BILL ANALYSIS                                                                                                                                                                                                    






                 Senate Committee on Labor and Industrial Relations
                                 Ted W. Lieu, Chair

          Date of Hearing: April 10, 2013              2013-2014 Regular  
          Session                              
          Consultant: Alma Perez                       Fiscal:Yes
                                                       Urgency: No
          
                                   Bill No: SB 435
                                   Author: Padilla
                      As Introduced/Amended: February 21, 2013
          

                                       SUBJECT
          
            Compensation: piece-rate workers: rest and recovery periods 


                                     KEY ISSUES

          Should employees paid on a "piece-rate" basis be encouraged to  
          take their 10 minute rest period by ensuring that they will be  
          paid for that time? 

          Should an employee taking a five minute cool-down rest period to  
          recover from overheating as encouraged under California's Heat  
          Illness Prevention regulations be paid for that recovery time? 


                                      ANALYSIS
          
           Existing law establishes,  within the Department of Industrial  
          Relations, the following entities: 

                 Industrial Welfare Commission (IWC): to regulate  
               employee wages, hours and working
               conditions. (Labor Code 70-74)  

                 Division of Occupational Safety and Health (Cal/OSHA):  
               tasked with the responsibility
               of protecting workers and the public from safety hazards  
               through its various programs.

                 Occupational Safety and Health Standards Board (OSHSB):  
               to adopt reasonable and enforceable standards at least as  
               effective as federal standards.  










                 Division of Labor Standards Enforcement: to adjudicate  
               wage claims, investigate discrimination and public works  
               complaints, and enforce Labor Code and IWC orders. 

           Existing law,  with certain exceptions, defines a day's work as  
          eight hours of labor. Any additional hours worked in excess of  
          eight hours in one day, or a 40-hour workweek, must be  
          compensated with the payment of overtime. 



           Regarding meal and rest periods, existing law  requires the  
          following: 

                 Meal Periods: An employer may not employ a worker for a  
               period of more than five hours per day without providing  
               the employee with a meal period of not less than 30  
               minutes, except that if the total work period per day is no  
               more than six hours, the meal period may be waived by  
               mutual consent of both parties. A second 30 minute meal  
               period is required if an employee works more than ten hours  
               per day, except if total hours worked is no more than 12,  
               the second meal period may be waived by mutual consent only  
               if the first meal period was not waived. (Labor Code 512)

                 Rest Periods:Industrial Welfare Commission Wage Orders  
               require that employers authorize and permit nonexempt  
               employees to take a rest period that must, insofar as  
               practicable, be taken in the middle of each work period.  
               The rest period is based on the total hours worked and must  
               be at the minimum rate of a net 10 consecutive minutes for  
               each 4 hour work period, or major fraction thereof. A rest  
               period is not required for employees whose total daily work  
               time is less than 3.5 hours. According to the IWC wage  
               orders, authorized rest periods are counted as time worked  
               and therefore, must be paid by the employer.  

           Under existing law  , no employer shall require any employee to  
          work during any meal or rest period mandated by an applicable  
          order of the Industrial Welfare Commission. If an employer fails  
          to provide an employee a meal period or rest period in  
          Hearing Date:  April 10, 2013                            SB 435  
          Consultant: Alma Perez                                   Page 2

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          accordance with an applicable order of the IWC, the employer  
          shall pay the employee one additional hour of pay at the  
          employee's regular rate of compensation for each work day that  
          the meal or rest period is not provided.  (Labor Code 226.7)
           

          This Bill  would extend existing rest period protections  
          available within the Industrial Welfare Commission orders to  
          workers paid on a "piece-rate basis" as well as make them  
          applicable during an employee's recovery period, as specified. 

          Specifically, this bill would:

                 Define "piece-rate basis" as a method of payment based  
               on units of production earned by an employee during a work  
               day or pay period, or any fraction thereof. 

                 Add to the existing IWC wage order requirements  
               regarding meal and rest periods, the following:  

                  o         Prohibit an employer from requiring an  
                    employee to work during any meal, rest or recovery  
                    period mandated pursuant to any applicable statute,  
                    regulation, or standard of the Occupational Safety and  
                    Health Standards Board (OSHSB), or the Division of  
                    Occupational Safety and Health (Cal/OSHA). 

                  o         Extend the requirement that employers pay one  
                    additional hour for failure to provide a meal, rest or  
                    recovery period as required by applicable statutes,  
                    regulations, or standards of the OSHSB or Cal/OSHA. 

