Appeals panel upholds new law on paid breaks for piece-rate workers

An appellate panel upheld on Friday a demurrer to a lawsuit challenging the constitutionality of a law requiring paid breaks for piece-rate employees be compensated independent of their per-unit wage.

In the underlying suit, Nisei Farmers League sued the state alleging Assembly Bill 1513, which went into effect Jan. 1, 2016, is unconstitutional due to vagueness and supposed retroactivity. AB 1513 says piece-rate workers' total compensation could not count as compensation required for paid breaks and such breaks needed to be paid at an hourly rate independent of wages for productive time.

The defense successfully demurred to the complaint without leave to amend, which the 5th District Court of Appeal has upheld.

Justice Herbert I. Levy wrote in the opinion that while the language in the bill was not meticulously specific, it was sufficiently applicable.

"The need for reasonable and good faith application of a statutory standard is not grounds for finding it unconstitutionally vague," he wrote, and then cited another case, adding, "A statute is not unconstitutionally vague merely because its meaning 'must be refined through application.'"

AB 1513 codified prior decisions to a similar effect; in particular, two in 2013 and their logical predecessor in 2005.

The law also included a safe harbor provision, which allowed employers to opt in and pay workers retroactively for compensable breaks under the law in exchange for an affirmative defense. In the opinion, Levy pointed out sardonically the law gave that boon to employers though the writing had been on the wall that their old pay methods were untenable.

"Apparently, many employers had not come to terms with the unexpected changes to piece-rate law created by the Gonzalez and Bluford decisions," he wrote of the two 2013 cases. Nisei Farmers League et al. v. California Labor and Workforce Development Agency et al., 2019 DJDAR 94 (Cal. App. 5th Dist. Jan. 4, 2019).

Justices Donald R. Franson and Rosendo Peña Jr. concurred.

Jesse A. Cripps of Gibson, Dunn & Crutcher LLP argued for the plaintiff-appellants, and Assistant Attorney General Thomas S. Patterson argued for the defendant-respondents. Neither responded to requests for comment.

In order to qualify for the affirmative defense, employers had to pay employees their due wages for July 1, 2012 through December 31, 2015. They also had to notify the state they intended to use the safe harbor provision by July 1, 2016.

Nisei Farmers League filed its suit three days before the deadline and did not take up the opportunity for affirmative defense.

With AB 1513's strong foundation in case law, attorneys were not surprised to see it withstand the challenge.

"The Court of Appeal got it right. Plaintiffs' lawsuit was nothing more than a Hail Mary attempt to overturn the Legislature's decision to codify and clarify the Gonzalez and Bluford decisions holding that employers must separately compensate piece-rate workers for unproductive time as well as rest and recovery break time," said Melissa Grant of Capstone Law APC.

"I think the decision was well written, and I think it probably will withstand review by the California Supreme Court if review is sought," said John Skousen of Fisher Phillips LLP.

Skousen added that the opinion contains silver linings for employers in that it clarifies the law is not retroactive and the applicable rate due for "unproductive time" is the higher of a contract hourly rate or minimum wage. In the past, he said, the argument had been made that the rate should be the hourly conversion of a worker's piece-rate wage, which could create excessive liability.

Grant said the lawsuit's primary target was the safe harbor provision.

"Today's decision ensures that the safe harbor door is now closed for any employer who did not comply with its terms," she said.

Aashish Y. Desai, who has argued cases on the issue of piece-rate compensation on behalf of truckers, said the safe harbor provision the lawsuit challenged was already favorable to employers.

"A lot of the smart companies paid out the safe harbor fees," he said. "Even that wasn't enough to some of these associations, which simply refused to change their pay practices."

"One piece of your wages cannot compensate for another part of your work," he said.