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April 17, 2019
Paying by Piece Rate: It's Not a Piece of Cake in California

By Matthew A. Goodin, Seyfarth Shaw

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California employment lawCalifornia law allows employers to compensate their employees on a piece-rate basis, meaning workers are paid a specific amount for a specific task. The following case involves whether truck drivers who were paid by the load were properly compensated for all the hours they worked as required by California law.

The court of appeal was asked to review the trial court's conclusion that the case wasn't suitable for resolution as a class action because individualized issues predominated over common ones.

Employees' Compensation Is a Piece of Work

Dark Horse Express, Inc., is a trucking company that employs drivers to transport milk, hay, and other commodities. Fernando Jimenez-Sanchez and Porfirio Preciado were former Dark Horse drivers who transported milk in California. They were paid on a piece-rate basis, receiving a certain rate per load.

Jimenez-Sanchez and Preciado filed a class action alleging Dark Horse used a piece-rate compensation system that failed to separately compensate drivers for nonproductive time as required by California law, failed to authorize or permit drivers to take rest breaks by not separately compensating them for breaks at an hourly rate, and failed to provide uninterrupted 30-minute meal periods. During the litigation, Dark Horse identified 76 current and former drivers as class members. It also obtained settlements and release agreements from 54 of the drivers.

Jimenez-Sanchez and Preciado requested class certification, proposing a class consisting of all current and former Dark Horse drivers who were paid on a piece-rate basis from March 25, 2010, to the present. They suggested two subclasses: One consisting of drivers who signed releases, and the other made up of drivers who did not.

The trial court denied certification, primarily on the grounds that individual issues predominated over common ones. Jimenez-Sanchez and Preciado appealed, contending the trial court used improper legal criteria and made erroneous legal assumptions.

The court of appeal noted the California Wage Order applicable to the transportation industry permits payment on a piece-rate basis as long as employees are paid at least the minimum wage for all hours they work. Jimenez-Sanchez and Preciado argued that Labor Code Section 226.2 requires employers that pay on a piece-rate basis to separately compensate employees for rest and recovery periods and other nonproductive time.

The court of appeal noted just one problem with their reliance on Section 226.2: That section wasn't enacted until January 1, 2016, after their motion for class certification was filed and after the trial court issued its ruling.

Jimenez-Sanchez and Preciado also relied on California and federal authority suggesting that employers paying by piece rate must compensate employees for all hours they work, and it was undisputed that Dark Horse didn't pay its drivers separately for the time they spent on tasks such as washing their trucks, performing inspections, and completing paperwork. However, the court of appeal found each of the cases they cited to be distinguishable.

In each case, it was clear the piece rate included only specific tasks, and Dark Horse didn't pay its employees separately for tasks that weren't included in the piece-rate work. By contrast, the employer paid each of its drivers differently according to their contracts.

Each contract was unique, and while each driver was paid by the "load," what constituted a load was defined differently in each contract. The court of appeal concluded the trial court had correctly determined that Jimenez-Sanchez and Preciado failed to show that common issues predominated in their claim for separate compensation for nonproductive time.

Win a Piece, Lose a Piece

Dark Horse didn't fare as well when it came to the remaining rest break and meal period claims. Although Labor Code Section 226.2 requires employees paid on a piece-rate basis to be compensated separately for rest periods, again, that section of the law didn't take effect until after the trial court issued its ruling on class certification.

A California court concluded in 2013, however, that rest periods must be separately compensated and an employer cannot build compensation for rest breaks into its piece-rate formula. Because the trial court had erroneously found in Jimenez-Sanchez and Preciado's case that the law applicable to payment for rest breaks was identical to that for nonproductive time, the court of appeal sent the case back for consideration of whether common issues might predominate in the case as a whole.

Undisputed evidence showed that before April 2014, Dark Horse had a uniform policy requiring drivers to take a meal period after 8 hours of work, and after that date, drivers were required to take a meal break after 6 hours of work. The trial court concluded that in the absence of the release agreements, the meal break issues could be decided on a class basis.

But the court of appeal noted the trial court didn't expressly find that individual issues predominated; instead, it appeared to assume the effect of the releases overcame the common issues present in the meal period claims. The court of appeal directed the trial court to reconsider the common and individual issues presented by the meal period claims and the releases in determining whether common issues predominated in the case as a whole.

The trial court had rejected Jimenez-Sanchez and Preciado's claim that the releases violated Labor Code Section 206.5, which prohibits employers from requiring employees to execute releases for claims of wages owed unless payment of those wages has been made.

That section has consistently been interpreted as allowing settlement of a bona fide dispute over wages as long as the wages that are admittedly owed have been paid. The trial court found the dispute over the wages at issue was bona fide, but the court of appeal disagreed.

The appellate court found that by neglecting to separately analyze the rest break claim, the trial court failed to consider whether the dispute over nonpayment for rest breaks raised a bona fide dispute. The trial court's erroneous assumption that the rest break claim was subsumed within the issue of nonproductive time therefore required reconsideration. Jimenez-Sanchez v. Dark Horse Express, Inc. (California Court of Appeal, 5th Appellate District, 2/14/19).

Bottom Line

While it isn't very common, piece-rate pay can be a valuable compensation method for certain types of employers. California law makes it complicated for employers to pay employees by piece rate, and the relatively new laws mentioned in this case make it even more difficult. It can be done, but if you want to use piece-rate compensation, it would be wise to consult with an experienced employment attorney.

Matthew A. Goodin, a contributor to the California Employment Law Letter, can be reached at Seyfarth Shaw in San Francisco, mgoodin@seyfarth.com.

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