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Piece-rate Employees Must Receive An Hourly Minimum Wage

Gonzalez v. Downtown LA Motors, LP, (CA2/2 B235292 filed 3/6/13, pub. ord. 4/2/13)
In Gonzalez v. Downtown LA Motors the California Court of Appeal held that employers who compensate automotive service technicians on a “piece-rate” basis must also pay hourly minimum wage for time spent waiting for vehicles to repair or performing other non-repair tasks directed by the employer.
In Gonzalez a class of 108 automotive service technicians who worked for Downtown LA Motors Mercedes Benz (“DTLA”) brought a wage and hour claim disputing their “piece-rate” compensation. Under this plan, DTLA pays technicians a flat rate for each hour spent working on repairs, but does not pay for the hours spent waiting at the site for work or doing non-repair tasks assigned by DTLA. DTLA then calculates each technician’s pay by multiplying the repair hours accrued by the flat rate. In addition, DTLA keeps track of how many hours each technician spends at the work site during the pay period and multiplies those hours by the applicable minimum wage. If the technician’s pay based on repair hours is lower than this “minimum wage floor,” DTLA supplements the technician’s pay in the amount of the shortfall.
The plaintiffs claimed that DTLA’s compensation policy violates California law because it fails to pay technicians a minimum wage during the waiting time periods when they are at the work site but not performing repairs, and the trial court agreed. Based on the testimony of plaintiffs’ expert that each class member experienced an average of 1.85 hours of waiting time per day, the trial court awarded $1,555,078 to the class, plus $237,840 for willful failure to pay all wages owed in violation of Labor Code section 203.
The Court of Appeal affirmed the judgment, noting that the language of Wage Order 4 requires that employees be paid “not less than the applicable minimum wage for all hours worked.” The court adopted the holding of Armenta v. Osmose, Inc., 135 Cal. App. 4th 314 (2005), which stated that the use of an averaging method to determine an employer’s minimum wage obligation violates California law and the minimum wage standard applies to each hour worked by an employee.
This decision has broad implications for all employers who pay their employees on a “piece-rate” basis. To avoid the result in this case, such employers may want to consider changing their pay structure to include an hourly minimum rate with additional piece-rate compensation earned as a bonus. Contact your attorney at Hill Farrer for help. This case is also a reminder that class actions can result in enterprise threatening judgments by aggregating the claims of many employees over a large period of time. Your attorney at Hill Farrer can help you put policies in place that require employee claims to be resolved on an individual basis, not a class basis.