"Piecework" Compensation Systems Must Separately Compensate Each and Every Hour Worked -- Gonzalez v. Downtown LA Motors

As most practitioners in the field are well aware, California's Labor Code and Wage Order protections are generally intended to be more beneficial to employees than federal law.  California's minimum wage protections are a case in point. 

California Law Requires That Each and Every Hour Worked Must Be Separately Compensated

California's minimum wage rate ($8.00 per hour) is obviously higher than the federal minimum ($7.25).  In addition, however, California law calculates the accrual of minimum wage payments in a very different way.  Federal law simply divides weekly compensation by the number of hours worked in the week.  The employer satisfies the federal standard so long as the average compensation is greater than $7.25 per hour. 

California minimum wage law is very different because it requires that the minimum rate of $8.00 per hour must be separately accrued and paid for each hour worked. For example, suppose a truck driver earns $20 per hour for time spent driving but receives no additional compensation for time spent on other tasks.  Now suppose he spends 30 hours per week driving and ten hours on other tasks such as loading and inspecting his vehicle, filing out paperwork, etc.  The driver has worked 40 hours and earned $600 ($20/hr. x 30 hrs. driving).  This easily satisfies federal law because the driver's average hourly rate of compensation is $15 ($600/40hrs.). 

But this pay system just as clearly violates California's per hour minimum wage standard because the driver earned nothing for the ten hours when he was not driving.  Under California law, the driver is entitled to an additional $8.00 in compensation for each of these ten hours of work irrespective of what he may have been paid for any other time worked.

California's "Each and Every" Hour Standard Applies Equally to Piecework Compensation Plans

The recent case of Gonzalez Downtown LA Motors, LP, explained that the requirement to provide separate minimum compensation for each hour worked is not limited to hours-based compensation systems.  Rather, the same standard must also be applied to compensation systems based on commissions, piecework, or other productivity-based metrics.    

By its terms, Wage Order No. 4 does not allow any variance in its application based on the manner of compensation. Subdivision 1 of the wage order states that subject to exceptions that are not applicable here: “This order shall apply to all persons employed in professional, technical, clerical, mechanical, and similar occupations whether paid on a time, piece rate, commission, or other basis.” (Cal. Code Regs., tit. 8, § 11040, subd. 1, italics added.) Subdivision 4(B) similarly requires uniform application of the minimum wage requirements regardless of how an employee is paid: “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.” (Cal. Code Regs., tit. 8, § 11040, subd. (4)(B), italics added.) That DTLA compensated its technicians on a piece-rate basis is not a valid ground for varying either the application or interpretation of the wage order.

There is an obvious tension between pay systems that seek to compensate for performance or productivity alone and a legal standard that requires minimum payments for time alone.  Reconciling these two standards is problematic to say the least and I will try to explore the nuances of doing so in future posts. 

In the meantime, however, employers and their workers should be aware that any "creative" compensation scheme that does not expressly pay a flat minimum rate for each and every hour is legally suspect under California law.               

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