In this wage and hour class action, the issue presented is whether California's minimum wage law requires an employer that compensates its automotive service technicians on a "piece-rate" basis for repair work must also pay those technicians a separate hourly minimum wage for time spent during their workshifts waiting for vehicles to repair or performing other nonrepair tasks directed by the employer. The employer contends it was not required to pay the technicians a separate hourly minimum wage for such time because it ensured that a technician's total compensation for a pay period never fell below what the employer refers to as the "minimum wage floor" — the total number of hours the technician was at work during the pay period (including hours spent waiting for repair work or performing nonrepair tasks), multiplied by the applicable minimum wage rate. The employer did so by supplementing a technician's pay, if necessary, to cover any shortfall between the technician's piece-rate wages and the minimum wage floor.
The trial court concluded that the employer's method of compensation violated the minimum wage law because California law does not allow an employer to avoid paying its employees for all hours worked by averaging total compensation over total hours worked in a given pay period. The trial court cited Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314 [37 Cal.Rptr.3d 460] (Armenta) as support for its ruling.
We too find the court's reasoning in Armenta to be persuasive. Applying that reasoning here, we conclude that class members were entitled to separate
Defendant and appellant Downtown LA Motors, LP, doing business as Downtown LA Motors Mercedes Benz is an automobile dealership that sells and services Mercedes-Benz automobiles. Defendant Shammas Automotive Holdings, Inc., is its owner. Those entities are referred to collectively as DTLA.
Plaintiffs are a class of 108 automotive service technicians who worked for DTLA between April 2002 and June 2008.
DTLA's compensation system
DTLA compensates its service technicians on a piece-rate basis, which differs from an hourly wage method in that technicians are paid primarily on the basis of repair tasks completed. Under DTLA's piece-rate system, technicians are paid a flat rate ranging from $17 to $32, depending on the technician's experience, for each "flag hour" a technician accrues. Flag hours are assigned by Mercedes-Benz to every task that a technician performs on a Mercedes-Benz automobile and are intended to correspond to the actual amount of time a technician would need to perform the task. A DTLA technician who completes a repair task accrues the number of flag hours that Mercedes-Benz assigns to that task, regardless of how long the technician actually took to complete it. DTLA technicians accrue flag hours only when working on a repair order.
DTLA calculates its technicians' pay for an 80-hour pay period by multiplying flag hours accrued during that pay period by the technician's applicable flat rate. For example, a technician with a flat rate of $26 who accrued 150 flag hours in a pay period would earn 150 × $26 or $3,900.
In addition to tracking a technician's flag hours, DTLA also keeps track of all the time a technician spends at the worksite whether or not the technician is working on a repair order. At the end of each pay period, DTLA calculates how much each technician would earn if paid an amount equal to his total recorded hours "on the clock" multiplied by the applicable minimum wage. DTLA refers to this amount as the "minimum wage floor." If a technician's
Plaintiffs worked eight-hour shifts. During their shifts, plaintiffs were required to remain at DTLA's place of business and had to obtain permission to leave during a shift if they were not working on a repair order. Plaintiffs were also required to clock in when they arrived for work, clock in and out for lunch, and clock out at the end of their shifts.
Plaintiffs regularly did not have repair work to do because there were not enough vehicles to service. When this occurred, plaintiffs had to remain at work, and those who asked to leave early were told that they needed to stay because customers might come in. Plaintiffs accrued no flag hours during time spent waiting for cars to repair. While waiting for repair work, plaintiffs were expected to perform various nonrepair tasks, including obtaining parts, cleaning their work stations, attending meetings, traveling to other locations to pick up and return cars, reviewing service bulletins, and participating in online training. They accrued no flag hours while performing these nonrepair tasks.
The instant lawsuit
Plaintiffs filed the instant action against DTLA claiming 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 nonrepair tasks. Plaintiffs also claimed that technicians terminated from employment during the class period were entitled to penalties under Labor Code section 203, subdivision (a) because DTLA had failed to pay these technicians all the wages they were due upon their termination.
The trial court denied cross-motions for summary adjudication filed by the parties as to whether DTLA technicians were entitled to a separate hourly pay for waiting time in addition to their flag hour pay and minimum wage floor supplement, and the matter proceeded to a bench trial.
The parties presented documentary evidence as well as testimony by class members and expert witnesses regarding the amount of waiting time experienced by class members. Both parties also presented expert testimony as to the amount per pay period that class members either were or were not underpaid.
