Averaging Employee Hours in Piece-Rate Compensation Violates California Minimum Wage

April 18, 2013

By:  Christopher P. Wesierski and Ashley A. Reagan

This is a wage and hour class action.  Defendant Downtown LA Motors is an automobile dealership that sells and services Mercedes Benz automobiles.  Plaintiffs are a class of 108 service technicians who worked for Defendant between April 2002 and June 2008.  The service technicians are compensated on a piece-rate basis and are paid based on the number of repairs that they complete.  Each repair is assigned a number of “flag hours” that is intended to represent the actual amount of time a technician would need to perform the repair.  The technicians accrue the number of flag hours assigned regardless of how long it takes them to complete the task.  The technicians are paid based on the number of flag hours they have accrued in an 80 hour pay period.  Defendant also keeps track of the time a technician spends at the work site whether or not he is working on a repair order.  Plaintiffs regularly waited for cars to come in needing repairs and spent this time performing non-repair tasks.  No flag hours were accrued while performing these non-repair tasks.  At the end of each pay period, Defendant calculates how much each technician would earn if paid an amount equal to his total recorded hours “on the clock” multiplied by the applicable minimum wage aka “the minimum wage floor.”

The issue in this case was whether California’s minimum wage law requires an employer that compensates its automotive service technicians on a “piece-rate” basis to also pay those technicians a separate hourly minimum wage for their waiting time.  Defendant argues that a separate hourly rate was not necessary because it ensured that Plaintiffs’ pay never fell below the minimum wage floor.  It further argued that California law did not distinguish between waiting time and productive time.  Plaintiffs claim this compensation method results in less pay than if they were paid on an hourly basis and that California law mandates payment for all hours worked.

The trial court concluded that this method of compensation violated the California minimum wage law.  The court of appeal affirmed.  The courts relied heavily on the reasoning set forth in the case of Armenta v. Osmose, Inc. (Armenta) which stated that the California minimum wage law intends to ensure that employees are compensated at the minimum wage for each hour worked.  The Division of Labor Standards Enforcement (DLSE) has endorsed this statutory interpretation that an employer is obligated to pay minimum wage for each and every separate hour worked.  As a result, averaging hours worked violates the minimum wage law and contravenes the Labor Code by effectively reducing the employees’ contractual rate of compensation.  Plaintiffs were entitled to separate hourly compensation for time spent waiting to repair work or performing other non-repair tasks during their work shifts.  Labor Code section 203(a) penalties were awarded against Defendant for its failure to pay all wages owed at the end employment. 

Facts and analysis based upon Oscar Gonzalez, et al. v. Downtown LA Motors, LP et al., decided on April 2, 2013 by the California Court of Appeal, Second District