Assembly Bill 1513, will significantly change the requirements governing the payment of piece-rate compensation in California beginning January 1, 2016.  AB 1513 creates Labor Code section 226.2 which sets forth requirements for the payment of a separate hourly wage for rest and recovery periods and for “other nonproductive time” worked by piece-rate employees.  AB 1513 defines “other nonproductive time” as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”

Calculating Compensation Under AB 1513

The compensation provisions of AB 1513 require employers to separately compensate rest and recovery time and “other nonproductive time” as follows:

  1. Compensate employees for rest and recovery periods at a regular hourly rate that is no less than the higher of either the applicable minimum wage or an “average hourly rate.” The “average hourly rate” is calculated as follows: [(total workweek compensation) – (rest/recovery compensation + overtime premium compensation)] ÷ [(total workweek hours worked) – (rest/recovery periods)].
  2. Compensate employees for all “other nonproductive time” at an hourly rate that is no less than the applicable minimum wage.

Affirmative Defense (Safe Harbor)

Labor Code section 226.2 will provide a limited safe harbor for employers that (1) have not been sued for wages, damages, liquidated damages, statutory penalties, or civil penalties based solely on the employer’s failure to compensate for rest and recovery periods and “other nonproductive time” for time periods prior to March 1, 2014, (2) come into compliance with all of the obligations described in section 226.2 by December 31, 2015, and (3) pay actual or liquidated damages by December 16, 2016.  To qualify for the affirmative defense, an employer must:

  1. Make payments to all piece-rate employees for uncompensated or under-compensated rest and recovery periods and “other nonproductive time” during the period of July 1, 2012 through December 31, 2015 using one of the following calculations:
    1. Actual Sums Due: The employer determines and pays the actual sums due for rest and recovery periods and “other nonproductive time,” plus accrued interest calculated in accordance with subdivision (c) of Labor Code section 98.1; or
    2. Percentage of Earnings: The employer pays each employee an amount equal to 4% of that employee’s gross earnings in pay periods in which the employee performed any piece-rate work during the aforementioned time period. The employer may deduct amounts already paid to the employee, separate from piece-rate compensation, for rest and recovery periods and “other nonproductive time” during the same time. However, this deduction cannot exceed 1% of the employee’s gross earnings during the same time. Thus, the employer must pay at least 3% of the employee’s gross earnings.
  2. By no later than July 1, 2016, provide written notice to the Department of Industrial Relations of its election to make payments to its current and former employees in accordance with the statutory requirements;
  3. Complete all payments by or before December 15, 2016; and
  4. Provide employees with detailed statements regarding the payments.

An employer who satisfies the above requirements may assert the affirmative defense in any lawsuit or claim for wages, damages, liquidated damages, statutory penalties, or civil penalties based solely on the employer’s failure to compensate for rest and recovery periods and “other nonproductive time” after March 1, 2014 (or such allegations asserted in an amendment filed prior to July 1, 2015 to a claim that relates back to a court pleading filed prior to March 1, 2014).

Limitations To Asserting The Affirmative Defense

Notably, the affirmative defense does not apply to claims alleging claims that employees were not advised of their right to take rest or recovery breaks, that rest and recovery breaks were not made available, or that employees were discouraged or otherwise prevented from taking such breaks.  The affirmative defense also does not protect against:

  1. Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016;
  2. Claims made in any case filed prior to April 1, 2015, when the case contained by that date an allegation that the employer intentionally stole, diminished, or otherwise deprived employees of wages through the use of fictitious worker names or names of workers that were not actually working; or
  3. Damages and penalties previously awarded in an order or judgment that was final and not  subject to further appeal as of January 1, 2016.

Action Required For Employers

If you are an employer that currently pays its employees via a piece-rate system in California, AB 1513 requires that you immediately and significantly change your pay practices. Namely, as a result of this new law, employers utilizing a piece-rate compensation system are required to do the following with respect to employees performing piece-rate work in California effective January 1, 2016:

  1. Compensate employees for rest and recovery periods at either: a) 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; or b) the applicable minimum wage, whichever is higher;
  2. Compensate employees for “other nonproductive time” at the applicable minimum wage; and
  3. Update paystubs to include:
  • The total hours of compensable rest and recovery periods, the rate of compensation for said periods, and the gross wages paid for those periods during a pay period; and
  • The total hours of “other nonproductive time” may be determined either through actual records or the employer’s “reasonable estimate.” The statute does not define or provide guidance on what constitutes a “reasonable estimate.”

The full text of the bill can be found here. The highly complicated statute requires immediate action by affected employers; however, as mentioned above, it does not clearly address several key issues relating to compliance.  Employers subject to AB 1513 are strongly encouraged to consult counsel regarding the new statutory obligations, potential liability, and implementation of the safe harbor/affirmative defense prior to the end of the year.