The trial court ruled in favor of plaintiffs, concluding that California law requires class members to be paid for their waiting time between work on repair orders. The trial court found the testimony of plaintiffs' expert to be "credible," and adopted that expert's conclusions that plaintiffs experienced waiting time of 1.85 hours per day on average, that the average amount of unpaid compensation for waiting time per plaintiff was $27.76 per day, and that in total, plaintiffs lost the amount of $553,653 in uncompensated time during the class period. The trial court determined that the value of the class's waiting time, including interest, was $1,555,078 and awarded that sum to plaintiffs. The trial court also awarded plaintiffs penalties in the amount of $237,840 under Labor Code section 203, subdivision (a) for DTLA's willful failure to pay all wages owed them at the time their employment was terminated.
This appeal followed.
I. Applicable Legal Principles and Standard of Review
If the language of the wage order is clear, it is applied without further inquiry. (Aleman, supra, 209 Cal.App.4th at p. 568.) If the language can be interpreted to have more than one reasonable meaning, a court may consider "`a variety of extrinsic aids, including the ostensible objects to be achieved, the evils to be remedied, the legislative history, public policy, contemporaneous administrative construction, and the statutory scheme of which the statute is a part.' [Citation.]" (Id. at pp. 568-569.)
II. Wage Order No. 4
The wage order at issue in this case is IWC wage order No. 4-2001,
"Hours worked" is defined in subdivision 2(K) of the wage order as "the time during which an employee is subject to the control of an employer, and
III. The Parties' Contentions
DTLA contends its method of compensating technicians complies with the plain language of Wage Order No. 4 because technicians are paid an amount "not less than" the amount they would have earned had they been paid the applicable hourly minimum wage for "all hours worked" during a given pay period. DTLA argues that compliance may be achieved by supplementing a technician's piece-rate wages in an amount necessary to cover any shortfall between those wages and the "minimum wage floor," or the amount the technician would have earned if paid an hourly minimum wage for all hours "on the clock," including waiting time, during a pay period.
Plaintiffs and amicus curiae California Employment Lawyers Association
DTLA argues that the trial court's interpretation contravenes the plain language of the wage order, which does not distinguish between waiting time and productive time and does not require an employee paid on a piece-rate basis to be compensated separately for waiting time. DTLA and its amici contend that such interpretation undermines the piece-rate compensation system, which is intended to reward technicians for performing repair tasks efficiently. DTLA and its amici curiae further contend Armenta does not and should not apply to piece-rate compensation systems such as the one at issue here and that the trial court erred by awarding plaintiffs penalties under Labor Code section 203.
In Armenta, Division Six of the Court of Appeal, Second Appellate District construed the same language in the same wage order that is at issue here and concluded that it "expresses the intent to ensure that employees be compensated at the minimum wage for each hour worked." (Armenta, supra, 135 Cal.App.4th at p. 323, italics added.) The court in Armenta further concluded
The plaintiffs in Armenta were employed by a company that maintained utility poles in rural or remote locations. The company provided the employees with a truck that carried the tools and equipment needed to perform the work in the field, and employees were required to travel in the truck from a central meeting place to the various jobsites. (Armenta, supra, 135 Cal.App.4th at p. 317.) Employees' time was considered "productive" if directly related to maintaining utility poles in the field and "nonproductive" if spent performing other tasks such as traveling to and from a jobsite, loading or maintaining vehicles, and attending safety meetings. (Ibid.) Employees were only paid for "productive" time.
The employer argued that its compensation system did not violate state minimum wage laws because under the terms of the employees' collective bargaining agreement, it paid hourly wages substantially higher than the applicable minimum wage and total employee compensation exceeded the product of total hours worked (both paid and unpaid) and the minimum wage, resulting in an average hourly rate that was higher than the applicable minimum wage. (Armenta, supra, 135 Cal.App.4th at p. 319.) The court in Armenta ruled that the employer had violated the minimum wage law by not compensating employees for travel time and for time spent on daily paperwork. (Id. at p. 320.)
As support for its ruling, the Armenta court cited a January 29, 2002 opinion letter issued by the Division of Labor Standards Enforcement (DLSE)
The court in Armenta agreed with the DLSE, and distinguished federal case authority applying an averaging formula to assess minimum wage violations. Among the cases distinguished was a California federal district court decision, Medrano v. D'Arrigo Brothers Co. (N.D.Cal. 2004) 336 F.Supp.2d 1053 (Medrano), in which agricultural workers who were compensated on a piece-rate basis brought a class action against their employer seeking recovery of minimum wages due for travel time to the fields. The federal district court in Medrano held that the employer complied with the minimum wage requirements so long as a worker was paid no less than the sum the worker would have been paid during the pay period had the employer paid the minimum wage multiplied by total hours worked, including waiting and travel time. (Armenta, supra, 135 Cal.App.4th at p. 322.) The court in Armenta found federal authorities such as Medrano to be "of little assistance" in construing California laws and regulations that differed substantially in both language and intent from federal minimum wage laws. (Armenta, at p. 323.) The Armenta court then undertook a comprehensive analysis of Wage Order No. 4 and concluded that "[t]he averaging method utilized by the federal courts for assessing a violation of the federal minimum wage law does not apply here." (Ibid.)
