A recent decision by California Court of Appeal in Gonzales v. Downtown LA Motors, LP, unless overruled, will affect the future of “piece-rate” compensation of employees. The Court held that automobile mechanics, who earned at least minimum wage for every hour worked based on their “piece-meal” compensation plan, were entitled to separate hourly compensation for any time not spent performing auto repairs. This decision, which awarded over $1.5M to the class, will likely be appealed to the Supreme Court.

DTLA had a compensation system where service technicians were paid on a “piece-rate basis”. DTLA’s mechanics were compensated based on a piece rate known as “flag hours,” which pays a set number of hours for a particular repair, regardless of the actual time the mechanic takes to complete the repair. DTLA also kept track of all the time a technician spends at the work site, whether or not the technician was working on a repair order. At the end of each pay period, DTLA calculated how much each technician would earn if paid an amount equal to his total recorded hours “on the clock” multiplied by the minimum wage. By doing so, DTLA guaranteed the mechanics the minimum wage for every hour worked (not just time spent making repairs).

Gonzales claims that DTLA violated California law by failing to pay technicians a minimum wage during their waiting time — periods of time they were on the clock, but waiting for repair orders or performing other non-repair tasks. The Court agreed. However, the Court clarified that its holding was limited to the facts before it, and that it was not making any ruling regarding how the same pay structure would apply in a commission setting.

If you currently have a piece-rate compensation program for your employees, please call us to discuss the associated risks arising out of this decision.