                 Provide that rest or recovery periods mandated pursuant  
               to any statute, regulation, standard, or order of the IWC,  
               the OSHSB, or Cal/OSHA, shall be counted as hours worked  
               for which there shall be no deduction from wages. [IWC  
               orders already require - this bill would codify the  
               requirement] 

                 Specify that employees working on a "piece-rate basis"  
               shall be compensated for rest periods by being paid his/her  
               average piece-rate wage during each pay period, or portion  
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               of, in which the employee was paid on a piece-rate basis.

                 Authorize a piece-rate worker, pursuant to a civil  
               action or a claim filed with the Division of Labor  
               Standards Enforcement, to recover his/her unpaid average  
               piece-rate wage for each rest or recovery period in which a  
               violation of these provisions occurred.

                 Provide that the provisions of this bill do not apply to  
               an employee whose wages, hours, and working conditions are  
               covered by a collective bargaining agreement that expressly  
               addresses rest or recovery periods for employees paid on a  
               piece-rate basis.


                                      COMMENTS

          1.  Background on the IWC, the OSHSB and Cal/OSHA:   

            Under existing law, one of the functions of the Department of  
            Industrial Relations (DIR) is to foster, promote, and develop  
            the welfare of the wage earners of California, to improve  
            their working conditions, and to advance their opportunities  
            for profitable employment. Within DIR there are various boards  
            and divisions tasked with the execution of these requirements.  


            Industrial Welfare Commission (IWC): 
            It is the duty of the IWC to ascertain the wages, hours and  
            conditions of labor and employment in the various occupations,  
            trades and industries in which employees are employed in this  
            state. Through its seventeen (17) industry specific wage  
            orders, the IWC establishes requirements on hours and days of  
            work, minimum wages, reporting time, and meal and rest  
            periods, among others. While the IWC is currently not in  
            operation due to budget constraints, the Division of Labor  
            Standards Enforcement (DLSE) continues to enforce the  
            provisions of the wage orders. 

            Division of Occupational Safety and Health (also known as  
            Cal/OSHA): 
            Cal/OSHA protects workers and the public from safety hazards  
          Hearing Date:  April 10, 2013                            SB 435  
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            through its Occupational Safety and Health, elevator,  
            amusement ride, aerial tramway, ski lift and pressure vessel  
            inspection programs, and also provides consultative assistance  
            to employers.    

            Occupational Safety and Health Standards Board (OSHSB):  
            The Standards Board is the standard-setting agency within  
            Cal/OSHA tasked with the responsibility of adopting reasonable  
            and enforceable standards at least as effective as federal  
            standards to ensure a safe and healthful workplace for  
            employees. 

            Division of Labor Standards Enforcement (DLSE):  
            The DLSE is the entity responsible for the adjudication of  
            wage claims, investigation of discrimination and public works  
            complaints, and enforcement of Labor Code statutes and  
            Industrial Welfare Commission wage orders. 
             
          2.  Rest Period Requirements in Statute, Standards and IWC Wage  
            Orders: 

            Each of the seventeen (17) IWC Wage Orders includes a section  
            on rest period requirements - authorizing non-exempt employees  
            to take a rest period at a rate of ten (10) minutes per 4  
            hours or major fraction thereof.  According to the IWC wage  
            orders, authorized rest period time shall be counted as hours  
            worked for which there shall be no deduction from wages. 

            Existing Labor Code 226.7 prohibits an employer from  
            requiring any employee to work during any meal or rest period  
            mandated by an applicable order of the IWC.  Furthermore, an  
            employer who fails to provide this meal or rest period is  
            required to pay the employee one additional hour of pay for  
            each work day that the meal or rest period is not provided.  

            In addition to the IWC orders and Labor Code 226.7, the Heat  
            Illness Prevention regulations established by the Occupational  
            Safety and Health Standards Board have an additional  
            requirement regarding a rest period applicable to all outdoor  
            places of employment. Since August 2005, employers in the  
            State of California have been required by regulation to  
            protect outdoor employees from the hazard of heat illness.  
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            This regulation was promulgated in response to unusually hot  
            summer temperatures over a wide area of the state which led to  
            a greatly elevated number of cases of serious heat illness in  
            the workplace, including a number of deaths. This regulation,  
            codified at Title 8 CCR 3395, came about first by adoption of  
            an emergency temporary standard and was followed by adoption  
            of a permanent standard in 2006.  Under these regulations,  
            employees are allowed and encouraged to take a cool-down rest  
            in the shade for a period of no less than five minutes at a  
            time when they feel the need to do so to protect themselves  
            from overheating. 

