Gonzalez v. Downtown LA Motors: Court Holds That Employer Must Compensate Piece Rate Workers Separately for “Non-Productive” Time

Gonzalez v. Downtown LA Motors, LP (3/6/13 pub. 4/2/13) --- Cal.App.4th ---, considers "whether California's minimum wage law requires an employer that compensates its automotive service technicians on a 'piece-rate' basis for repair work must also pay those technicians a separate hourly minimum wage for time spent during their work shifts waiting for vehicles to repair or performing other non-repair tasks directed by the employer." Slip op. at 2.  The Court of Appeal held that class members were entitled to separate hourly compensation for time spent waiting for repair work or performing other non-repair tasks, as well as Labor Code section 203 waiting time penalties.  

The employer, DTLA, used a "flag hour" compensation system. Each employee had a flag rate, and each repair job had a set number of flag hours, regardless of the actual time spent doing the job. At the end of each pay period, DTLA multiplied the flag rate by the flag hours to compute total compensation. If that amount fell short of the minimum wage for the actual hours worked, DTLA paid minimum wage for the actual hours worked, rather than the flag rate. 

Gonzalez filed suit, alleging that this system failed to compensate the employees at minimum wage rates for hours waiting for repair work or otherwise engaged in non-repair tasks.  After a bench trial, the court entered judgment for the class, and DTLA appealed. The Court of Appeal affirmed, finding: 

The holding in Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314 -- that employers must pay for all hours worked and may not average paid, productive hours with non-paid, non-productive hours -- applies equally to employees paid on a piece rate basis.  Slip op. at 12-18.  The Court added an interesting note: 

Averaging piece-rate wages over total hours worked results in underpayment of employee wages required “by contract” under Labor Code section 223, as well as an improper collection of wages paid to an employee under Labor Code section 221.  

Slip op. at 14. 

Next, although the Court did not rule on whether DTLA's use of the flag rate system justified imposition of Labor Code section 203 waiting time penalties, it held that substantial evidence of other conduct supported the award:  

Although DTLA stated that its policy was to supplement its technicians' pay when flag hour compensation fell below the minimum wage floor, there was evidence that DTLA did not always follow this policy. DTLA's expert witness testified that he reviewed technicians' pay records and found instances when DTLA failed to cover shortfalls between piece-rate wages and the minimum wage floor. 

Slip op. at 18-19. 

Gonzalez v. Downtown LA Motors is here.