Erick Becker
California has long allowed employers to pay non-exempt employees either by the hour or by other alternatives – piece rate, commissions, job rate, etc. Two recent decisions by the California Court of Appeals may make such alternatives extremely difficult to utilize without incurring potential liability.
In Gonzalez v. Downtown L.A. Motors, the court ruled that the employer’s system of paying mechanics violated the requirement to pay minimum wage. Mechanics were paid a flat hourly rate of up to $32 for each hour spent on a repair. If their total earnings divided by the number of hours worked fell below the minimum wage threshold, the employer would pay the difference to make sure they received at least $8 for each hour worked. The employees argued that the system didn’t compensate them at minimum wage for the time they spent at work waiting for a repair order or performing tasks like clean up, and the court agreed, ruling that even though most of the employees earned far more than minimum wage, the employer’s system violated the requirement to pay employees for each hour worked.
The second case, Bluford v. Safeway Stores, has even more far reaching implications. Safeway paid its drivers using an alternative pay system with fixed rates based on miles driven and tasks performed, and hourly pay for delays. A class action filed on behalf of the drivers claimed that Safeway unlawfully failed to compensate drivers for their two ten minute rest periods. Safeway contended that pay for rest periods was factored into the fixed rate compensation, but the court found that the system violated the wage orders and squarely held that employees must be paid hourly for each rest break.
If these two decisions stand, it will be extremely difficult from an administrative perspective to maintain any pay system other than hourly rate. For example, a commissioned non-exempt employee would have to track each time increment spent working on a commissionable project, and likewise each increment spent on other tasks that won’t result in a commission so the employer can pay at least the minimum hourly wage for that work time. Likewise, an employee paid on piece rate would have to “clock in” or record their time in some fashion for each rest period, or record that they chose not to take a rest period. If the employer automatically paid for 20 minutes daily for the two rest breaks, there would still be a risk that the employee claims they were denied the opportunity to actually take the rest period.
Probably the only option that doesn’t open the door to potential wage and hour liability is to pay all non-exempt employees at least $8 per hour (or more if the current legislation to hike the minimum wage is enacted) and structure additional incentive based compensation accordingly. Employers currently utilizing alternative pay systems should monitor this evolving case law and consider revisions in consultation with experienced employment counsel.
