Labor & Employment Newsletter

What Does AB 1513 Mean for Employers Paying Piece Rate Wages?

The limitation period in which a lawsuit may be filed for wage and hour claims is three years, but most lawsuits include an Unfair Competition Law cause of action that extend the statute of limitations back another year. For example, on January 1, 2016, a claim for non-productive time (“NPT”) wages would extend back to January 1, 2012.  Most piece rate employers only began paying separately for rest breaks and other NPT in the fall of 2013 or early 2014, so most employers could face unpaid NPT wage claims until the fall of 2017.

Assembly Bill 1513 adds a new Labor Code Section 226.2, which provides employers a safe harbor for wage and penalties liability for any NPT wages that may be owed through December 31, 2015.   Labor Code Section 226.2 also requires, as of January 1, 2016, separate compensation for rest and recovery periods and other NPT for piece rate employees.  However, rest and recovery period time is calculated differently than all other NPT.

AB 1513 Safe Harbor

All liability for unpaid NPT may be eliminated if the employer voluntarily pays NPT from July 1, 2012 through December 31, 2015, using one of two formulas.   Certain procedural requirements must be met.  All liability includes any NPT wages and penalties incurred prior to July 1, 2012.  An employer may assert the safe harbor as an affirmative defense in any lawsuit filed on or after March 1, 2014.

The alternative formulas used to calculate the retroactive NPT wages are:   1) The employer may pay actual sums due plus 10% interest; or 2) The employer may pay 4% of gross wages in any pay period where piece rate was earned, minus any NPT already paid.  Credit for “other” NPT is capped at 1% or gross wages but there is no cap on credit for rest and recovery NPT wages paid.  Under the 4% formula, there is no interest due.  Under either formula, a good faith error in the calculation or statement to employees will not preclude refuge in the safe harbor.

To participate in the safe harbor, the employer must notify the state (Labor and Workforce Development Agency) by no later than July 1, 2016 of the election to make the retroactive payment.  Employers who give notice will be posted on a state website until March 31, 2017.  The payments must be made to employees or the state by no later than December 15, 2016.  Each payment made to employees must be accompanied by a statement setting forth the formula used and other wage information akin to a wage statement.  Employers must also make extra efforts to locate former employees, for example, using a people locator service.  If the employer is unsuccessful at locating former employees, wages must be paid to the state’s compliance fund along with payment of an administrative fee of .5% of the aggregate payments or $2,500, whichever is less.

The safe harbor provisions do not prevent other types of claims in a lawsuit.  For example, claims where employees are not advised of their right to rest and recovery breaks, breaks are not made available or employees discouraged from taking breaks.  We can expect Plaintiff attorneys to make these allegations in lawsuits in order to limit the impact of the safe harbor affirmative defense.  Nevertheless, AB 1513 provides three major benefits for piece rate employers.  First, it wipes out all penalties for non-payment of NPT.  Such penalties are usually many times the actual unpaid wages.  Secondly, it wipes out all liability for NPT prior to July 1, 2012 when virtually no employer was paying for NPT separately.  Finally, it prevents a class action lawsuit based on an unlawful company practice.   Certification of a class of piece rate employees who were not paid for rest periods is virtually automatic.  Other claims such as overtime, tardy meal periods, etc., are usually not part of an established company practice and thus are much more difficult to be certified as a class action.

Any employer paying piece rate should carefully consider the safe harbor option.  As many employers know, a small wage claim may lead to penalties and attorney fees and costs that are exponentially higher than the underlying wages owed.  Agricultural employers should also be aware that the United Farm Workers of America has already started reaching out to farm workers informing them that if they are not paid back wages for NPT they can sue their employer for unpaid wages.  The safe harbor legislation offers employers an opportunity to protect themselves from any unpaid NPT wage claims for any time prior to December 31, 2015. 
 

What is Required After January 1, 2016?

Compensation

Employers paying on a piece-rate basis must separately compensate for rest and recovery periods (“R&R”) at a rate that is the higher of:  1) An average hourly rate determined by dividing the employee’s total pay for the workweek, exclusive of pay for R&R periods and any OT premium pay, by the total hours worked in the workweek, exclusive of R&R periods; or 2) minimum guaranteed wage (at least the minimum wage). 

Employers must also pay “other” NPT at the minimum guaranteed rate (at least the minimum wage).  “Other” NPT is defined as “time under employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis”.  The employer may use a good faith estimate for “other” NPT time or actual records.

Wage Statement under Labor Code 226

In addition to existing requirements for itemized wage statements, the total hours for R&R and the total hours for “other” NPT with their respective rates of compensation must be itemized on the pay stub.

Employers should revise their payroll systems to ensure that the NPT wage payments are made and the pay check stubs conform to this new law.

For more information, contact Terry O'Connor.

DISCLAIMER: This newsletter is published as a service to my friends and clients. It is not intended to provide legal advice, but rather to make you aware of developments of interest to you.