NHEH Publications

Piece-Rate Compensation

by Terry O'Connor, ESQ

Piece-rate compensation systems have been called the clearest link between an employee’s effort and the reward.  For decades, piece-rate systems, where employees are paid by the number of units produced, have benefitted employees by rewarding productivity and employers by driving down unit costs.  Piece-rate compensation is a fundamental element of agricultural employment in California.  Multi-billion dollar industries such as fruit and vegetable harvesting and trucking rely on piece-rate systems.

A recent series of California appellate court decisions may have spelled the death knell for piece-rate compensation systems.  Also, worker advocate groups have pressed the California Legislature to curb piece-rate compensation systems that “average” piece-rate earnings to cover “non-productive” time when workers are not actually making pieces.  SB 435 would require employers to pay the average piece-rate wage for all rest periods.

In Gonzalez v. Downtown LA Motors, the employee claimed that the garage’s piece-rate paid auto mechanics only for the time they were actually making repairs, and not for other time, such as time waiting for customers, obtaining parts, cleaning their work stations, attending meetings and training periods.  Mechanics were paid a set amount of time for a particular repair, regardless of the actual time the mechanic took to complete the repair.  The employer guaranteed the mechanics the minimum wage for every hour worked.  To determine if the mechanics made the minimum wage, the garage averaged all of the piece rate earnings over the pay period hours.

Gonzalez contended that the piece-rate compensation only paid for the actual repair work and that all other tasks and hours worked were not paid at the applicable minimum wage.  The court followed its own 2005 decision in Armenta v. Osmose to find for the mechanics.

Armenta v. Osmose had nothing to do with piece-rate: it involved hourly employees who were paid for “productive” hours and not paid for non-productive time like travel from the office to the worksite.  The employees’ productive hours were far above the minimum wage.  Nevertheless, the Armenta court held that the employer could not satisfy the minimum wage requirement by “averaging,” but was required to pay minimum wage for “each hour worked.”  Thus an employer must pay separately for the non-productive hours.

The Downtown LA Motors (“DTLA”) court also prohibited averaging to cover non-productive time/work for piece-rate workers.  The court disregarded the fact that DTLA “guaranteed” that employees would earn at least the minimum wage of every hour worked whether they made any repairs at all.  The court held that the employer, by averaging the piece-rate earnings, had failed to compensate the mechanics for non-productive time and awarded the class several million dollars in unpaid wages.

In May a new case extended the pay for “non-productive” time to paid rest periods.  Section 12 of all California Wage Orders require 10 minute rest periods for which there shall be no deduction in wages or paid rest periods.  In Bluford v. Safeway (216 Cal.App.4th 864) the court stated, “… a piece-rate compensation formula that does not compensate separately for rest periods does not comply with California minimum wage law.”

Bluford involved truck drivers covered by a union contract with an activity-based compensation system including mileage driven, fixed rates for certain tasks and hourly rates for delays, breakdowns, etc.  Although the contract required paid rest periods, the employer stretched the piece-rate compensation to cover rest periods: there was no separate payment for rest periods.

In a decision that sent shock waves through the ag legal community the California Supreme Court recently denied Downtown LA Motors’ appeal.  Piece-rate employers must now separately compensate employees for putting on safety gear, warm-up exercises, tailgate meetings, training sessions, travel between fields and most likely rest periods.

Employers who do not comply will be subject to class action lawsuits seeking minimum wages, liquidated damages and multiple penalties for unpaid wages under the Labor Code.  With the demise of DTLA’s appeal, the ag legal community is suggesting that piece-rate employers adopt a system which tracks and compensates all non-productive time.  Alternatively, some consultants are suggesting abandoning traditional piece-rate systems in favor of a production bonus system.  The employer would pay an hourly rate (minimum wage or greater) for all hours worked, i.e., all hours subject to the employer’s control.  Additionally, the employee or group would get a production bonus for each unit produced: carton packed, mile driven or bin harvested.

In addition to dodging legal action, employers’ biggest challenge will be transitioning employees to a new system.  No one likes change.  Workers identification with a piece-rate system is so personal and fundamental that efforts to reform such systems will invariably be greeted with skepticism if not outright rebellion.  Nevertheless, the legality of many current piece-rate systems is now in question and ag employers will have to adapt to this new reality.

 Noland, Hamerly, Etienne & Hoss, 2013 

This article is intended to address topics of general interest and should not be construed as legal advice.