BILL ANALYSIS Ó
SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
Senator Tony Mendoza, Chair
2015 - 2016 Regular
Bill No: AB 1513 Hearing Date: September
3, 2015
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|Author: |Williams |
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|Version: |August 27, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Gideon L. Baum |
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Subject: Employment: workers' compensation and piece rate
compensation.
KEY ISSUE
Should the Legislature clarify the statutory requirements for
piece-rate compensation?
Should the Legislature provide an affirmative defense and safe
harbor for employers who, by December 15, 2016, fully compensate
their employees, as specified, for all under-compensated or
uncompensated rest periods, recovery periods, or unproductive
time between July 1, 2012 and December 31, 2015?
ANALYSIS
Existing law requires that, when an employee is compensated on a
"piece rate" basis, the employer must include in the employee's
wage stub the number of piece-rate units earned and any
applicable piece rate if the employee is paid on a piece-rate
basis. (Labor Code §226)
Existing law provides that, if an employee suffers injury as a
result of a knowing and intentional failure by an employer to
provide a wage stub, the employee is entitled to recover the
greater of all actual damages or $50 for the initial pay period
in which a violation occurs and $100 per employee for each
violation in a subsequent pay period, not to exceed an aggregate
penalty of $4,000, and is entitled to an award of costs and
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reasonable attorney's fees. (Labor Code §226 (e))
Existing law provides that the Industrial Welfare Commission
with the ability to adopt or amend working condition orders with
respect to break periods, meal periods, and days of rest for any
workers in California consistent with the health and welfare of
those workers.
(Labor Code §516)
Existing law require every employer to authorize and permit all
employees to take rest periods, which insofar as practicable
shall be in the middle of each work period. The employer must
provide a rest period of 10 minutes for every 4 hours worked,
and rest periods must be counted as hours worked and not be
deducted from the employee's wages.
(IWC Wage Orders 1-15; Labor Code §226.7)
Existing law require that, if an employer fails to provide an
employee a rest period, the employer must pay the employee 1
hour of pay at the employee's regular rate of compensation for
each workday that the rest period is not provided.
(IWC Wage Orders 1-15; Labor Code §226.7)
Existing law provides additional rest periods, known as recovery
periods, to provide employees with a cooloff period to avoid
heat illness. If an employer fails to provide an employee a
recovery period, the employer must pay the employee 1 hour of
pay at the employee's regular rate of compensation for each
workday that the rest period is not provided.
(Labor Code §226.7)
Existing court decisions require that nonproductive time, which
is time under the employer's control for which the employee is
not producing "pieces", rest periods, and recovery periods must
be compensated separately and distinctly at the minimum wage or
more.
(Gonzelez v. Downtown LA Motors (215 Cal.App.4th 36 (2013)) and
Bluford v. Safeway Stores (C066074 (2013)))
This bill would:
1) Codify the Gonzalez and Bluford decisions that
nonproductive time, rest breaks, and recovery breaks are
separately compensated;
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2) Codify that, for rest and recovery periods, the rate of
compensation is the higher of the average hourly rate or
the applicable minimum wage;
3) Codify that, for nonproductive time, the rate of
compensation is not less than the minimum wage; and
4) Codify how nonproductive time, rest breaks, and recovery
break compensation is calculated.
This bill would also allow employers to utilize an affirmative
defense against claims of an employer's failure to timely pay
compensation due for rest periods, recovery periods, and
nonproductive time if the alleged failure occurred between July
1, 2012 and December 31, 2015 if the employer:
1) Make payments to all current and former piece-rate
employees for uncompensated or undercompensated rest and
recovery periods and nonproductive time, plus interest,
from July 1, 2012 to December 31, 2015; or
2) Make payments to all current and former piece-rate
employees in an amount equal to 4% of the gross earnings
from July 1, 2012 to December 31, 2015. Deductions for
previous separate payments for rest, recovery, and
nonproductive time are permitted, but must not exceed 1% of
the employee's gross earnings during the same period. This
methodology cannot be utilized by new motor vehicle dealers
with 25 or more employees.
