BILL ANALYSIS Ó AB 1513 Page 1 Date of Hearing: September 11, 2015 ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT Roger Hernández, Chair AB 1513 (Williams) - As Amended September 9, 2015 SUBJECT: Employment: workers' compensation and piece-rate compensation. SUMMARY: (1) Deletes three obsolete study requirements for the worker' compensation system; (2) clarifies and codifies the pay requirements for piece rate workers for nonproductive time and rest and recovery period time; and (3) establishes a process through which employers, during a prescribed time period, can make back wage payments for rest and recovery periods and nonproductive time in exchange for relief from statutory penalties and other damages. Specifically, this bill: 1)Provides that for employees compensated on a piece rate basis during a pay period, the following shall apply for that pay period: a) Employees shall be compensated for rest and recovery periods and other nonproductive time separate from any piece rate compensation. b) The itemized wage statement required under existing law shall provide specified information. c) Employees shall be compensated for rest and recovery AB 1513 Page 2 periods at regularly hourly rate of pay that is no less than the higher of: i) An average hourly rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods. ii) The applicable minimum wage (as defined). d) Employees shall be compensated for other nonproductive time at an hourly rate that is no less than the applicable minimum wage. e) The amount of other nonproductive time may be determined either through actual records or the employer's reasonable estimates, whether for a group of employees or for a particular employee, of other nonproductive time worked during the pay period. f) An employer who is found to have made a good faith error in determining the total or estimated amount of other nonproductive time worked during the pay period shall remain liable for the payment of compensation for all hours worked in other nonproductive time, but shall not be liable for specified civil penalties or liquidated damages based solely on that error, provided that specified requirements are met. 2)Provides that specified employers will shall have until April 30, 2016, to program their payroll systems to perform and record the calculations required to comply with the requirements for compensation for rest and recovery periods, and itemized statements, so long as the employer pays piece rate employees for all rest and recovery periods at or above the applicable minimum wage from January 1, 2016 to April 30, 2016, and pays the difference between the amounts paid and the AB 1513 Page 3 average rate that would be owed, plus interest, by no later than April 30, 2016. This provision shall only apply to an employer that meets all of the following: a) The employer was acquired by another legal entity on or after July 1, 2015, and before October 1, 2015. b) The employer employed at least 4,700 employees in this state at the time of the acquisition. c) The employer employed at least 17,700 employees nationwide at the time of the acquisition. d) The employer was a publicly traded company on a national securities exchange at the time of the acquisition. 3)Provides the employer shall have an affirmative defense to any claim or cause of action for recovery of wages, damages, liquidated damages, statutory penalties, or civil penalties, based solely on the employer's failure to timely pay the employee the compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015, if, by December 15, 2016, an employer complies with all of the following: a) The employer makes payments to each of its employees for previously uncompensated or undercompensated rest and recovery periods and other nonproductive time from July 1, 2012 to December 31, 2015 using either of the following formulas: i) The employer determines and pays the actual sums due together with accrued interest. ii) The employer pays each employee an amount equal to 4 percent of that employee's gross earnings in pay periods in which any work was performed on a piece rate basis from July 1, 2012 to December 31, 2015, as specified. AB 1513 Page 4 b) Payment shall not be required for any part of the time period for which either of the following apply: i) An employee has, prior to August 1, 2015, entered into a valid release of claims not otherwise banned by the Labor Code or any other applicable law for compensation for rest and recovery periods and other nonproductive time. ii) A release of claims covered by this bill executed in connection with a settlement agreement filed with a court prior to October 1, 2015 and later approved by the court. c) By no later than July 1, 2016, the employer provides written notice to the Department of Industrial Relations of the employer's election to make payments to its current and former employees in accordance with the requirements outlined above. d) The employer calculates and begins making payments to employees as soon as reasonably feasible after it provides the notice and completes the payments by no later than December 15, 2016. e) The employer provides each employee receiving a payment with an accompanying accurate statement that contains specified information. 4)Provides that an employer who makes a reasonable and good faith error to make the payments described above and to provide the accurate statement, shall not lose the affirmative defense if the employer, within 30 days of discovery or notice of the error, makes the payment plus interest and provides the accurate statement. The employer shall have the burden of proving that a failure to pay an employee was solely the result of good faith error. 5)Provides specified tolling provisions related to the statute of limitations. AB 1513 Page 5 6)Provides that any notice to the Labor and Workforce Development Agency (LWDA) on or before December 31, 2015 pursuant to the Private Attorneys General Act of 2004 (PAGA) alleging violations based upon failure to properly compensate employees for rest and recovery periods, is void as to those alleged violations. Beginning January 1, 2016, an aggrieved employee or representative shall give such written notice by certified mail to both the LWDA and the employer of any violation based on failure to compensate employees fully for rest and recovery periods and other nonproductive time. 7)Provides that the affirmative defense and related provisions shall not apply to any of the following: a) Damages and penalties previously awarded in an order or judgment that was filed and not subject to further appeal as of January 1, 2016. b) Claims based on the failure to provide paid rest or recovery periods or pay for other nonproductive time for which all of the following are true: