The California Legislature recently adopted changes to its Labor Code which impacts employers who pay employees on a piece rate basis. A “piece rate” system is one where an employee is paid a fixed amount of money for a given piece of work.  For instance, a picker who is paid a certain amount per pound of grapes picked would be considered a piece rate worker.  The new law provides that California piece rate workers must also be compensated for “other nonproductive time,” which is defined in the statute as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece rate basis.” For example, if an employer directed a piece rate worker to drive to another section of the vineyard to pick up equipment, this could be considered “other nonproductive time.”

The statute also provides an affirmative defense for employers to any claim for recovery of wages, damages, or other penalties based solely on the employers failure to pay the employee compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015. To qualify for the affirmative defense the employer must make payments to its employees for previously uncompensated or under-compensated rest and recovery periods and other non-productive time from July 1, 2012 – December 31, 2015. The payments must be either the actual amount due to each employee or 4% of the employees gross earnings in pay periods in which any work performed was on a piece-rate basis during the applicable time period.

However, the statute also provided that in order to qualify for the affirmative defense, the employer must provide written notice to the Department of Industrial Relations (“DIR”) of its plans to make payments to its current and former employees in accordance with the terms of the statute. Initially, this notice had to be given by no later than July 1, 2016.  However, that deadline was put on hold while the Courts heard a challenge to the new law.

The Nisei Farmers League (NFL), an organization representing the interests of many California farmers and grape growers, recently brought and action for Preliminary and Permanent Injunctive and Declaratory Relief against the California Labor and Workforce Development Agency seeking to invalidate the statute on a number of grounds, including vagueness and retroactive punishment.  A temporary order was issued that put off the deadline to give notice to the DIR until the NFL’s challenge could be heard on the merits.  That hearing took place on July 18, 2016, and the Court issued its ruling yesterday denying the NFL relief on the grounds that it was unable to show a likelihood of success on the merits. The Court ruled that Labor Code 226.2 was the codification of existing case law imposing the same obligations on employers. The court stated that, “insofar as activities prior to its enactment are concerned, no new obligations were created; either employers had fully compensated their employees for their work or they had not been fully compensated.” If the employer chooses not to take advantage of the affirmative defense, the court reasoned the employer could still argue that it does not owe any back pay to its employees.  The Court’s ruling thus reactivated the notice requirement, and all employers choosing to take advantage of the safe harbor provision must give notice to the DIR by no later than July 28, 2016.

It is important for all California employers who use a piece rate system to make sure they understand Labor Code section 226.2 and that they are in compliance with the new rules.


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