CALIFORNIA: Piece rate compensation systems under more attacks in California

Discussions with wage and hour enforcers indicate that paying for rest periods under a piece rate compensation system in California is even more complicated than we previously believed. As we reported in our November 21, 2013, newsletter, a California appeals court certified a class action claim that an employer who paid employees by piece rate failed to pay separately for rest periods. In response, we suggested that employers who wish to use a piece rate should pay all hours at minimum wage and then pay a piece rate on top of that. Our attorneys have recently been speaking informally with deputy labor commissioners and learned that staff attorneys at the Division of Labor Standards Enforcement (DLSE) are interpreting the new standard to require payment for the rest periods not only at a flat rate, but at the regular hourly rate of pay, which would include factoring in pay other than the flat rate, such as the piece rate, commission, bonus, etc. This interpretation has many logical flaws and may not survive scrutiny by a court review if a DLSE decision is appealed. However, DLSE is the first point of adjudicating those claims and appealing a Labor Commissioner’s decision can be costly. There are significant logistical challenges in calculating every minute that an employee is unable to produce a piece rate and paying the employee for that unproductive time at the employee’s regular rate of pay. Vigilant is therefore recommending that members seriously evaluate whether a piece rate system is the best approach and whether other compensation systems may achieve the same results with far fewer risks.

Our attorneys in California have been working with members to devise other compensation strategies to achieve the same results without relying on the piece rate approach. If you are currently using the piece rate as a compensation model, we urge you to speak with one of our California attorneys to evaluate alternatives.