1. Department of Industrial Relations

Piece-Rate Legislation (AB 1513) Fact Sheet

AB 1513 added a new section 226.2 to the Labor Code concerning piece-rate compensation. The new section is designed to resolve unsettled controversies over how to compensate piece-rate workers during mandated rest and recovery periods and other work time that does not generate piece-rate earnings.

• First, it clarifies and settles the pay requirements for mandated rest and recovery breaks and other nonproductive time going forward. 
• Second, it provides a short window of time for employers to make back wage payments to workers for rest and recovery breaks and other nonproductive time in exchange for relief from statutory penalties and other damages.

This legislation is an outgrowth of recent court decisions in Gonzalez v. Downtown LA Motors, 215 Cal.App.4th 36 (2013), and Bluford v. Safeway Stores, Inc., 216 Cal.App.4th 864 (2013), which found that piece-rate compensation only pays for productive time, and that mandated breaks and other nonproductive work time must be separately compensated.  These decisions have generated class actions and Private Attorney General Act (PAGA) litigation to recover back pay and penalties for piece-rate workers who were not separately compensated for this time.  While the holdings in Gonzalez and Bluford remain in dispute, there is a desire among employee and employer representatives alike to resolve back wage claims and set compensation standards going forward without further litigation.

This legislation provides a means to resolve these issues in a way that should:

1. Reach more piece-rate workers and provide larger and more timely back pay recoveries than could be expected through litigation;
2. Relieve employers of related liability for statutory penalties and damages for past violations; and
3. Clarify compensation requirements going forward in a way that protects the right of piece-rate workers to be fully compensated for rest and recovery periods and other nonproductive time.

Elements of AB 1513:

• Prospective Pay Requirements for Rest and Recovery Breaks: 
  Employers will be required to pay an average hourly rate that takes into account all earnings, with no reduction in pay during mandated breaks.  This time and pay must be listed separately on the employee’s wage stub.
• Prospective Pay for Other Non-Productive Time: 
  The legislation states what constitutes other compensable nonproductive time and allows for reasonable time estimates.  This time and pay also must be listed separately on the employee’s wage stub unless the employer pays a base rate hourly wage of at least the applicable minimum for every hour an employee is on the job.
• Back payments and relief from related penalties and liquidated damages: 
  Employers will have 11½ months to make back payments to their employees for previously unpaid or underpaid rest and recovery breaks and other nonproductive time.  Employers who do so will have a legal defense to claims for damages and other penalties associated with the prior failure to pay what was due for such time.  The major elements of this back payment and relief plan are as follows:
  • Back payments are required for the time period of July 1, 2012, through December 31, 2015.  Employers will have two options for calculating these payments – either use time records to calculate and pay the amounts actually due plus statutory interest or pay four percent (4%) of gross earnings in pay periods in which any work was performed on a piece-rate basis during that same time period.  Credits are allowed to employers who started paying piece-rate workers separately for breaks and other nonproductive time after the Gonzalez and Bluford decisions, and payments are not required for employees who fully settled and released these claims.
  • Employers must notify the Department of Industrial Relations by July 28, 2016, of their election to make the back payments and make the required back payments by no later than December 15, 2016.  Payments for employees who cannot be located must be made to the Labor Commissioner for deposit in the Unpaid Wage Fund. * Important Notice: Pursuant to an Order of the Fresno Superior Court, the State has been temporarily restrained from enforcing the July 1, 2016 deadline for employers to submit notice of their election to make payments to current and former employees pursuant to Labor Code Section 226.2(b). The Director of Industrial Relations will continue to accept and post these notices through at least July 28, 2016 or further order of the Court.
  • Employers will be required to maintain and provide appropriate documentation of the payments.
  • Employers who make the required back payments will have an affirmative legal defense against any claim for damages or penalties based on the failure to separately compensate piece-rate workers for rest and recovery breaks and other nonproductive time prior to January 1, 2016.
  • The statute of limitations for these claims will be tolled during the notice and payment periods.  Certain claims will be excluded altogether, including claims resolved by final order or judgment, claims asserted in litigation prior to specified dates, and new claims arising after the law goes into effect.
  • The back payment and penalty relief provisions will sunset after all time limits have run.
• Exceptions and Other Provisions:
  • Certain claims and cases will be excluded from the penalty relief provisions, including: cases fully resolved by final judgment or order prior to January 1, 2016; pending cases filed prior to March 1, 2014; cases filed prior to April 1, 2015 with allegations of wage theft through use of ghost workers; claims that employees were discouraged or prevented from taking mandated breaks; claims against new car dealers; and claims accruing on or after January 1, 2016.
  • Companies involved in a major merger acquisition in the summer of 2015 will have additional time to comply with the new pay requirements, provided that all additional break compensation plus interest is paid by April 30, 2016.
  • The new section does not limit or alter wage and hour requirements, nor does it affect, positively or negatively, a claim for attorney’s fees in litigation filed before October 1, 2015.

July 2016