pay against the hours he or she worked that week to confirm the figure was above the required hourly minimum. These cases concluded that:

a) California law requires employers to pay piece workers additionally for at least ten minutes of rest for every four-hour shift, by definition time a worker was not earning piece pay since he or she was required to be idle during this time; and

b) Employers must also pay piece workers additionally for other periods of working time where the employee is not engaged in the actual production that generates the piece pay, e.g., staff meetings, training seminars, clean-up time.

The appeals courts thus ruled that an employer is in violation of California’s minimum wage law – which requires such compensation for “every hour worked” – unless that business paid its piece workers separately for rest periods and for payable “non-production” time. Federal law, by contrast, allows businesses to merely average all piece pay over the hours worked in a payroll period to confirm the per-hour amount is at least equal to federal minimum wage.

Over the two-plus years since the Gonzales and Bluford decisions, numerous California industries with widespread piece work practices – trucking in particular – have found themselves increasingly targeted for legal actions seeking payment of back wages for such unpaid rest period and “non-production” time, going back for up to four years. Ironically, the companies affected could thus be potentially responsible for supposed back pay back to 2011 or even earlier even though these new interpretations of California labor law were not issued until 2013.

California Legislature Makes the Piece Work Pay Even More Complex Starting January 1, 2016: Apparently seeking to restore some balance, the California Legislature has responded with new Labor Code 226.2, effective January 1, 2016. However, the likely result is the widespread death of piece work systems in many companies which take the time to understand the implications of this new law.

Section 226.2 does carry a degree of “good news” for trucking outfits and other companies that have been mistakenly operating under inadequate piece work plans over the last several years. This new law gives such businesses the chance to fairly calculate and, within one year from now, by December 15, 2016, to make up the shortfalls to all persons underpaid by the Gonzales and Bluford rules since July 1, 2012. For example, if an affected piece work-paying trucking company has employed 100 drivers since July 1, 2012, it would have the next 12 months, to December, 2016, to calculate by strict formulas and come up with the back payments for the wages applicable to each such driver’s rest periods, staff meetings, training sessions, and other non-productive time. A company that takes advantage of this so-called “safe harbor” for catching up on back pay would not be subject to additional penalties it would otherwise owe for such non-payment.

To qualify for this “safe harbor” relief however, a company must give written notice to the Department of Industrial Relations (DIR) no later than July 1, 2016 that it is engaged in the back pay calculations and payments. The DIR will then post the name of the company on its public website until July 1, 2017. Thus, any business who opts for such a make-up program must announce publicly that it has likely been out-of-compliance with the law for up to the preceding 2 ½ years.

New section 226.2 is also definite that all employers must comply with the statute’s many vague and potentially complex accounting and recordkeeping standards for any piece work system after December 31, 2015. Among the many new standards are:

• Required additional pay for each rest and recovery period an employee takes each day, calculated by an uncertain and potentially complicated formula for averaging each worker’s hourly rate each workweek;

• Required additional pay at applicable minimum wage for all “other nonproductive work time,” vaguely defined as time under the employer’s control, exclusive of rest or recovery periods, that is not directly related to the activity being compensated on a piece rate basis. Just what activity is “not directly related” will no doubt be hotly contested by employers, employees and their respective lawyers, subject to the various views of the judges ultimately assigned to overseeing such disputes;

• Required separate entries on every future paycheck for the rest/recovery time compensation and “other nonproductive time,” including the numbers used for calculation; and

• Separate record keeping to establish each affected worker’s nonproductive work time, however a business seeks to define that term.

The degree of uncertainness and complexity Labor Code 226.2 now introduces into calculating and administering piece work will likely kill off such systems of pay for many companies aware of the changes, replaced by an “hourly-plus-bonus” or other more straightforward method of pay. A business that continues to utilize piece work pay without study, understanding and compliance with its obligations may eventually encounter a rude awakening of significant back pay, penalties and fines that could indeed threaten the life of that enterprise. Even a company that seeks to comply with the law may be exposed if that employer happens to judge its vague terms in a manner later disapproved by a court’s or agency’s judgment.

Our office can help company owners and managers better understand these fast-approaching changes in the law and a business’s options to deal with them. Contact Tim Bowles, Cindy Bamforth, or Helena Kobrin for more information.

Tim Bowles, December 4, 2015