The Piece-Rate Problem & AB 1513: The Fix is In? Bryan Little & Carl Borden Farm Employers Labor Service

The Piece-Rate Problem & AB 1513: The Fix is In? Bryan Little & Carl Borden Farm Employers Labor Service

Minimum Wage (MW) & Piece Rate (PR) Under MW laws, an employer must compensate an employee at no less than MW for all hours worked. A PR employee not producing enough pieces to make MW for all hours worked must still be paid at least MW for those hours.

IWC Orders & DLSE Policy IWC wage orders require MW be paid for all hours worked in each payroll period. DLSE used to allow averaging. Piece earnings could cover MW for both pieceproducing and non-piece-producing time.

DLSE Policy Changed In 2002, DLSE says averaging is not allowed. Separate hourly pay (at least MW) is due for time that employee cannot, due to employer s direction, produce pieces.

Gonzalez v. Downtown LA Motors Bluford v. Safeway Stores CA Court of Appeal decisions issued in 2013. PR employees are entitled to separate hourly compensation for all nonproductive time (NPT). These decisions don t apply only to DTLA Motors and Safeway or only prospectively. They state what the law always has been.

Problems for PR Employers The Labor Commissioner added to the problem. IWC order rest periods must be compensated at employee s average hourly piece-earning rate. Uncertainty re: pay rate for rest and Cal/OSHA cooldown breaks (heat-recovery periods) Statute of limitations results in 4-year liability tail. Lawsuits sought huge damage and penalty awards.

Effective 1/1/16. The Fix? AB 1513 Sets minimum pay rates for rest and recovery periods (R&RPs) and for other NPT (ONPT). Provides a voluntary, opt-in affirmative defense against claims and related damages and penalties for nonpayment of R&RPs and ONPT.

Separate Compensation PR employees must be paid at hourly rates for R&RPs and ONPT separate from their PR pay. ONPT means time under the employer s control, not including R&RPs, that is not directly related to the activity being compensated on a PR basis.

Pay Rate: R&RPs A PR employee must be paid for R&RPs at an hourly rate that is at least the higher of: MW; or, An average hourly rate determined by dividing the employee s total compensation for the workweek, excluding pay for R&RPs or any OT, by the total hours worked in the workweek, not including R&RPs.

Compensation Used in Determining the Average Hourly Rate DLSE says to use the types of compensation that must be used in calculating the regular rate of pay for OT premium pay. Sums paid for hours worked or performing a duty. Exclude sums paid as gifts or for hours not worked. E.g., vacation and sick-leave pay.

Pay Rate: ONPT A PR employee must be paid for ONPT at an hourly rate that is at least MW. By paying in addition to PR compensation an hourly rate of at least MW for all hours worked (e.g., hourly wage + production bonus), an employer complies with this requirement. But not necessarily with the requirement for R&RPs.

ONPT May be Estimated ONPT may be determined by either time records or the employer s reasonable estimates. An employer who, due to a good-faith error, underestimated ONPT is liable for the wages still due but not for statutory civil penalties if: The employer provided specified wage-statement information and paid the wages due for the amount of ONPT as mistakenly determined by the employer; and, The total pay for any day in the pay period is at least what is due at MW plus any required OT compensation.

Affirmative Defense (AD) An employer may obtain an AD to claims for recovery of wages, damages, and penalties based solely on the employer s failure to pay the employee the compensation due for R&RPs and ONPT for all pay periods through 12/31/15.

Affirmative Defense (AD) To get the AD, an employer must: By 7/1/16, notify DIR that it is electing the AD. By 12/15/16, pay each of its employees for uncompensated or undercompensated R&RPs and ONPT for pay periods between 7/1/12 to 12/31/15, using one of these formulas:

Formula 1: Pay Actual Sums Due Determine and pay the actual sums due together with accrued interest of 10% per year (as per Civil Code 3289). Section 3289 doesn t say whether the interest is simple or compound. But case law indicates that in this type of situation, it should be simple interest.

Formula 2: Pay 4% of Gross Earnings Pay each employee an amount equal to 4% of the employee s gross earnings in pay periods in which the employee performed any piece work between 7/1/12 and 12/31/15. Employer may reduce the 4% payment by amounts already paid to the employee, separate from PR pay, for R&RPs and ONPT during the same time. Available reduction for amounts already paid for ONPT is capped at 1% of the employee s gross earnings during the same time.

Formula 2: Doing the Math Assumptions: Employee did PR work in 50 weekly pay periods from 7/1/12 to 12/31/15 Gross Pay in those 50 pay periods: $50,000 R&RP time already paid by a separate hourly wage: $950

Formula 2: Doing the Math ONPT already paid by a separate hourly wage: $570, capped at 1% of gross pay: $500 $50,000 x 4% = $2,000 $2,000 - $950 - $500 = $550 owed to employee

FLC/Grower Joint Liability? Broad use of FLCs in California and expanding joint-employment criteria raise tough questions in light of AB 1513 s safe harbor. Can a grower who gets labor from an FLC be liable for that FLC s wage-payment liability? Yes, if the grower and FLC are joint employers or if the grower is a client employer of the FLC.

What is Joint Employment? An employee can have more than one employer for the work the employee is performing. Each joint employer may be responsible for some, or all, of the obligations of an employer under California and federal law.

What is Joint Employment? Courts and enforcing agencies often broadly define what to employ means. This results in: More individuals being deemed employees; and, More entities and individuals being deemed employers than otherwise.

What is Joint Employment? Under the IWC wage orders, to employ means: To exercise control over wages, hours or working conditions; or, To suffer or permit to work; or, To engage to perform work, thereby creating a common-law employment relationship.

What Makes a Joint Employer? Exercising significant control over working conditions; e.g., specifying: The overall harvest schedule; The number of workers needed; When the harvest starts; Non-harvest days.

What Makes a Joint Employer? Exercising some control over pay rates for the FLC s employees. Ownership of the premises where the work occurs or in the equipment being used. The work being done by a contractor s employees is integral to the grower s business.

Client Employer Joint Liability AB 1897 took effect on 1/1/15. Added 2810.3 to the Labor Code. Does not involve determining joint employment. A client employer shares liability for paying wages to workers provided to the client employer by a labor contractor.

Client Employer Joint Liability A client employer is a business entity with 25 or more workers, at least six of whom are provided by one or more labor contractors to perform labor within the entity s usual course of business.

Joint Liability & AB 1513 AB 1513 didn t create the joint-liability problem. The ease of finding joint employment and/or joint liability complicates the assignment of liability for unpaid R&RP time and ONPT. As with other failures by an FLC to pay wages owed to the FLC s employees, a grower might be jointly liable for the non-payment by the FLC of R&RPs and ONPT.

Joint Liability & the AB 1513 Safe Harbor: What Does It All Mean? Individual analysis: Did you do things e.g., exercise control over wages or working conditions of FLC s employees that made you their joint employer and thus jointly liable? Are you a client employer of workers provided by an FLC, thus sharing liability?

Joint Liability & the AB 1513 Safe Harbor: What Does It All Mean? It may be prudent for a grower that is either certainly or possibly jointly liable for an FLC s unpaid R&RP time and ONPT to help the FLC buy the safe-harbor affirmative defense. That way, the grower can, like the FLC, be protected by the safe harbor.

Questions? Comments? Thank you for being a great audience! Farm Employers Labor Service 2300 River Plaza Drive Sacramento, CA 95833 800-753-9073 fels@fels.net