By: Kyle D. Kring and Tyler Kring
AB 1513/Labor Code section 226.2 provides that companies who pay piece rate must pay for rest and recovery breaks and non-productive time separate and in addition to traditional piece rate wages. Trucking companies often opt to use piece rate pay because it incentivizes drivers to perform as efficiently as possible. In 1994, Congress aimed to prevent states from interfering with the trucking carriers’ way of doing business and drafted a preemption provision in the Federal Aviation Administration Authorization Act of 1994 (FAAAA). The “safe harbor” affirmative defense which the recently passed AB 1513 create, has resulted in a number of trucking companies signing up with the Department of Industrial Relations (DIR) for the AB 1513 affirmative defense. The intersection between the FAAAA and AB 1513 has raised the question whether federal law, specifically the FAAAA, preempts California meal and rest break law including AB 1513/Labor Code section 226.2?
The answer to this question may be costly for California truck companies. The Ninth Circuit, in Dilts v. Penske Logistics, refused to adhere to Congress, holding that federal preemption did not apply to meal and rest breaks in California because the state laws were not sufficiently “related to” prices, routes, or services.
The Ninth Circuit’s decision has been widely criticized and many believe Dilts is clearly distinguishable because price, specifically, is affected. With AB 1513 and the California legislature’s implicit determination that four (4) percent of gross wages is a reasonable figure attributable to rest and recovery breaks and non-productive time, price is clearly at issue in these rest and recovery break and non-productive time cases. That being said, a strong argument can be made that preemption should apply.
The Dilts court did not address the impact that paying for unpaid rest breaks and non-productive time at a rate of 4 percent of gross earnings would have on the rate. If 4 percent, or something close, is used to calculate the unpaid rest breaks and non-productive time on a case-by-case basis, it would seem plausible that the state law (i.e. Labor Code 226.2) could be strongly related to the price and rate, thereby allowing federal preemption to apply.
The Supreme Court cannot correct all lower court decisions on the issue so legislative action is necessary for clarification. The Fiscal Year 2017 Transportation, Housing and Urban Development, and Related Agencies Appropriations bill contains language supporting preemption. The bill clarifies that the scope of federal preemption extends to state meal and rest break requirements. This bill passed the Senate and has been approved by full committee (voice vote). While the 2017 fiscal year began October 1, the House passed a continuing resolution, delaying the passage of appropriation bills until the budget is resolved.
Meanwhile, trucking companies and carriers are encouraged to contact an attorney at Kring & Chung, LLP to see how these laws may affect you or your company.