          3.  Are workers paid on "piece-rate basis" taking their meal and  
            rest periods? 

             According to the DLSE's Enforcement Policies and  
            Interpretations Manual, piece rate or piece work is a method  
            of payment based on units of production completed. However,  
            all requirements that apply to hourly employees also apply to  
            piece-rate employees - including meal and rest period  
            requirements.  

            Unfortunately, our state and country has been facing a  
            workplace enforcement crisis with violations of many of our  
            long-established labor protections. According to a 2010 report  
            published by the Institute for Research on Labor and  
            Employment at UCLA, titled Wage Theft and Workplace Violations  
            in Los Angeles, surveying 1,815 workers in Los Angeles County,  
            a large majority of L.A. respondents (89.6 percent) worked  
            enough consecutive hours to be legally entitled to a meal  
            break. However, 80.3 percent of at-risk workers and 69.8  
            percent of the total sample experienced a meal break violation  
            in the previous work week. Meal break violations took a  
            variety of forms, from receiving a shortened meal break to not  
            receiving one at all. Regarding a rest break, the survey found  
            that 81.7 percent of respondents eligible for rest breaks (and  
            77.3 percent of the full L.A. sample) were either denied a  
            break entirely or had a shortened break.

            The UCLA report further revealed that pay-related violations  
            are often obscured by non-hourly pay arrangements and/or cash  
            payment in the absence of legally required statements of  
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            earnings and deductions. According to the report, informal pay  
            systems may facilitate minimum wage and other violations,  
            while making it harder for workers to claim their rights under  
            the law.

          4.  Need for this bill?

            Although existing law affords employees - by statute,  
            regulation and standards - the ability and protections to take  
            a meal and rest period, there have been concerns raised  
            regarding rest periods not taken by employees paid on a  
            piece-rate basis.  While a meal period is unpaid (as long as  
            the employee is relieved of all duty), rest periods are  
            construed as "hours worked" and must be compensated at the  
            employee's regular rate of pay. However, current law is silent  
            about how this requirement is supposed to be implemented for  
            industries paying on a piece-rate basis. 

            This bill would clarify that a piece rate worker is entitled  
            to be paid for a rest and recovery period and provides a  
            formula [average piece-rate] for determining compensation  
            rates for piece rate workers. Additionally, the bill would  
            prohibit an employer from requiring an employee to work during  
            any meal, rest or recovery period mandated by applicable  
            statute or regulation, standard, or order of the IWC, the  
            Occupational Safety and Health Standards Board, or the  
            Division of Occupational Safety and Health.  Current law  
            requires this of IWC wage orders; this bill would simply add  
            to the prohibition any mandate by the OSHA Standards Board or  
            Cal/OSHA -- such as rest breaks found in heat illness  
            regulations. 

            By codifying the requirement that all rest periods be counted  
            as hours worked - for which there shall be no deduction of  
            wages - the Legislature would ensure that all workers entitled  
            to a rest period are paid for that time regardless of whether  
            the requirement appears in the IWC wage orders, statute or  
            regulations. 

          5.  Suggested Committee Amendments:  
            
            Although Labor Code 512 requires an employer to provide its  
          Hearing Date:  April 10, 2013                            SB 435  
          Consultant: Alma Perez                                   Page 7

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            employees with a 30 minute meal period, without reference as  
            to whether the employee is exempt or non-exempt, the  
            Industrial Welfare Commission Wage Orders exclude employees  
            that satisfy specified executive, administrative, and  
            professional duties qualifying them for exemption. The IWC  
            wage order exempts these employees from wage and hour  
            requirements such as daily overtime and meal and rest periods.  
            However, the exclusions from such wage and hour mandates are  
            found solely in the IWC Wage Orders.  

            The author may wish to amend the bill to clarify that the  
            provisions of this bill do not change the applicability of  
            current law -- and exempt employees would continue to be  
            exempt. 

            The provisions of this bill would introduce the concept of a  
            "recovery period" as a new term in the Labor Code. Committee  
            staff suggests amending the bill to include a definition to a  
            "recovery period."  Staff recommends the following:

            As used in this section, "recovery period" means the cool-down  
            rest period afforded to employees to prevent heat illness. 

          6.  Proponent Arguments  :
            
            According to proponents of the measure, this bill will clarify  
            how paid rest breaks and recovery periods are to be  
            compensated by employers when employees are paid on a piece  
            rate basis.  Proponents argue that piece rate workers, unlike  
            their hourly or salaried counterparts, are often induced to  
            work through their rest or recovery periods because they  
            suffer a loss of income.  They believe this bill is necessary  
            to increase incentives for piece rate workers to actually take  
            their rest and heat stress recovery periods rather than  
            'willingly' working through them to avoid losing money. 

