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Sunday, 07 April 2013 18:51

CA Dealership Violates Minimum Wage By Averaging Total Compensation Over Hours Worked Says Appeals Court

An auto dealership cannot avoid paying mechanics and other techs while they wait for work, a California appeals court has ruled in what is a new precedent with implications for all workers paid set rates for specific tasks (not hourly). This potentially affects many shops who are employing techs under piecework compensation plans nationwide.

A class of 108 workers (Gonzalez et al) sued to be paid for the time they were not working but engaged in other activities. The appeals court upheld the trial court's awarding of about $1.79 M to the plaintiffs.

The auto dealership, Downtown LA Motors, which sells and services Mercedes-Benz automobiles, compensated its mechanics based on a "piece rate" system. The company would pay the employees based on a standard period of time allowed for a repair (flag hours).  The pay rate was significantly higher than minimum wage.  So, if the job took longer than standard hours, there were enough wages to ensure the mechanic earned more than minimum wage on average.

But the mechanics spent significant time at work NOT performing repairs, such as in training, cleaning, etc.  The dealership would calculate the total hours worked vs. the compensation it would pay for flag hours.  If the pay rate fell below minimum wage, the dealership would make up the difference.  The dealership did not pay a separate hourly rate for non-repair time that would not have been covered under the piece rate.

That's illegal, said the trial court, because the employer's method of compensation violated the minimum wage law. California law does not allow an employer to avoid paying its employees for all hours worked by averaging total compensation over total hours worked in a given pay period.

The main issue is whether the applicable Wage Order (Wage Order 4-2001), requires payment of at least minimum wage for each hour worked, or an average of minimum wage for all hours worked in the work week.  The trial court and Court of Appeal, relying on an earlier case, Armenta v. Osmose, Inc. (2005) 135 Cal. App. 4th 314 agreed with the plaintiffs that the former interpretation was correct.

The bottom line is that piece-rate employees must be paid separately for work that does not fall within the scope of the work that is the subject of the piece rate.  The non-related hours must be paid at least at minimum wage.

Employers using piecework compensation plans should check with their attorneys

Employers concerned about increased payroll costs may choose to reduce piece rates prospectively, and upon reasonable notice.  They should check with their lawyers first regarding how to do this.

While you have your lawyer on the phone, another question may be determining where the piece rate work ends and the non-related work begins.  What, exactly, goes into the calculation of the piece rate repair time?  If the employer over-includes non-related work into the piece rate, you risk liability if the work should have been classified as non-related.

The published opinion sets a new legal precedent that could impact pending federal cases such as that against Wal-Mart and Schneider Logistics Inc. and its contractors for failing to pay minimum wage and overtime.

The case is Gonzalez v. Downtown LA Motors and the opinion is downloadable as a PDF here.

Details on How DTLA Calculated Compensation

Under DTLA's piece-rate system, technicians were paid a flat rate ranging from $17 to $32, depending on the technician's experience, for each “flag hour” a technician accrued. Flag hours are assigned by Mercedes-Benz to every task that a technician performs on a Mercedes-Benz automobile and are intended to correspond to the actual amount of time a technician would need to perform the task. A DTLA technician who completed a repair task accrued the number of flag hours that Mercedes-Benz assigns to that task, regardless of how long the technician actually took to complete it. DTLA technicians accrued flag hours only when working on a repair order.

DTLA calculated its technicians' pay for an 80-hour pay period by multiplying flag hours accrued during that pay period by the technician's applicable flat rate. For example, a technician with a flat rate of $26 who accrued 150 flag hours in a pay period would earn 150 x $26 or $3,900.

In addition to tracking a technician's flag hours, DTLA also kept track of all the time a technician spent at the work site whether or not the technician was working on a repair order. At the end of each pay period, DTLA calculated 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. DTLA refered to this amount as the “minimum wage floor.” If a technician's flat rate/flag hour pay fell short of the minimum wage floor, DTLA supplemented the technician's pay in the amount of the shortfall. (DTLA also compensated technicians for overtime by taking into account all the time at the work site, including time not spent on a repair order.)

Details on Technicians' (Plaintiffs’) experience

Plaintiffs worked eight-hour shifts. During their shifts, plaintiffs were required to remain at DTLA's place of business and had to obtain permission to leave during a shift if they were not working on a repair order. Plaintiffs were also required to clock in when they arrived for work, clock in and out for lunch, and clock out at the end of their shift.

Plaintiffs regularly did not have repair work to do because there were not enough vehicles to service, according to the complaint. When this occurred, plaintiffs had to remain at work, and those who asked to leave early were told that they needed to stay because customers might come in. Plaintiffs accrued no flag hours during time spent waiting for cars to repair. While waiting for repair work, plaintiffs were expected to perform various non-repair tasks, including obtaining parts, cleaning their work stations, attending meetings, traveling to other locations to pick up and return cars, reviewing service bulletins, and participating in on-line training. They accrued no flag hours while performing these non-repair tasks.

Plaintiffs filed the (instant) action against DTLA claiming that DTLA violated California law by failing to pay technicians a minimum wage during their waiting time---periods of time they were on the clock, but waiting for repair orders or performing other non-repair tasks. Plaintiffs also claimed that technicians terminated from employment during the class period were entitled to penalties under Labor Code section 203, subdivision (a) because DTLA had failed to pay these technicians all the wages they were due upon their termination.

The trial court denied cross-motions for summary adjudication filed by the parties as to whether DTLA technicians were entitled to a separate hourly pay for waiting time in addition to their flag hour pay and minimum wage floor supplement, and the matter proceeded to a bench trial.

The parties presented documentary evidence as well as testimony by class members and expert witnesses regarding the amount of waiting time experienced by class members. Both parties also presented expert testimony as to the amount per pay period that class members either were or were not underpaid.

The trial court issued a proposed statement of decision, to which DTLA objected. After hearing argument on those objections, the trial court issued a final statement of decision on June 20, 2011.

Compensation Awarded

The trial court ruled in favor of plaintiffs, concluding that California law requires class members to be paid for their waiting time between work on repair orders. The trial court found the testimony of plaintiffs' expert to be “credible,” and adopted that expert's conclusions that plaintiffs experienced waiting time of 1.85 hours per day on average, that the average amount of unpaid compensation for waiting time per plaintiff was $27.76 per day, and that in total, plaintiffs lost the amount of $553,653 in uncompensated time during the class period. The trial court determined that the value of the class's waiting time, including interest, was $1,555,078 and awarded that sum to plaintiffs. The trial court also awarded plaintiffs penalties in the amount of $237,840 under Labor Code section 203, subdivision (a) for DTLA's willful failure to pay all wages owed them at the time their employment was terminated. This appeal followed.

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