(1)Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, to compensate an employee for injuries sustained in the course of his or her employment.

Existing law requires the Commission on Health and Safety and Workers Compensation to undertake a specified study examining the causes of the number of insolvencies among workers compensation insurers to be conducted by an independent research organization, and requires the commission and the Department of Industrial Relations, no later than July 1, 2009, to publish the report of the study on its Internet Web site and to inform the Legislature and the Governor of the availability of the report.

Existing law requires the administrative director, in consultation with the commission and other entities, to conduct a study of medical treatment provided to workers who have sustained industrial injuries and illness, and to report and make recommendations to the Legislature on or before July 1, 2004.

Existing law requires the administrative director, after consultation with the Insurance Commissioner, to contract with a qualified organization to study the 2003 and 2004 legislative reforms on insurance rates, and to submit the study to the Governor and Legislature. Existing law requires the Governor and the Insurance Commissioner to review that study and make recommendations, and authorizes them to submit proposals to the Legislature.

This bill would repeal these obsolete workers compensation study requirements.

(2)Existing law prohibits an employer from requiring an employee to work during any meal or rest or recovery period mandated by an applicable statute or specified regulation, standard, or order, establishes penalties for an employers failure to provide a mandated meal or rest or recovery period, and requires rest or recovery periods to be counted as hours worked. Existing law establishes the Division of Labor Standards Enforcement in the Department of Industrial Relations for the enforcement of labor laws, including laws related to wage claims. Existing law requires every employer, semimonthly or at the time of each payment of wages, to furnish each employee with an accurate itemized statement in writing showing specified information. A knowing and intentional violation of this provision by an employer is a misdemeanor, as specified.

This bill would require the itemized statement provided to employees compensated on a piece-rate basis to also separately state the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period, and the total hours of other nonproductive time, as specified, the rate of compensation, and the gross wages paid for that time during the pay period. The bill would require those employees to be compensated for rest and recovery periods and other nonproductive time at or above specified minimum hourly rates, separately from any piece-rate compensation. The bill would define other nonproductive time for purposes of these provisions to mean time under the employers control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis. Because a knowing and intentional violation of these requirements would be a crime, the bill would impose a state-mandated local program.

The bill, until January 1, 2021, would provide that an employer shall have an affirmative defense to any claim or cause of action for recovery of wages, damages, liquidated damages, statutory penalties, or civil penalties based solely on the employers failure to timely pay the employee the compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015, if, by no later than December 15, 2016, the employer complies with specified requirements, subject to specified exceptions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

(1)Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, to compensate an employee for injuries sustained in the course of his or her employment.

Existing law requires the Commission on Health and Safety and Workers Compensation to undertake a specified study examining the causes of the number of insolvencies among workers compensation insurers to be conducted by an independent research organization, and requires the commission and the Department of Industrial Relations, no later than July 1, 2009, to publish the report of the study on its Internet Web site and to inform the Legislature and the Governor of the availability of the report.

Existing law requires the administrative director, in consultation with the commission and other entities, to conduct a study of medical treatment provided to workers who have sustained industrial injuries and illness, and to report and make recommendations to the Legislature on or before July 1, 2004.

Existing law requires the administrative director, after consultation with the Insurance Commissioner, to contract with a qualified organization to study the 2003 and 2004 legislative reforms on insurance rates, and to submit the study to the Governor and Legislature. Existing law requires the Governor and the Insurance Commissioner to review that study and make recommendations, and authorizes them to submit proposals to the Legislature.

This bill would repeal these obsolete workers compensation study requirements.

(2)Existing law prohibits an employer from requiring an employee to work during any meal or rest or recovery period mandated by an applicable statute or specified regulation, standard, or order, establishes penalties for an employers failure to provide a mandated meal or rest or recovery period, and requires rest or recovery periods to be counted as hours worked. Existing law establishes the Division of Labor Standards Enforcement in the Department of Industrial Relations for the enforcement of labor laws, including laws related to wage claims. Existing law requires every employer, semimonthly or at the time of each payment of wages, to furnish each employee with an accurate itemized statement in writing showing specified information. A knowing and intentional violation of this provision by an employer is a misdemeanor, as specified.

