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June 24, 2016
ONLY ONE WEEK LEFT
to Elect the Safe Harbor
for Piece Rate Back Pay
By Dawn Ross
If you have paid any employees on a piece rate basis over the past four years, or if you have used a Farm Labor Contractor who has paid employees on a piece rate basis on your behalf, please pay attention to this important message.
Last year the Legislature enacted Labor Code Section 226.2, which “clarified” the rules for compensating employees who are paid on a piece rate basis. This affects many employers, including manufacturing facilities, repair facilities, spas, and most agricultural employers. Traditionally, when employers paid on a piece rate basis, any down time during the day (for example tailgate talks, rest periods, heat illness recovery periods, time spent waiting for the next job, etc.) has just been rolled into the piece rate without any separate compensation. A number of recent court rulings held that this “non-productive time” had to be compensated separately from the piece rate, and that rest periods have to be paid separately, at the average hourly rate, so that employees are not discouraged from taking rest breaks. Over the past two years, these holdings spawned a great deal of class action and PAGA claims. Since an employee can go back four years in filing a wage and hour claim, the potential exposure is enormous, especially because employees can also recover statutory penalties and attorneys’ fees.
The Legislature enacted Labor Code 226.2 to clarify the law and to provide employers with a “safe harbor” for righting any historical errors. The new statute does two things. First, it provides that a piece rate employee must be paid for rest and recovery periods taken in a workweek at an hourly rate that is the higher of minimum wage or the average hourly rate, and that other non-productive time must be paid at no less than minimum wage. The formula for calculating an employee’s average hourly rate is explained in the DIR’s FAQ section, located here.
Second, the statute provides an employer with an affirmative defense against past wage claims dating back to July 1, 2012, so long as the employer either a) determines and pays the actual sums due, with 10% interest; or b) pays each employee an amount equal to 4% of the employee’s gross earnings in all pay periods in which any piece work was performed, less amounts already paid for nonproductive time, but in no event less than 3%. Employers must notify the DIR that they are making this safe harbor election by no later than July 1, 2016. While the payments themselves do not need to be made until December 15, 2016, the election needs to be made now. When making the payments, employers must provide a statement explaining how the payment was calculated, and must use diligence, including a people locater service, to locate and pay former employees. For those employees who cannot be located, the payment must be sent to the DIR’s Unpaid Wages Fund with additional administrative fees.
If your company has paid employees on a piece rate basis at any time from 2012 to present, it is important to take advantage of this “safe harbor.” You can do so by completing the DIR election form found here. Similarly, if your company hired a Farm Labor Contractor (“FLC”) who paid employees on a piece rate basis, you are a potential joint employer and can be held liable for these unpaid amounts. We recommend you contact your FLC to find out if they plan to make the safe harbor election. If not, your company can make the election and obtain the benefits of the safe harbor. According to the DIR, in the “Other Locations” section of the form, you should state, “In addition to making payments to employees who worked directly for our company, we will also be making payments to employees who worked at our locations through the following farm labor contractors:” list names and addresses of all FLCs used over the past four years.
The DIR will post the names of all employers who make the safe harbor election. Those not listed will be easy targets for class action attorneys. Organizations like the UFW have been actively posting notices to advise agricultural workers of their rights under this new law, so there is a lot of focus on this issue.
For more information about this important law and how to ensure compliance and avoid costly class action litigation, please contact Dawn Ross who leads CMPR’s Employment Law Group – dross@cmprlaw.com
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