Under a line of California cases, employees must be separately compensated at least minimum wage for all time worked. These cases have stated that employers may not meet the requirement by showing employees are effectively paid at least minimum wage by averaging the amount an employee receives for paid and non-paid work hours. For example, in Armenta v. Osmose, the court found an employer’s refusal to pay an hourly wage for workers’ time spent driving to job sites or processing paper work violated California minimum wage requirements even though the employer’s higher hourly rate averaged over all hours worked was above the minimum wage. The court concluded the federal model of averaging all hours worked in a work week to calculate an employer’s minimum wage obligation was inappropriate under California law.

A recent decision out of the California Court of Appeal added some nuance to the analysis of minimum wage compliance in an established line of case law. In Certified Tire and Service Centers Wage and Hour Cases, the California Court of Appeal for the Fourth District considered whether the defendant tire and service centers violated California law with its compensation program.

In Certified Tire, employees in a certified wage and hour class action argued the employer violated the applicable minimum wage and rest period requirements with its compensation program, which allowed technicians to earn a higher hourly wage for all hours worked during each pay period based on certain productivity measures.

Under the compensation program, technicians were assigned an hourly wage upon hire that exceeded the legal minimum wage. However, technicians had the opportunity to earn a higher hourly rate under a set formula that rewarded technicians for work billed to a customer as a separate labor charge. The employer applied the formula to determine a technician’s “base hourly rate” for a given pay period. If the base hourly rate exceeded the technician’s regular hourly rate, the technician was paid the higher rate for all time worked during the pay period. If the base hourly rate was less than the technician’s regular rate, the technician was paid the regular rate for all time worked during the pay period.

The employees relied on Armenta and similar cases in arguing its employer secretly paid nothing for work that could not be billed to a customer and through averaging made it look like they were paying at least minimum wage for the “non-billed” time. The employees further argued that since a technician could not increase his or her base hourly wage when working on activities not associated with “billed time” or during rest breaks, such non-billed time was essentially uncompensated.

The court rejected the employees’ argument that the compensation program ran afoul of California minimum wage requirements. Unlike in cases violating the Armenta rule, the employer in Certified Tire did not have to average employee’s hourly rate to show compliance with minimum wage requirements. It directly established such compliance by paying technicians an hourly rate that is above minimum wage for all hours on the clock, including rest breaks. Technicians were required to be clocked in during all work hours, except for their lunch period, and were paid an hourly rate for all hours on the clock. Technicians also took rest breaks as required by law and did not clock out during such breaks.

The court distinguished Armenta and three other cases on which Plaintiff relied because in each case employers failed to compensate employees for certain work time and/or rest breaks. (In Armenta the employer failed to pay for workers’ time spent driving to job sites or processing paper work; in Gonzalez v. Downtown LA Motors, automobile service technicians paid under a piece-rate compensation system were not directly compensated for non-repair tasks; in Bluford v. Safeway Stores, Inc., truck drivers paid under a piece-rate compensation system were not separately compensated for rest periods; in Vaquero v. Stoneledge Furniture LLC, furniture employees paid under a commission-based system were not separately compensated for rest periods.)

Takeaways

Certified Tire is certainly a win for an employer providing an incentive to earn more than the regular hourly rate for all hours worked based on certain productivity measures. The key was the Certified Tire system did not violate the rule against averaging non-paid and paid work hours to comply with minimum wage requirements. Certified Tire is a good reminder to periodically review your company’s pay practices for compliance with California wage and hour law, including the applicable California wage order and the constantly changing body of case law.