Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 83 each repair job satisfactorily completed. Although the employer kept time records for the employees and maintained a “minimum wage floor” to ensure that workers were always paid at least the minimum wage times the total number of hours worked in a pay period, the plaintiffs complained that they were not separately paid an additional hourly rate for downtime or time spent on non-repair tasks. The Court of Appeal held that this practice violated the minimum wage, because “averaging all hours worked ‘in any work week’ to compute an employer’s minimum wage obligation under California law is inappropriate.”403 Bluford and Gonzalez illustrate the fact that minimum wage compliance is complex for California employers who use piece-rate compensation formulas. The core purpose of paying employees a piece-rate is to incentivize them to be productive. It can be more difficult to provide this incentive when employers are required to also pay employees for non-productive time.404 These decisions are especially alarming because the Wage Orders specifically permit paying employees on a piece-rate basis, and the types of piece-rate plans used by the employers in these cases had been widely utilized without significant challenge for decades. These cases have initiated a wave of class actions attacking piece-rate compensation plans, and ultimately prompted legislative action amplifying and adopting the underlying holdings of these cases, particularly the Bluford decision.405 In 2015 California added Section 226.2 to the Labor Code, to create still more challenges for California employers that pay employees on a piece-rate basis for any part of their work. First, Section 226.2 requires employers to pay piece-rate employees for rest and recovery periods separately from, and in addition to, their piece-rate pay. Section 226.2 not only requires separate pay for rest and recovery periods (as held in Bluford), but mandates a new method to compute that rate: employers must pay a rate calculated on a workweek-by-workweek basis, by using a specific formula that will fluctuate from week to week. Specifically, Section 226.2 requires that employers pay employees for rest and recovery periods at an hourly rate that is determined by dividing the employee’s total compensation for the workweek (excluding compensation for rest and recovery periods and overtime premiums) by the total hours worked during the workweek (not including rest and recovery periods). 403 Id. at 48. 404 Employers paying piece-rate compensation formulas may wish to consider utilizing a hybrid compensation system that pays employees a base rate for each hour and an additional piece-rate or “bonus” for each completed item. This would ensure compliance with the minimum wage law as well as incentivizing employees to be productive. Note, though, that the production bonus would still be subject to rules governing calculation of rates for overtime premium pay. 405 See also Vaquero v. Stoneledge Furniture LLC, 9 Cal. App. 5th 98 (2017) (extending Bluford to commission plans and holding that employees compensated by commission must be paid separately for meal and rest breaks); but see Certified Tire & Serv. Centers Wage & Hour Cases, 28 Cal. App. 5th 1 (2018), cause transferred by In re Certified Tire & Serv. Centers Wage & Hour Cases, 473 P.3d 312 (Cal. 2020), aff’d, Certified Tire & Serv. Centers Wage & Hour Cases, No. D072265, 2021 WL 2766406 (Cal. Ct. App. July 2, 2021) (finding that the employer’s “hourly rate system” that paid employees at an hourly rate that varied from pay period to pay period was lawful because the employees were always paid a wage for all hours worked that exceeded the minimum wage).
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