i) The claim was asserted in a court pleading filed prior to March 1, 2014, or was asserted in an amendment to a claim that relates back to a court pleading filed prior to March 1, 2014, and the amendment or permission for amendment was filed prior to July 1, 2015. ii) The claim was asserted against a defendant named with specificity and joined as a defendant, as specified. c) Claims that employees were not advised of their right to take rest or recovery periods, that rest and recovery periods were not made available, or that employees were discouraged or otherwise prevented from taking such breaks. d) Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016. AB 1513 Page 6 e) Claims for paid rest or recovery periods or pay for other nonproductive time that were made in any case filed prior to April 1, 2015, when the case contained by that date an allegation that the employer has intentionally stolen, diminished, or otherwise deprived employees of wages through the use of fictitious worker names or names of workers that were not actually working. f) An employer that is a new motor vehicle dealer. 8)Provides that nothing in this bill shall limit or bar any action or proceeding by the Labor Commissioner or any private party for any failure to provide a rest and recovery period in accordance with any provision of law, other than actions or proceedings based solely on the employer's failure to timely pay the compensation due for rest and recovery periods. 9)Provides that nothing in this bill precludes a judge from awarding statutory, contractual or common fund attorney's fees or costs in connection with an action filed before October 1, 2015. 10)Contains a January 1, 2021 sunset date on the affirmative defense and related provisions of the bill. FISCAL EFFECT: Unknown COMMENTS: As passed by the Assembly, this bill deleted three obsolete study requirements for the workers' compensation system. However, Senate amendments add new language related to compensation requirements for rest or recovery periods and other nonproductive time for employees paid on a piece rate basis. Existing law prohibits an employer from requiring employees to work during a meal or rest or recovery period mandated pursuant to an applicable statute, regulation, standard or order of the AB 1513 Page 7 Industrial Welfare Commission (IWC), the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health. Failure to provide an employee with a meal or rest or recovery period entitles the employee to one additional hour of pay at his or her regular rate of compensation for each workday that the meal, rest or recovery period is not provided. Existing IWC Wage Orders generally state that "authorized rest periods shall be counted as hours worked for which there shall be no deduction from wages." In addition, recently enacted legislation codified and clarified the requirement that a legally mandated rest or recovery period is counted as hours worked and therefore, shall not result in any deductions from an employee's wages. (SB 1360 (Padilla), Chapter # 72, Statutes of 2014). Therefore, there is generally no dispute that rest periods are hours worked for which employees must be paid. However, recent court decisions have addressed disputes about the exact nature of such compensation for employees paid on a piece rate basis, in particular with respect to the calculation of compensation for such rest periods and other nonproductive work time. In March 2013, the California Court of Appeal held that California's minimum wage law requires employers who compensate employees on a piece rate basis to also pay those employees a separate hourly wage for all other time worked, including work performed before, after and between piece rate tasks ("non-productive time"). Gonzalez v. Downtown LA Motors LP, 215 Cal. App. 4th 36 (2013). In that case, the court held that automobile service technicians who were paid on a piece rate basis must also be paid at least the minimum hourly wage for the time they were required to wait between their piece-rate repair work. The court noted that California law requires that employees be paid "not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration AB 1513 Page 8 is measured by time, piece, commission, or otherwise." The Gonzalez case did not specifically involve the situation of rest periods. However, that issue was addressed in a subsequent California Court of Appeals decision in Bluford v. Safeway, 216 Cal. App. 4th 846 (2013). In that case, truck drivers were compensated primarily on the basis of miles driven and the performance of specific tasks, a common piece rate system of compensation. However, the plaintiffs alleged that this compensation system failed to provide them paid rest breaks as required by law because they were not paid a separate hourly wage for such breaks. The defendant argued that the piece rate compensation system already included compensation for rest breaks. However, the court held that piece rate compensation could not be "averaged" over non-piece rate (or rest break) time, and that such rest periods could not therefore be considered paid as required by California law. Therefore, taken together, these recent court cases clarified that piece-rate workers must be separately compensated for non-productive time and rest and recovery periods. While the Gonzalez and Bluford decisions were in keeping with prior legal decisions and statutes in California, many employers have expressed concern about liability since they had not previously compensated employees paid on a piece rate system in such a manner. They and others have expressed concerns that these decisions may generate significant litigation and administrative workload for employers, the courts, and the Labor Commissioner, in actions to recover back wages and penalties. This litigation will be costly and there is significant uncertainty whether workers will recover back pay, and when that may occur. Therefore, this bill represents compromise in an attempt to AB 1513 Page 9 address many of these concerns. The legislation provides a means to resolve these issues in a way that is intended to: (1) reach more piece-rate workers and provide larger and more timely back pay recoveries than could be expected through litigation; (2) relieve employers of related liability for statutory penalties and damages for past violations; and (3) clarify compensation requirements going forward in a way that protects the right of piece-rate workers to be fully compensated for rest and recovery periods and other nonproductive time. Among other things, this bill contains the following elements: Prospective Pay Requirements for Rest and Recovery Breaks Employers will be required to pay an average hourly rate that takes into account all earnings, with