Employers Can't Average Piece-Rate/Flag-Rate Pay to Meet Minimum Wage Compliance
A California appeals court ruled that auto mechanics paid on a piece-rate basis were entitled to minimum wage for time spent waiting during their shifts and that the employer could not average their compensation to show that they complied by paying them minimum wage by averaging total compensation over total hours worked in a given pay period.
The Gonzalez v L.A. Motors case dealt with an issue of whether an employer that compensates its automotive service technicians on a piece-rate basis for repair work must also pay those technicians a separate hourly minimum wage for time spent during their work shifts waiting for vehicles to repair or performing other non-repair tasks.
Wage Order No. 4 clearly states that “[e]very employer shall pay to each employee…not less that the applicable minimum wage for all hours worked….” The employer argued that they paid their employees more than minimum wage for all their working hours. The Court applied the ruling from the 2005 case, Armenta v. Osmose Inc., which held that using an averaging method to determine an employer's minimum wage obligation violates California law, and concluded that a piece-rate formula that does not compensate directly for all time worked does not comply with California Labor Codes, even if, averaged out, it would pay at least minimum wage for all hours worked.
The appeals court upheld the trial court's award of $553,653 in uncompensated time, $1,555,078 for waiting time, and another $237,840 in penalties for willful failure to pay wages.