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Potential Minimum Wage Exposure for California Employees Paid on Commission/Piece-Rate Basis

A new trend in California employment litigation may result in food industry employers being subject to minimum wage claims. We have seen that many food industry employers have employees in California working in truck-driving or sales positions who are paid, in whole or in part, on a commission or a piece-rate basis. These employers should be aware that there is a growing number of lawsuits filed in California claiming that employees were not paid minimum wage for all hours worked under California law when they were paid under such an incentive compensation plan and not separately paid hourly minimum wage for each hour worked.

These lawsuits rely on California case law holding that, unlike under the federal overtime statute (the Fair Labor Standards Act), employers may not use an “averaging” method to meet their California minimum wage obligations. These cases have held that employers must pay at least minimum wage for each hour worked and that incentive pay is not earned during “nonproductive” hours, such as waiting time and rest breaks. Thus, compensation plans that do not have a separate component that pays employees at least minimum wage for each hour worked create risk for California employers.

Employers with employees in California should consult with employment counsel about any compensation plan that includes a piece-rate and/or commission component. Although each type of compensation plan is unique, following the guidelines below may help reduce the legal risk associated with potential minimum wage claims:

 

     

    • Ensure that base hourly rates of pay during “nonproductive” time are at least the minimum wage. This encompasses hours when incentive pay is not earned, including waiting time, training time, and rest breaks.

    • Consider paying an hourly minimum wage rate (currently $9.00) for all hours worked and then paying incentive pay in addition to the hourly pay. Piece rates or commission rates may be prospectively adjusted to avoid increasing an employee’s total pay.

    • Consider how any changes to employee compensation impact compliance with California’s wage statement and wage notice requirements. California law requires that numerous items be included on employee wage statements and wage notices, including all applicable hourly rates and information about incentive pay.

    Copyright © 2020 by Morgan, Lewis & Bockius LLP. All Rights Reserved.National Law Review, Volume IV, Number 319

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    About this Author

    Michael Puma, employment litigation attorney, Morgan Lewis
    Partner

    Michael J. Puma focuses on complex labor and employment litigation, particularly wage and hour class and collective actions, and noncompete and trade secrets litigation throughout the United States. He has litigated more than 50 wage and hour class and collective actions, including in the retail, entertainment, financial services, insurance, food, and telecommunications industries. He also regularly counsels clients on wage and hour compliance, protecting their trade secrets, and day-to-day employment issues.

    215-963-5305