Pub. 2 2014 Issue 3

14 San Diego Dealer Piece-Rate Or Incentive Agreements Historically, both California and federal law have provided consid- erable leeway to compensation agreements between employers and employees so long as the minimum wage has been satisfied based on total hours worked and compensation paid. Indeed, the historical view has been that “straight-time wages above the minimum wage are a matter of private contract between the employee and the employer.” Schachter v. City Group, Inc. But this principle as applied to California law continues to be eroded as state and federal courts have inter- preted California law to prohibit averaging a piece rate for productive work to include periods on the clock when piece rates are not being produced. See, e.g., Gonzalez v. Downtown LA Motors . The practical consequence of these rulings is to add opportunities for employees to claim they have not been paid at least the minimum wage for so-called “unproductive time,” even though their effective hourly rate may be far above the minimum wage for all hours worked when considering all of the clocked productive and non-productive time. One of the key conceptual problems with these rulings is the never-ending dispute over what constitutes productive and non-pro- ductive time. In the end, employees may lose if employers are forced to eliminate incentive pay. Historically, fluctuations of productivity could be factored into a piece rate. Employees could agree to enjoy the fruits of high produc- tivity as well as the downside of low periods of productivity (which could be impacted in part by machine breakdowns or problems caused in part by the employees’ skills and efforts). With regard to wages above the minimum wage (which remain protected), the employees, in effect, could agree to experience both the benefit and detriment of productivity in the work place. These new interpretations of the law minimize an employee’s risk of reduced income caused by periods of inefficiency or downtime. Additionally, these decisions meddle unnecessarily into an em- ployer’s ability to contract freely with its employees for compensation above the minimum wage. In the end, many employers have eliminat- ed piece rates altogether in favor of alternative methods of compensa- tion, including reverting to an hourly rate methodology with dimin- ished opportunities for an employee to earn incentive pay. Another consequence of invading an employer’s right to contract for incentive pay is that courts have also second-guessed whether employees who are paid by piece rate are actually being paid while taking short rest breaks mandated by California law or whether salespersons paid by commission are actually being compensated separately for non-productive periods. The net effect is an increasing tendency for employers to respond to these rulings by supplementing compensation through various methods to account for what arguably could be considered as “downtime” or “non-productive time.” Employ- ers should consult with legal counsel to determine how to comply with these new rulings to avoid exposure for violations of the state minimum wage, among other things. Increase In The MinimumWage The minimum wage itself is also increasing in two stages. Begin- ning July 1, 2014, the minimum wage for California employees will increase from the current $8.00 per hour to $9.00 per hour. On January 1, 2016, the minimum wage will increase to $10.00 per hour. There are a number of legal consequences resulting from the in- creases of the minimum wage, including but not limited to standards for exempting certain employees from overtime or other require- ments: • In order for a commissioned salesperson to be exempt from overtime, one requirement is that the salesperson’s total earnings result in an effective hourly rate that is more than one and one-half times the state minimum wage, currently Happy 2014 – Gear Up For New Wage/Hour Laws! By John Skousen and Hillary Thornton (Irvine) A s the new year begins, California employers, already weary from added wage and hour laws and regulations enacted over the past several years, have yet more to comply with. Here are the highlights.