Another Strong Warning for Piece Rate Employers

In April we noted that the California Court of Appeal issued some bad news to piece rate employers in the Gonzalez v. Downtown LA Motors case. In that case, the court ruled that the practice of paying auto mechanics a piece rate and then checking minimum wage compliance by calculating an average wage per hour for the pay period violates California law despite the fact that is it entirely permissible under federal law. The Court of Appeal just issued another piece rate ruling which should cause every employer utilizing a piece rate or other incentive pay system to carefully check the system for legal compliance. The new case, Bluford v. Safeway Stores, Inc., involved truck drivers working out of Safeway’s distribution center in Tracy, California. The drivers were paid via a piece rate system which included payments for miles driven and the performance of specific tasks. Specifically, a driver’s pay was calculated based on (1) mileage rates applied according to the number of miles driven, the time of day the trips were taken, and the locations where the trips began and ended; (2) fixed rates for certain tasks (e.g., rates for number of pallets delivered and picked up); (3) an hourly rate for a predetermined amount of minutes for certain tasks (e.g., paid for 10 minutes at hourly rate for set-up time at each store); and (4) an hourly rate for delays (e.g., breakdowns, impassable highways, time spent at scales, or other causes beyond the driver’s control). The system did not, however, specifically provide a component of pay for the drivers’ mandated rest breaks. Safeway advanced solid arguments that it was in compliance. It noted that its policies specifically provided paid rest breaks for the drivers and the rates set for the driving miles included the compensation for the break time. The court, however, agreed with the drivers that Safeway did not pay for rest periods because its compensation system, based on miles driven and the performance of specific tasks, did not specifically account for rest periods or provide an ability to be paid for them. Moreover, Safeway provided no means by which an employee could verify he was paid for his rest periods. In essence, the court found Safeway’s system relied upon minimum wage averaging which prior California courts had ruled impermissible, learn more. It appears that the only safe way (pun intended) to avoid the class action exposure Safeway now faces is to specifically include an hourly rate component for each rest break and to show that pay component on the employees’ pay stubs. This case highlights the dangers for any California employer using a piece rate or other incentive pay system. There is no doubt that Safeway had access to and likely used professionals to design the compensation system. The company nevertheless created a system that the court found defective, and is exposed to class action liability.[1] Therefore, we again caution that employers who use any form of a piece rate or incentive pay systems should immediately and carefully check them for compliance. The court’s opinion can be viewed at http://www.courts.ca.gov/opinions/documents/C066074.PDF