Liability Looms for Employers With Piece Rate Workers: The Labor Commission Challenges Employers on the Calculation of Rest Break Compensation

If your workers are paid by piece rate, you may be at risk with the Labor Commission regarding mandatory rest break compensation.

Recent cases addressed the issue of compensation for down time and rest breaks for piece rate workers. In the LA Motors case, the court reviewed a wage and hour case brought by auto mechanics and determined that piece rate workers are entitled to pay for down time while waiting for piece work. In the Safeway Stores case, the court considered a wage and hour case brought by truck drivers and established that rest break time must be separately compensated in a piece rate system.

Most piece rate employers already pay for non-piece rate time such as morning exercise and safety meetings, but may not be paying workers for their legally-mandated rest breaks. Employers previously assumed that the piece rate covered the employee’s time in full, but courts and administrative agencies have made it clear that the piece rate covers only the work that went into earning the piece, and rest breaks are then left uncompensated. It is now apparent that rest breaks for piece rate workers must be separately compensated, but how?

We previously proposed that employers pay minimum wage for all hours, then pay additional piece rate compensation on top of that minimum wage. This creates a bit of a nightmare for employers, because piece rate is not traditionally paid “on top” of minimum wage; it is calculated as a substitute for minimum wage and almost always exceeds that minimum. Another proposed option was to pay piece rate for all work performed, and pay rest breaks separately at minimum wage, to make sure employees were paid separately for the rest break.

Unfortunately, the Labor Commission has disagreed with these proposed options. Within the past two weeks, the Labor Commission has taken the position that to properly compensate workers for paid rest breaks, the employer must average every employee’s piece rate for the workweek (along with any other compensation paid to the employee) and then pay the 10-minute rest breaks based on that average hourly rate. This method will be an accounting nightmare for employers, because every piece rate employee will have a different rate each workweek due to their fluctuating numbers of “pieces.” This also means that even if the employer pays minimum wage and then creates a piece rate system on top of that (which would be overly complicated), the Labor Commission would still require that employers add the piece rate payment to the minimum wage to determine the hourly wage, then pay for the rest breaks on that average (similar to paying overtime premiums on bonus pay).

We question whether the rest break laws contemplated this scenario when they were enacted in the mid-20th century, and we would bet that employers did not contemplate paying separately for rest breaks in a piece rate system (and it simply hasn’t been done for more than 70 years). Now, however, it is clear that all piece rate employers are at risk. The Labor Commission is specifically targeting agriculture on this issue, but likely will focus on related industries where piece rate compensation is typically used.

Legislation is pending that would create some temporary relief for employers by allowing employers a safe harbor to pay retroactive rest break pay without facing other penalties, but this would not solve the problem on a permanent basis. The lack of clarity could give rise to class action litigation in this area. Unfortunately, there is no good news at this time. Impacted employers are considering filing a lawsuit to challenge the Labor Commission on this issue, on the grounds that it does not have the power to enact such “new” rules without legislation. With heavy lobbying by employee-friendly labor organizations, however, legislation supporting the Labor Commission’s analysis may soon follow.

We will continue to monitor the situation and keep our clients informed. In the meantime, for assistance in developing a compensation plan that properly compensates for work performed as well as rest breaks, or any other employment law issue, contact any of our employment law attorneys at LightGabler.