by Michelle R. Ferber and Julie Ann Giammona

A California appeals court recently underscored the importance of avoiding piece rate and/or commission based systems of pay by concluding that a Technician Compensation Program (TCP) where each technician was guaranteed an hourly rate of pay above minimum wage for every hour worked is lawful (and does not equate to a piece rate or commission based program).  The court concluded that California law does not require an employer to pay “enhanced pay” under the incentive program unless and until the task the employee performs so qualifies as described by the written TCP.

In Certified Tire and Service Centers Wage and Hour Cases, the technicians argued that Certified Tire failed to pay them minimum wage and provide all rest breaks where the TCP provided that the technicians had the possibility of earning a higher hourly rate for all hours worked by averaging different rates of pay based on certain productivity measures. The problem with their argument was that Certified Tire provided all rest breaks and paid the technicians for all hours, whether the hours were counted as enhanced pay (tasks being performed that qualified as “production dollar” tasks pursuant to the TCP) or regular pay hours (tasks being performed did not qualify as “production dollar” tasks pursuant to the TCP). Overtime was not an issue in this case.  The Court stated:

“Although the hourly rate differs from pay period to pay period because technicians have the opportunity to increase their guaranteed minimum hourly rate . . .the technicians are always paid on an hourly basis for all hours worked at a rate above minimum wage regardless of their productivity and regardless of the type of activity in which they were engaged during those hours.

Contrary to plaintiffs’ contention, because technicians are paid at an hourly rate that is above minimum wage for each hour on the clock, this case does not involve averaging of an employee’s hourly rate to show compliance with minimum wage requirements.”

The Court distinguished this case from other case law that involved a piece rate or commission based system, as well as set it apart from the requirements of Labor Code Section 226.2, which provides for separate payment for nonproductive work time and for rest breaks during non-productive time. Here the technicians simply did not experience nonproductive work time. The technicians were working and being paid whether the task was defined as a “production” or a “non-production” task.

This case is a good reminder for employers to review their incentive plans to ensure the plan complies with California law by guaranteeing employees are paid at least minimum wage for every hour worked. This case illustrates how to achieve an employer’s goal of incentive production pay, and yet steer clear of piece rate and/or commission plans. Piece rate and commission plans are at best complex, and we rarely recommend such plans.  Ferber Law’s skilled lawyers have the knowledge and experience to advise your business in this regard. We look forward to hearing from you soon.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.