Two New Laws Significantly Affecting Piece Rate Employers

By: Kyle D. Kring

The California legislature recently passed two bills that were significantly amended late in the legislative session.  Senate Bill 588 was passed on September 10, 2015 and Assembly Bill 1513 was passed late in the day on the last day of the legislative session, September 11, 2015. Both bills are effective January 1, 2016, and will have a significant impact on employers who have paid employers piece rate compensation anytime over the past four years.

Senate Bill 588

In short, SB 588, A Fair Day's Pay Act, authored by Senate President pro Tem Kevin De Leon, gives the California Labor Commissioner new mechanisms to collect back wages from employers who have exhausted all appeals for their non-payment of wages and have final judgments owed.  The bill would authorize the Labor Commissioner to use any of the existing remedies available to a judgment creditor and to act as a levying officer when enforcing a judgment pursuant to a writ of execution.  It requires a business that has an outstanding unpaid judgment against them to purchase a wage bond of $150,000.  If it fails to do that, the employer can be subject to a stop work order and a lien at the Labor Commissioner's discretion.

SB 588 also gives the Labor Commissioner the authority to hold individual business owners liable for their company's debts to workers.  By applying an existing employment law (Labor Code section 558) to wage claims, responsible individuals can held personally liable. This was done to discourage business owners from closing up their operations and starting a new company and avoiding their debts to employees.  The new law also improves collection methods by giving the Labor Commissioner greater flexibility and power in choosing how to secure the assets needed to pay judgments a business owes its employees.

Assembly Bill 1513

AB 1513 is a bill that significantly affects any employer who has compensated their employees on a piece-rate basis for any work performed during a pay period for the last four years.  The new law has two main purposes: (1) to set forth "new" requirements for compensating piece rate workers for their non-productive time (hereinafter "NPT"), including rest and recovery periods ("R&R"), travel time, safety meetings, etc.; and, (2) to create an affirmative defense for employers who are currently facing lawsuits for failure to pay piece rate workers for the NPT.

Existing law prohibits an employer from requiring an employee to work during any meal or rest or recovery period mandated by an applicable statute or specified regulation, standard, or order, establishes penalties for an employer's failure to provide a mandated meal or rest or recovery period, and requires rest or recovery periods to be counted as hours worked.  Existing law establishes the Division of Labor Standards Enforcement in the Department of Industrial Relations for the enforcement of labor laws, including laws related to wage claims.  Existing law requires every employer, semimonthly or at the time of each payment of wages, to furnish each employee with an accurate itemized statement in writing showing specified information.  A knowing and intentional violation of this provision by an employer is a misdemeanor, as specified.

This bill will require the itemized statement provided to employees compensated on a piece-rate basis to separately state the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period, and the total hours of other nonproductive time, as specified, the rate of compensation, and the gross wages paid for that time during the pay period.  The bill would require those employees to be compensated for rest and recovery periods and other nonproductive time at or above specified minimum hourly rates, separately from any piece-rate compensation.  The bill will define "other nonproductive time" for purposes of these provisions to mean time under the employer's control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.  Because a knowing and intentional violation of these requirements would be a crime, the bill would impose a state-mandated local program.

The bill provides that, until January 1, 2021, an employer shall have an affirmative defense to any claim or cause of action for recovery of wages, damages, liquidated damages, statutory penalties, or civil penalties based solely on the employer's failure to timely pay the employee the compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015, if, by no later than December 15, 2016, the employer complies with specified requirements (basically paying all employees unpaid or underpaid back wages).

To qualify for the litigation safe harbor defense, (1) the employer must be a defendant to a lawsuit that is filed on or after March 1, 2014, and (2) an employer who is a defendant in such a lawsuit would be required to do the following:

(1)  Pay all its piece-rate employees for uncompensated or undercompensated rest and recovery periods and other miscellaneous NPT for the period of July 1, 2012 to December 31, 2015, using one of the following calculation methods:

(a) Actual sums due plus 10% interest; or

(b) 4% of each employee's gross earnings over the same 42 month period minus any amounts already paid for rest and recovery and other NPT (but such credit not to exceed 15 of each employee's gross earnings in that pay period).

(2)  Provide notice of such payments to the Department of Industrial Relations on or before July 1, 2016.

(3) Complete all such payments on or before December 15, 2016 (Note, if the employer cannot locate an employee, payment must be made to the Labor Commissioner pursuant to Labor code section 96.7); and

(4)  Provide detailed statements regarding the payments to each employee.

Note the bill does not address (1) overtime claims, (2) meal period violations, or (3) claims relating to unlawful employment policies such as failure to advise employees to take their breaks or preventing employees from taking R&R breaks.

Additional Assembly Bill 1513 Comments/Concerns

  1. AB 1513 doesn't affect overtime or minimum wage compensation requirements.
  2. Rest and recovery and other non-productive time must be tracked separately from piece rate compensation.
  3. Itemized statements required by Labor Code section 226 shall state: (1) total hours of R&R time and the agreed to hourly rate, (2) non-productive time and the agreed to hourly rate. Rest breaks are now required to be paid at the regular rate of pay, not at the contractual hourly rate (in excess of minimum wage) as was previously set forth in the Bluford case.
  4. Non-productive time may be compensated at a rate different than the regular rate of pay as long as it is agreed to in advance (on Notice to Employee) and in excess of the applicable minimum wage.
  5. Contractors can expect to see a significant rise in piece rate wage and hour claims given the attention these two bills will provide employees and attorneys. As such, if you continue to pay workers by piece rate, you must make sure your piece rate compensation system is compliant with all aspects of the law.

What You Should Be Doing

  1. An internal audit with legal counsel experienced in piece rate compensation and AB 1513, to determine if your piece rate compensation plan is legally complaint. Are you properly paying overtime at the regular rate of pay? Are you properly paying for rest and recovery breaks? What is nonproductive time and how are you tracking and paying for nonproductive time? Don't wait. Call us for a consultation and/or audit of your existing piece rate compensation plan including a review of the following documents: (1) Notice to Employee, (2) Time card, (3) Piece Rate pay sheet, and (4) itemized wage statement.
  1. Develop and prepare appropriate documents to prevent class action and/or representative actions.
  1. If you get served with a PAGA claim notice, contact us immediately to insure that you analyze whether to take advantage of resolution strategies that expire after 30 days.

Please call us for an initial consultation.

Kyle D. Kring is the Managing Partner of Kring & Chung, LLP. He can be reached at (949) 261-7700 or kkring@kringandchung.com .