no reduction in pay during mandated breaks. This rate will 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. Prospective Pay for Other Non-Productive Time The legislation states what constitutes other compensable nonproductive time and allows for reasonable time estimates where such time cannot be measured precisely. Nonproductive time must be compensated at an hourly rate that is no less than the applicable minimum wage. Back Payments and Relief From Related Penalties and Liquidated Damages Covered employers will have 11 months to make back payments to their employees for previously unpaid or underpaid rest and recovery breaks and other nonproductive time. Employers who do so will have a legal defense to claims for damages and other penalties associated with the prior failure to pay what was due for such time, going back to July 1, 2012. The major elements of this back payment and relief plan are as follows: Back payments are required for the time period of July 1, 2012, through December 31, 2015. Employers will have AB 1513 Page 10 two options for calculating these payments - either use time records to calculate and pay the amounts actually due plus statutory interest or pay a percentage of gross earnings for the same time period, with credits allowed to employers who started paying piece-rate workers separately for breaks and other nonproductive time after the Gonzalez and Bluford decisions. Employers must notify the Department of Industrial Relations by July 1, 2016, of their election to make the back payments and make the required back payments by no later than December 16, 2016. Payments for employees who cannot be located must be made to the Labor Commissioner for deposit in the Unpaid Wage Fund. Employers will be required to maintain and provide appropriate documentation of the payments. Employers who make the required back payments will have an affirmative legal defense against any claim for damages or penalties based on the failure to separately compensate piece-rate workers for rest and recovery breaks and other nonproductive time prior to the effective date of the legislation (January 1, 2016). The statute of limitations for these claims will be tolled during the notice and payment periods. Certain claims will be excluded altogether, including claims resolved by final order or judgment, claims asserted in litigation prior to specified dates, and new claims arising after the law goes into effect. The back payment and penalty relief provisions will sunset after all time limits have run. 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 AB 1513 Page 11 requirements, and therefore loses access to the safe harbor. Exclusions From the Affirmative Defense and Related Provisions This bill provides that the affirmative defense and related provisions shall not apply to any of the following: Damages and penalties previously awarded in an order or judgment that was filed and not subject to further appeal as of January 1, 2016. Claims based on the failure to provide paid rest or recovery periods or pay for other nonproductive time for which all of the following are true: o The claim was asserted in a court pleading filed prior to March 1, 2014, or was asserted in an amendment to a claim that relates back to a court pleading filed prior to March 1, 2014, and the amendment or permission for amendment was filed prior to July 1, 2015. o The claim was asserted against a defendant named with specificity and joined as a defendant, as specified. Claims that employees were not advised of their right to take rest or recovery periods that rest and recovery periods were not made available, or that employees were discouraged or otherwise prevented from taking such breaks. Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016. Claims for paid rest or recovery periods or pay for other nonproductive time that were made in any case filed prior to April 1, 2015, when the case contained by that date an allegation that the employer has intentionally stolen, diminished, or otherwise deprived employees of wages through the use of fictitious worker names or names of workers that were not actually working. An employer that is a new motor vehicle dealer. AB 1513 Page 12 ARGUMENTS IN SUPPORT: Supporters argue that this bill addresses a historically vexing challenge of calculating appropriate piece rate compensation, yet balances the needs of workers and employers. Specifically, supporters note that this bill 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. Supporters also note that this bill provides an affirmative defense for employers, but only if they retroactively compensate employees for their rest periods, recovery periods, and nonproductive time. Supporters argue that this bill is a fair compromise for both employers and workers, addressing a situation where there was a significant development in case law. ARGUMENTS IN OPPOSITION: Opponents argue that although this bill would allow employers to come into compliance and avoid continued exposure for unpaid wage claims, it contains troubling provisions that unfairly exclude participation by some agricultural employers. Opponents argue that these arbitrary provisions set forth a troubling precedent that represents political targeting that sacrifices some companies to continued legal exposure in exchange for legal protections afforded to others. In particular, opponents argue that these provisions are an attempt to single out two agricultural employers for retribution, by leaving them exposed to multi-million dollar damage claims and penalties, while eliminating similar liability threats faced by dozens of other similarly-situated growers. Opponents state that, whatever the intent behind these changes, the result in unfair and unconstitutional. AB 1513 Page 13 REGISTERED SUPPORT / OPPOSITION: Support California Conference of Machinists California Labor and Workforce Development Agency California Labor Federation, AFL-CIO California Teamsters Public Affairs Council California Trucking Association Driscoll Strawberry Associates, Inc. Grimmway Enterprises, Inc. Maricopa Orchards LLC Monterey County Farm Bureau Santa Cruz County Farm Bureau Taylor Farms AB 1513 Page 14 The Wonderful Company Support if Amended California Employment Law Council Western Growers Association Opposition California Citrus Mutual California Cotton Ginners Association California Cotton Growers Association California Employment Law Council California Fresh Fruit Association California Grain and Feed Association AB 1513 Page 15 California Pear Growers Association California Tomato Growers Association Fowler Packing Company Gerawan Farming, Inc. Nisei Farmers League Western Agricultural Processors Association Analysis Prepared by:Ben Ebbink / L. & E. / (916) 319-2091