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California Appeals Court Confirms Constitutionality of Piece-Rate Compensation Statute

In Nisei Farmers League vs. California Labor and Workforce Development Agency, California’s Fifth Appellate District confirmed the constitutional validity of Labor Code section 226.2, a recently enacted law providing that employees paid on a piece-rate basis must be paid at least minimum wage, and must be paid for rest and recovery periods and “other nonproductive time” separate from any piece-rate compensation. Under a piece-rate system, employees are not paid by the hour, but rather based on activities, task or units of production completed. For example, employees are paid by the number of widgets they produce. The goal of the statute was to make sure employers who pay under a piece-rate system also comply with all minimum wage law requirements that apply to hourly workers.

The plaintiffs argued key terms of Labor Code section 226.2 were so unclear that the entire code section should be rendered void for vagueness. Plaintiff’s main attack was that the terms “other nonproductive time” and “actual sums due” were unconstitutionally vague. They also attacked statute by alleging an affirmative defense set forth in the statute would be applied retroactively to an unconstitutional degree. The affirmative defense provides employers an opportunity to avoid statutory penalties by making retroactive payments, in the manner specified by the statute, for rest time and unproductive time that was not timely. The lower court ruled in favor of defendant’s demurrer and plaintiff’s case was dismissed, which the appellate court upheld on appeal.

In its decision, the appellate court pointed out that the California Legislature enacted Labor Code section 226.2 to codify the holdings in two 2013 cases Gonzalez vs. Downtown LA Motors and Bluford vs. Safeway, Inc. In Gonzalez, the court held the employer did not adequately compensate piece-rate repair employees for down time/waiting time between repair tasks, reasoning minimum wage laws need to be applied to each hour worked. In other words, workers have to be compensated for “nonproductive work time” consistent with minimum wage laws. In Bluford, the court of appeals held employers must separately compensate employees paid by the piece for legally required rest periods as hourly employees would.

The appellate court explained that for a statute to be deemed unconstitutional, it is not enough that its terms be uncertain or ambiguous. To be unconstitutionally vague, its terms must be “impermissibly vague in all its applications,” amongst other criteria. The appellate court found the Labor Code section itself includes a reasonably clear and specific definition of “nonproductive time” and any ambiguity could be resolved by looking to the statute’s legislative history and applicable case law.

The appellate court then shot down plaintiff’s arguments that the statute amounts to “retroactive punishment.” Nothing in the Labor Code section amounted to retroactive construction, the court explained. Rather, the affirmative defense for employers applies to specific procedures and pay amounts for wages already owed to employees. The statute was not retroactive since the relevant minimum wage laws already existed and no brand new legal requirements were being imposed.

Employers who pay their employees under piece-rate systems in California should make sure they are in compliance with all California minimum wage laws and specifically Labor Code section 226.2. They should also keep an eye out for changes in California case law interpreting the statute.  Employers should be prepared to react quickly to these kinds of changes in order to pay proper wages.

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