            According to the sponsors of the measure, a 2004 CA Rural  
            Legal Assistance Foundation survey of more than 1,000 piece  
            rate farm workers laboring in the raisin harvest, found that  
            more than 70% of workers 'voluntarily' worked through rest  
            periods to avoid losing money. Nearly two-thirds of them said  
            they would be "more likely" to take rest periods if they were  
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            paid their average piece rate earnings during that time. The  
            sponsors argue that it is significant that these results were  
            obtained from surveying workers in Central Valley raisin  
            harvests where triple digit temperatures have resulted in farm  
            worker deaths from heat stress.  They argue that while not all  
            piece rate workers potentially face a life or death decision  
            when they are not given their rest periods, compliance by  
            employers with these important state policies should not be so  
            insidiously undermined by the manner in which workers are  
            paid.

          7.  Opponent Arguments  :

            Opponents argue that this bill will threaten a new wave of  
            destructive and costly litigation to California employers by  
            including exempt employees under the one-hour penalty for  
            failure of an employer to provide a meal or rest period.   
            According to opponents, for over ten years, CA employers  
            suffered as a result of class action litigation regarding the  
            meaning of the term "provide" with regard to meal and rest  
            periods for hourly, non-exempt employees.  With this bill,  
            opponents are concerned that the penalty provision of Labor  
            Code 226.7 would be significantly expanded to include exempt  
            employees by making the penalty available to not just those  
            employers that fail to comply with the IWC Wage Orders, but  
            also to any employer who fails to comply with statutory meal  
            and rest period requirements in Labor Code  512. 

            Additionally, opponents contend that, as exempt employees,  
            employers do not track such employees' time, thereby making it  
            extremely difficult for employers to adequately and fairly  
            defend themselves in litigation.  Opponents also argue that  
            the proposed definition of piece-rate is also extremely broad,  
            as it could include exempt employees who are paid, in part, a  
            production bonus based upon a specific unit of time, number of  
            items sold, or even certain amount of sales. Furthermore, they  
            argue that this bill could significantly increase costs for  
            employers who have employees with mandated periods of rest  
            that could be characterized as "recovery periods" subject to  
            compensation.  For example, IWC Wage Order No. 5-2001 mandates  
            that an employee who works 24 consecutive hours must receive  
            at least 8 hours of off-duty time.  It also states that an  
          Hearing Date:  April 10, 2013                            SB 435  
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            employee's time spent sleeping is not considered hours worked.  
             Opponents are concerned, that this bill would potentially  
            transform such time spent sleeping or the mandated 8 hours of  
            off-duty time as compensable, as a "recovery period."  

          8.  Prior Legislation  :

            SB 1538 (Alarcon) of 2004:  Vetoed by the Governor 
            Much like this bill, SB 1538 would have required employers to  
            pay employees for any rest period mandated by statute,  
            regulation, or order of the IWC and would establish the  
            formula by which the rate of pay would have been determined  
            for the rest periods of piece-rate workers in the agricultural  
            and garment industries, as specified.  
            
            AB 755 (De La Torre) of 2005:  Vetoed by the Governor  
            Almost identical to SB1538, however, AB 755 does not enumerate  
            the formula that would have been used to determine the rate of  
            pay of piece-rate workers, but rather states that it be the  
            "average piece-rate" wage. 


                                       SUPPORT
          
          California Rural Legal Assistance Foundation - Co-Sponsor 
          California Conference Board of the Amalgamated Transit Union
          California Conference of Machinists
          California Teamsters Public Affairs Council 
          Engineers & Scientists of California, IFPTE Local 20
          International Longshore & Warehouse Union 
          National Lawyers Guild Labor & Employment Committee 
          Professional and Technical Engineers, IFPTE Local 21
          United Farm Workers 
          United Food and Commercial Workers Western States Council
          UNITE-HERE, AFL-CIO
          Utility Workers Union of America, Local 132
          
                                     OPPOSITION
          
          Air Conditioning Trade Association
          California Association of Winegrape Growers
          California Chamber of Commerce
          Hearing Date:  April 10, 2013                            SB 435  
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          California Framing Contractors Association
          California Professional Association of Specialty Contractors 
          California Retailers Association 
          National Federation of Independent Business
          Plumbing-Heating-Cooling Contractors Association of California
          Western Electrical Contractors Association 



































          Hearing Date:  April 10, 2013                            SB 435  
          Consultant: Alma Perez                                   Page 11

          Senate Committee on Labor and Industrial Relations