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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