The Armenta court focused first on the language of the wage order, noting that it "differ[ed] significantly" from the Fair Labor Standards Act of 1938 (29 U.S.C. § 201 et seq.). (Armenta, supra, 135 Cal.App.4th at p. 323.) For example, subdivision 4(B) of Wage Order No. 4 requires payment of the minimum wage for "all hours worked" whereas the federal statute "requires payment of minimum wage to employees who `in any work week' are engaged in commerce." (Armenta, at p. 323, second italics added.) The federal language referring to payment "in any work week," the Armenta court reasoned, allows an employer to average an employee's total pay over an entire "work week." (Ibid., italics added.) In contrast, the California wage order's emphasis on "hours worked" reflected "the intent to ensure that employees be compensated at the minimum wage for each hour worked." (Ibid., second italics added.)
After parsing through the regulatory language, the Armenta court next considered the wage order in the context of the statutory framework as a whole. The court noted that Labor Code sections 221, 222, and 223 require an employer to pay all employee hours at either the statutory or agreed rate and prohibit an employer from using any part of that rate as a credit against
The court then compared California's minimum wage rate with the federal rate and found California law to be more protective of minimum wage employees. On that basis, the court found "a clear legislative intent to protect the minimum wage rights of California employees to a greater extent than federally." (Armenta, supra, 135 Cal.App.4th at p. 324.)
Finally, the court in Armenta considered "the policies underlying California's minimum wage law and regulations" which "reflect a strong public policy in favor of full payment of wages for all hours worked." (Armenta, supra, 135 Cal.App.4th at p. 324.) Given that public policy, the court concluded that a method of "averaging all hours worked `in any work week' to compute an employer's minimum wage obligation under California law is inappropriate." (Ibid.) The court in Armenta held that use of such an averaging method to determine an employer's minimum wage obligation violates California law and that "[t]he minimum wage standard applies to each hour worked by [the employees] for which they were not paid." (Ibid.)
V. Armenta's Applicability to the Instant Case
A. The plain language of Wage Order No. 4 covers piece-rate compensation
B. Federal courts have applied Armenta to piece-rate workers
DTLA's attempt to limit Armenta to hourly workers has been rejected by federal district courts applying California's minimum wage law. (See, e.g., Cardenas v. McLane Foodservices, Inc. (C.D.Cal. 2011) 796 F.Supp.2d 1246 (Cardenas); Carrillo v. Schneider Logistics, Inc. (C.D.Cal. 2011) 823 F.Supp.2d 1040.) Of these federal cases, Cardenas is instructive as it involved truckdrivers who were paid on a piece-rate basis and who claimed their employer failed to compensate them for time spent each day waiting for customers and performing pre- and postshift duties such as conducting vehicle inspections and safety checks and picking up keys and manifests. (Cardenas, supra, 796 F.Supp.2d at p. 1249.) The employer argued that it paid the truckdrivers substantially more than the minimum wage for all their working hours and that Armenta should not apply because that case did not involve a piece-rate compensation system. The Cardenas court rejected this distinction, stating: "Though Armenta did not involve a piece-rate pay formula, and involved an employer who violated an explicit agreement, those distinctions do not detract from the decision's holding that `[t]he averaging method used by the federal courts for assessing a violation of the federal minimum wage law does not apply' to California law-based claims." (Cardenas, supra, at p. 1252.) The Cardenas court then held that "a piecerate formula that does not compensate directly for all time worked does not comply with California Labor Codes, even if, averaged out, it would pay at least minimum wage for all hours worked." (Ibid.)
Like the court in Cardenas, we find the court's reasoning in Armenta to be equally applicable to employees compensated on a piece-rate basis.
C. Aleman does not compel a different result
DTLA contends that our decision in Aleman supports its position that an employer may satisfy its minimum wage obligations by ensuring that an employee's overall wages reach a certain threshold amount. Aleman is inapposite. That case concerned split shift workers and the subdivision of Wage Order No. 4 applicable to such workers (subd. 4(C), rather than 4(B), the subd. applicable here). Our decision in Aleman did not address the Armenta court's interpretation of subdivision 4(B) of the wage order, nor did it validate the interpretation advanced by DTLA.