The employer must also:
3) Provides a statement to the current and former employees
that shows the calculation of hours worked and how the
employer determined the wages due;
4) Provides payment to the current and former employees no
later than December 15, 2016;
5) Provide notice to the Labor Commissioner on the
employer's election to make payments to current and former
employees by July 1, 2016; and
6) Preserves all records of hours worked, calculations of
hours worked, and records of make whole payments to
employees until December 16, 2020, and also furnish these
records to the current or former employee upon request.
If the employer complies with the above, the employer shall have
an affirmative defense for any action that seeks back wages,
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penalties, or liquidated damages relating to an employer's
failure to timely pay compensation due for rest periods,
recovery periods, and nonproductive time, including to paying
less than the minimum wage or having an inaccurate wage stub.
This bill would require that the Department of Industrial
Relations (DIR) to post on their website either a list of
employers who have elected to utilize the safe harbor or copies
of actual notices of the election of the safe harbor.
This bill would require that, if an employer who wishes to
comply with the above-discussed requirements for an affirmative
defense but cannot locate an employee, the employer must instead
remit the payments to the Labor Commissioner, plus a fee no
greater than $2,500, so that the Labor Commissioner may locate
the employee. Prior to doing so, the employer must utilize due
diligence and finding the employees including, but not limited
to, a people locator service.
This bill would provide that an employer does not need to make
any payments for the period of July 1, 2012 and December 31,
2015 if any of the following applies:
1) An employer has, prior to August 1, 2015, entered into a
valid release of claims for compensation for rest and
recovery periods and other nonproductive time;
2) A release of claims was executed in connection with a
settlement agreement filed with a court prior to October 1,
2015, and was later approved by the court.
This bill would also toll the statute of limitations from
January 1, 2016 to July 1, 2016 for any claims based on the
failure to compensate rest periods, recovery periods, and
nonproductive time for piece-rate compensated employees where
the employer has not provided notice to employees as discussed
above. If the employer has provided a notice to the former or
current employee, the statute of limitations is tolled until
December 15, 2016.
The safe harbor shall not apply to any of the following:
1) The damages or penalties were previously awarded in an
order or judgment that was final and not subject to further
appeal as of January 1, 2016;
2) Claims where the employees were not advised of their
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right to take rest or recovery breaks, the breaks were not
made available, or employees were discouraged from taking
such breaks;
3) Claims based on the failure to provide paid rest
periods, recovery periods, or nonproductive time asserted
in an action filed prior to April 1, 2015 where the case
contains an allegation that the employer has intentionally
stolen wages through the use of fictitious worker names;
4) Claims asserted in a court filing prior to March 1, 2014
or claims asserted prior to March 1, 2014 and amended prior
to July 1, 2015; and
5) Claims for unpaid wages, damages, and penalties that
accrue after January 1, 2016.
This bill would allow for the assertion of an affirmative
defense through an amended filing if the action was filed on or
after March 1, 2014, unless the action is final and not subject
to further appeals as of January 1, 2016.
This bill would protect the affirmative defense for employers
if, after making a reasonable and good faith effort to comply
with the requirements of the safe harbor, fails to make
appropriate payments or provide accurate statements to all
employees. The employer would have the burden of proving that
the failure was solely the result of a good faith error.
This bill would make additional changes to law in order to allow
the Labor Commissioner to enforce and effectuate the provisions
of this bill.
This bill would also revise and recast the piece rate wage
requirements after January 1, 2021 to reflect the cessation of
the safe harbor provisions.
This bill would also delete three obsolete workers' compensation
study requirements.
