Founder and Managing Partner
By now employers know that rest breaks must be paid and if an employee is paid on a piece-rate basis, the rest break must be compensated at the higher of minimum wage, or their average hourly rate for the workweek. In Certified Tire and Service Centers Wage and Hour Cases, Plaintiffs sued their employer, Certified Tire, claiming that their pay plan was an “activity-based” pay system and did not separately compensate them for non-productive time and rest periods because it allowed them to earn a higher hourly rate based on production. They argued that because they could not increase their hourly rate while working on certain activities or taking rest breaks, this time was unpaid. The employees claimed Certified Tire had wrongly averaged their earnings to contend they were being paid minimum wage for all hours worked, such as in Armenta v. Osmose, Inc.
Technician Pay Structure
However, a California Court of Appeal rejected this argument, holding that the pay plan was not a piece- rate or commission pay plan, but instead was an hourly pay plan only. It paid all technicians at least minimum wage for all hours worked, and merely let them increase their applicable hourly rate based on a formula that took into consideration all of their “production dollars.” Production dollars refer to all dollars billed to customers as a separate labor charge, for which Plaintiffs received an incentive for productivity.
Thus, the Court upheld the validity of a pay plan that guarantees an hourly wage that meets or exceeds minimum wage for all hours worked in the pay period, but allows employees to increase their hourly rate for all hours worked based on a formula that rewards work billed to the customer as a separate charge. Essentially, if the hourly plan pays for rest breaks and time not connected to productive work, it is valid as long as it pays at least minimum wage for rest breaks and all hours worked.
Lessons for Employers
Incentive plans will be scrutinized but incentive pay is still available to employers if implemented correctly. Employers should note this alternate method of paying technicians and other employees typically on a piece-rate or commission pay plan and consider implementing an hourly plan with increased hourly rates for all hours worked, not just those spent generating commissions or incentive pay, to avoid potential claims of improperly paid rest breaks or unpaid minimum wages for non-productive time.