California’s piece rate compensation laws in the news
The recent 9th Circuit Court of Appeals case of Williams v J.B. Hunt Transport, Inc. provides us not only with a refresher course on Labor Code section 226.2’s piece rate compensation provisions in general, but also an instruction on its safe harbor exception.
Let’s turn the clock back to 2015 for a moment. Piece rate compensation, as the name suggests, is a method of calculating worker compensation by piece or unit, rather than by hour. For example, workers can be paid by unit sewn, bushel picked, or truck unpacked. However, under both federal and state law, the worker’s compensation must still be at least the minimum wage for the hours worked. This requirement was well established in the law. However, litigation around 2015 addressed whether nonproductive time and rest breaks needed to be counted as hours worked when calculating the minimum wage equivalency for piece rate wages. The landmark cases of Gonzalez and Bluford found that rest periods, recovery periods, and nonproductive time must be compensated separately and at least at the minimum wage.
Enter AB 1513 of 2015.
· Piece rate compensation and separate compensation for nonproductive time and rest and recovery periods. Both Gonzalez and Bluford held that piece rate workers must separately compensate the workers’ nonproductive time, as well as their rest and recovery breaks. AB 1513 codified that requirement, with nonproductive time being separately compensated at the minimum wage or higher. Importantly, however, rest and recovery periods would be separately compensated as an average of the hourly pay for the pay period. By doing so, it would ensure that workers are not facing a disincentive in the form of a lower average hourly wage if they take necessary breaks for their health and well-being.
· AB 1513’s safe harbor provision. AB 1513 also enacted section 226.2(a)(7) which states that “An employer who, in addition to paying any piece-rate compensation, pays an hourly rate of at least the applicable minimum wage for all hours worked, shall be deemed in compliance” with the statute’s requirement that employers who pay only on a piece-rate basis must separately compensate for nonproductive time.
In response to AB 1513, J.B. Hunt, the Defendant transportation company, implemented new pay plans for most of its California-based drivers, including Plaintiffs, in December 2018. Under this new plan, employees were paid on neither a pure hourly basis nor a pure piece-rate basis. Rather, employees received hourly pay for all hours worked from the start of the day to the end of the day, including time spent on pre-route and post-route paperwork, pre-trip and post-trip inspections, fueling, and training activities. Then, on top of hourly pay, employees were paid an “activity-based bonus amount.” Eligible activities that would be calculated into bonus pay included miles, stops, detention, and loading and unloading. Activities such as fueling and completing paperwork were not eligible activities. This compensation scheme—called the Driver Pay Plan—was calculated by the following formula: Hourly Pay + Activity-Based Bonus Amount = Total Compensation
J.B. Hunt’s “activity-based bonus amount” was not simply the sum of all eligible activity pay. Rather, J.B. Hunt calculated its “activity-based bonus amount” by subtracting hourly pay from total eligible activity pay (the raw sum of all eligible activity pay). As J.B. Hunt explained in its driver guidelines, the activity-based bonus amount was calculated as: Total Eligible Activities – Hourly Pay = Activity-Based Bonus Amount. If the difference between total eligible activity pay and hourly pay was negative—meaning hourly pay was higher than total eligible activity pay—then J.B. Hunt simply paid the employee their hourly pay and no additional bonus for that pay period. In such circumstances, the formula would simply become the standard Hourly Pay = Total Compensation. This compensation scheme formed the heart of the issue.
The lower court found that, contrary to Plaintiffs’ assertions, the Driver Pay Plan was lawful and qualified for the safe harbor of section 226.2(a)(7) because it always paid Plaintiffs at least the minimum wage for all hours worked in addition to compensating them on a piece rate basis for certain eligible activities. Therefore, because J.B. Hunt did not pay Plaintiffs only on a piece-rate basis, it did not need to compensate Plaintiffs separately for nonproductive time under section 226.2(a)(4).
Fast forward to 2025.
After Plaintiffs’ appealed, the 9th Circuit found that the Driver Pay Plan in fact qualifies for the safe harbor of section 226.2(a)(7). Although the appellate court described the compensation plan as “convoluted” and “relatively unusual”, because the company met its obligations under section 226.2, its pay equation was lawful.
The court reasoned that the scheme initially pays for all hours worked and then adds any applicable bonus compensation on top of that hourly pay. Nothing in section 226.2 prohibits an employer from paying an hourly wage of at least the minimum wage and then adding bonus pay based on a formula that considers hours worked. Indeed, all that section 226.2(a)(7) requires is that an employer “pays an hourly rate of at least the applicable minimum wage for all hours worked” in addition to paying any piece-rate compensation, which is what occurred. J.B. Hunt paid its employees an hourly wage for “all hours worked,” regardless of whether or not those hours were “productive” or “nonproductive.” It then supplemented that pay—when employees were eligible—with a piece-rate-based bonus. And J.B. Hunt did not promise that its additional compensation would be pure piece-rate pay. Rather, it explained to drivers that the bonus pay would be calculated by subtracting hourly pay from eligible bonus activities, and that only this difference would be added onto the base hourly pay. Therefore, J.B. Hunt satisfied its obligation to “pay no less than the minimum wage for all hours worked” while “still keeping any promises it has made to provide particular amounts of compensation for particular tasks or periods of work.”
Because piece rate compensation can become complicated, as evidenced by J.B. Hunt’s Driver Pay Plan, if your workplace utilizes a piece rate scheme, it is imperative to consult with professionals like those at Rosasco Law Group to ensure full compliance with labor laws. Give us a call for these and all of your employment needs.