COMMENTS
1. Background on Piece Rate Compensation and Recent Court
Decisions:
Piece rate compensation, as the name suggests, is a method of
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calculating worker compensation by piece or unit, rather than
by hour. For example, workers could be paid by unit sewn,
bushel picked, or truck unpacked. However, under both federal
and state law, the worker's compensation must still be at
least the minimum wage for the hours worked. This requirement
is well established in the law, and it was not the subject of
recent litigation. Rather, recent litigation addressed whether
nonproductive time and rest breaks needed to be counted as
hours worked when calculating the minimum wage equivalency for
piece rate wages.
As was discussed above, both Gonzalez and Bluford found that
rest periods, recovery periods, and nonproductive time must be
compensated separately and at least at the minimum wage. While
these decisions were in keeping with prior legal decision and
statutes in California , many stakeholders raised concerns on
the impact of Gonzalez and Bluford. For employers who did not
compensate their employees for their nonproductive time, the
potential liability from these decisions on employers can be
significant.
Post-Gonzalez, it is clear the employer would be liable for
separately compensated nonproductive time, rest breaks, and
recovery breaks. However, the employer would also face, at a
minimum, liability for paying less than the minimum wage,
producing an incorrect wage stub, and failure to provide rest
breaks. These violations trigger a penalty structure that is
geared for employers who refuse to follow the minimum wage law
and engage in wage theft, rather than employers who were
caught up in an adverse court decision. This creates a
challenging dynamic: while on one hand some employers may be
facing insolvency due to liability they could not foresee,
aggrieved workers are owed wages for their time.
2. How AB 1513 Would Work:
Broadly speaking, AB 1513 can be divided into two portions.
The first portion deals with separate compensation for
nonproductive time and rest and recovery periods. The second
portion creates a narrow safe harbor for employers to address
their liability under Gonzalez and Bluford. Each with be
discussed below.
Piece Rate Compensation and Separate Compensation for
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Nonproductive Time and Rest and Recovery Periods
As noted above, both Gonzalez and Bluford held that piece rate
workers must separately compensate the workers' nonproductive
time, as well as their rest and recovery breaks. AB 1513 would
codify that requirement, with nonproductive time being
separately compensated at the minimum wage or higher.
Importantly, however, rest and recovery periods would be
separately compensated as an average of the hourly piece rate.
By doing so, it would ensure that workers are not facing a
disincentive in the form of a lower average hourly wage if
they take necessary breaks for their health and well-being.
AB 1513's Safe Harbor Provisions
As was discussed above, AB 1513 contains an unusual provision:
a limited safe harbor for employers from claims resulting from
Gonzalez and Bluford. In a nutshell, the AB 1513 safe harbor
provides an 11 month window for the employer to do the
following:
1) Calculate back wages for both former and current
workers;
2) Notifying the Division of Labor Standards Enforcement
(DLSE) that the employer is utilizing the safe harbor;
3) Transmitting the back wages the effected workers,
including information on how the back wages were
calculated; and
4) If, after due diligence, a worker cannot be found,
transmitting the wages to DLSE, with a processing fee.
If an employer decides to do all of the above, he or she would
have a limited safe harbor from resulting from the Gonzalez
and Bluford decisions. However, it is important to note that
the safe harbor isn't a simple immunity from claims due to
underpayment or nonpayment of nonproductive time and/or rest
and recovery periods. Rather, it is an affirmative defense -
the employer would need to prove-up that he or she met the
above requirements. Outside of a good faith error, the
employer loses the affirmative defense if he or she fails to
meet the above requirements, and therefore loses access to the
safe harbor.
AB 1513 and Attorney Fees
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As was noted above, AB 1513 provides an affirmative defense
for employers who pay back wages and comply with specified
requirements. The bill is silent on the payment of attorney
fees when an affirmative defense is successfully utilized.
Some stakeholders have raised concerns that this silence could
lead to judges denying attorney fees if the affirmative
defense is utilized. However, in being silent, AB 1513 does
not alter or address one way or the other any existing
statutory or common law as to attorney fees.