D. The absence of a collective bargaining agreement is not a valid basis for distinguishing Armenta
DTLA argues that the Armenta court's interpretation of Wage Order No. 4 should not apply here because the court's reasoning was premised in part on Labor Code sections 221, 222, and 223, which are inapposite to the instant facts. Those statutory provisions do not apply, DTLA maintains, because it did not collect or receive any previously paid wages from its employees, it does not have a collective bargaining agreement or any other agreement setting a wage rate higher than the minimum hourly wage, and it did not secretly pay a lower amount than promised to its technicians.
E. The Armenta court's interpretation is not inconsistent with California's method for calculating overtime for piece-rate employees
DTLA's amici curiae argue that the Armenta court's prohibition against averaging should not be applied to piece-rate workers because doing so would conflict with statutorily authorized methods for calculating overtime for such workers. They cite Labor Code section 510 and section 184.108.40.206 of the DLSE "Enforcement Policies and Interpretations Manual (Revised)" (DLSE Manual), as support for the position that piece-rate pay alone fully compensates employees for all hours worked and as authorization for averaging an employee's piece-rate compensation over total hours worked when assessing compliance with minimum wage requirements.
The DLSE method for calculating overtime for piece-rate workers does not determine whether the piece rate alone lawfully compensates an employee for all hours worked. That method does not specify what amounts must be included in an employee's "total earnings." The trial court in this case concluded that such earnings, for purposes of determining compliance with minimum wage requirements, should include not less than the minimum wage for waiting time hours not compensated by the piece rate.
F. DLSE enforcement policies do not support DTLA's position
DTLA and its amici curiae next claim that the DLSE's enforcement policies state that a piece-rate employer need not pay an employee for nonproductive time unless the employer affirmatively directs the employee to perform non-piece-rate work. They argue that because plaintiffs were not idle as a result of DTLA's direction, DTLA was not required to compensate plaintiffs for the time they spent waiting for vehicles to repair. They cite the following sections of the DLSE Manual as support for this position:
"47.7 All Hours Must Be Compensated Regardless Of Method Used In Computation. DLSE has opined that employees must be paid at least the
"47.7.1 As an example, if piece rate workers are required to attend a meeting during which, of course, they would not be able to earn compensation at the piece rate, the employer would be required to pay those workers at least the minimum wage (or the contract hourly wage, if one exists) during such period. (For discussion of the legal rationale underlying this enforcement policy, see [Opinion Letter] 2002.01.29)." (Boldface omitted.)
The record shows that the time plaintiffs spent during their workshifts performing non-piece-rate tasks was at DTLA's direction. Plaintiffs were not allowed to leave DTLA's premises while waiting for vehicles to repair but were expected to perform various nonrepair tasks such as cleaning their work areas, obtaining parts, participating in online training, and reviewing service bulletins. All of these tasks were "at the direction of the employer." Time spent waiting for vehicles to repair was also "at the direction of the employer" because DTLA required plaintiffs to remain at work even if there were no vehicles to repair.
G. DTLA's remaining arguments do not compel a reversal of the judgment
DTLA's amici curiae argue that the prohibition against averaging compensation across all work hours should not apply to piece-rate compensation systems because piece-rate employees can increase their regular rate of pay by working longer hours. The presumption that plaintiffs in this case could maximize their income by performing piece-rate work throughout the day is belied by the record, which shows that plaintiffs spent a significant amount of time doing other work or waiting for customers. The trial court credited evidence that plaintiffs spent, on average, four-tenths of an hour each day waiting for cars to repair during the period from April 2002 to July 2006 and nearly two hours per day waiting for cars to repair in later time periods.
DTLA and its amici curiae argue that affirming the judgment in this case will require piece-rate employers to pay additional hourly wages for every mandatory rest break, will have far-reaching negative consequences on all incentive compensation systems in California, including commission payment plans, and will open the floodgates to litigation challenging incentive-based
Affirming the judgment in the instant case will not, as DTLA claims, undermine its technicians' ability and incentive to earn more than the minimum wage. Under DTLA's flag hour system, technicians earn significantly more by working on cars than waiting for vehicles to repair. They will still have the financial incentive to accrue flag hours in order to increase their earnings.
VI. Penalties Under Labor Code Section 203
DTLA challenges the $237,840 in waiting time penalties awarded under Labor Code section 203 as improper because the award conflicted with the trial court's finding, made in connection with its denial of plaintiffs' claim for liquidated damages, "that DTLA's actions were taken in good faith and with a reasonable basis for believing the actions were not in violation of the law." DTLA did not object to the portion of the trial court's statement of decision regarding penalties under Labor Code section 203. Absent such an objection, we make all implied findings necessary to support the trial court's penalty award. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133 [275 Cal.Rptr. 797, 800 P.2d 1227].)
The judgment is affirmed. Plaintiffs are awarded their costs on appeal.
Boren, P. J., and Ashmann-Gerst, J., concurred.