3. Calculating Unpaid Nonproductive Time, Rest Periods & Recovery
Periods:
Under AB 1513, there are two methods for calculating unpaid or
underpaid nonproductive time, rest periods, and recovery
periods. The first method is to pay uncompensated or
undercompensated rest and recovery periods and nonproductive
time, plus interest. On the surface, this would appear to be a
relatively simple calculation. However, significant conflicts
between workers and employers on what constitutes as
nonproductive time and productive time can exist. Further,
such disputes can vary significantly from industry to
industry.
Therefore, AB 1513 creates a second method for calculating
unpaid or underpaid nonproductive time, rest periods, and
recovery periods. In this method, the employer pays the worker
4% of his or her gross piece rate wages. While credits are
allowed, they can only lower the payment to 3% of the worker's
gross piece rate wages. While the 4% figure is, by definition,
an estimation of the unpaid rest and recovery periods and
nonproductive time, it is an estimate that comes from prior
cases and DIR enforcement actions involving unpaid rest and
recovery periods and nonproductive time.
Further, it is worth noting that 4% of gross wages can be a
significant figure. For example, the California annual average
wage for farm workers is $19,950. Over the 3.5 year period
that AB 1315 covers, the 4% calculation would yield back wages
of $2,793 per worker. Even if the employer were able to take
advantage of maximum credits, the back wages would drop to
$2094.75.
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4. Nonproductive Time and New Car Dealers:
As was discussed earlier, new car dealers are required to pay
back wages that are actually owed and are excluded from the
provision that allows an employer to pay former and current
workers 4% of gross wages to enter AB 1513's safe harbor. The
California New Car Dealers Association (CNCDA) objects to this
provision strongly, referring to their exclusion as
"outrageous". However, back wages from recent settlements
suggest that the workers employed by the new car dealers have
significantly higher rates of nonproductive time compared to
workers employed in other industries who are paid on a piece
rate basis.
For example, in the Gonzalez case, the court rules that
workers had an average of 1.85 hours per day of nonproductive
time. This is more than 23% of their workday, which is much
higher than the 4% discussed above. Further, additional
settlements from other cases involving new car dealers have
yielded nonproductive time ranging from 19% to 25% of workers'
workdays, suggesting that the Gonzalez case was not an unusual
situation. Noting the scale of the differences between new car
dealers and other employers who compensate their employees on
a piece rate basis, proponents argue that the exclusion of new
car dealers from the 4% estimation provision is appropriate.
5. Proponent Arguments :
Proponents argue that AB 1513 addresses a historically vexing
challenge of calculating appropriate piece rate compensation,
yet balances the needs of workers and employers. Specifically,
proponents note that AB 1513 provides clear guidance for
employers on appropriate wages during rest periods, recovery
periods, and nonproductive time, and that these wage rates
would not create disincentives for workers who want to take
their breaks. Proponents also note that AB 1513 that provides
an affirmative defense for employers, but only if they
retroactively compensate employees for their rest periods,
recovery periods, and nonproductive time. Proponents argue
that AB 1513 is a fair compromise for both employers and
workers, addressing a situation where there was a significant
development in case law.
6. Opponent Arguments :
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The California New Car Dealers (CNCDA) opposes AB 1513,
arguing that new car dealers should be exempted from the bill.
Specifically, CNCDA argues that their exclusion from estimated
wage calculations is unjust, and that they do not have the
necessary records to fall under the "safe harbor" affirmative
defense. CNCDA further notes that AB 1513 tolls the statute of
limitations on nonpayment/underpayment of rest periods,
recovery periods, and nonproductive time, allowing workers to
pursue past claims even if the car dealer is currently
complying with Gonzalez. Finally, CNCDA raises concerns that
AB 1513 may lead to wages discrepancies between state and
local minimum wages, leading to higher wages for nonproductive
time than productive time.
7. Prior Legislation :
SB 435 (Padilla), Chapter 719, Statutes of 2013, extends
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.
SUPPORT
California Conference of Machinists
California Teamsters Public Affairs Council
California Labor Federation
Driscoll's Strawberry Associates, Inc.
OPPOSITION
California New Car Dealers Association (CNCDA)
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