This bill would require the itemized statement provided to employees compensated on a piece-rate basis to also separately state the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period, and the total hours of other nonproductive time, as specified, the rate of compensation, and the gross wages paid for that time during the pay period. The bill would require those employees to be compensated for rest and recovery periods and other nonproductive time at or above specified minimum hourly rates, separately from any piece-rate compensation. The bill would define other nonproductive time for purposes of these provisions to mean time under the employers control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis. Because a knowing and intentional violation of these requirements would be a crime, the bill would impose a state-mandated local program.

The bill, until January 1, 2021, would provide that an employer shall have an affirmative defense to any claim or cause of action for recovery of wages, damages, liquidated damages, statutory penalties, or civil penalties based solely on the employers failure to timely pay the employee the compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015, if, by no later than December 15, 2016, the employer complies with specified requirements, subject to specified exceptions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

(1)Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, to compensate an employee for injuries sustained in the course of his or her employment.

Existing law requires the Commission on Health and Safety and Workers Compensation to undertake a specified study examining the causes of the number of insolvencies among workers compensation insurers to be conducted by an independent research organization, and requires the commission and the Department of Industrial Relations, no later than July 1, 2009, to publish the report of the study on its Internet Web site and to inform the Legislature and the Governor of the availability of the report.

Existing law requires the administrative director, in consultation with the commission and other entities, to conduct a study of medical treatment provided to workers who have sustained industrial injuries and illness, and to report and make recommendations to the Legislature on or before July 1, 2004.

Existing law requires the administrative director, after consultation with the Insurance Commissioner, to contract with a qualified organization to study the 2003 and 2004 legislative reforms on insurance rates, and to submit the study to the Governor and Legislature. Existing law requires the Governor and the Insurance Commissioner to review that study and make recommendations, and authorizes them to submit proposals to the Legislature.

This bill would repeal these obsolete workers compensation study requirements.

(2)Existing law prohibits an employer from requiring an employee to work during any meal or rest or recovery period mandated by an applicable statute or specified regulation, standard, or order, establishes penalties for an employers failure to provide a mandated meal or rest or recovery period, and requires rest or recovery periods to be counted as hours worked. Existing law establishes the Division of Labor Standards Enforcement in the Department of Industrial Relations for the enforcement of labor laws, including laws related to wage claims. Existing law requires every employer, semimonthly or at the time of each payment of wages, to furnish each employee with an accurate itemized statement in writing showing specified information. A knowing and intentional violation of this provision by an employer is a misdemeanor, as specified.

This bill would require the itemized statement provided to employees compensated on a piece-rate basis to also separately state the total hours of compensable rest and recovery periods, the rate of compensation, and the gross wages paid for those periods during the pay period, and the total hours of other nonproductive time, as specified, the rate of compensation, and the gross wages paid for that time during the pay period. The bill would require those employees to be compensated for rest and recovery periods and other nonproductive time at or above specified minimum hourly rates, separately from any piece-rate compensation. The bill would define other nonproductive time for purposes of these provisions to mean time under the employers control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis. Because a knowing and intentional violation of these requirements would be a crime, the bill would impose a state-mandated local program.

The bill, until January 1, 2021, would provide that an employer shall have an affirmative defense to any claim or cause of action for recovery of wages, damages, liquidated damages, statutory penalties, or civil penalties based solely on the employers failure to timely pay the employee the compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015, if, by no later than December 15, 2016, the employer complies with specified requirements. requirements, subject to specified exceptions.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

(1)Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, to compensate an employee for injuries sustained in the course of his or her employment.

Existing law requires the Commission on Health and Safety and Workers Compensation to undertake a specified study examining the causes of the number of insolvencies among workers compensation insurers to be conducted by an independent research organization, and requires the commission and the Department of Industrial Relations, no later than July 1, 2009, to publish the report of the study on its Internet Web site and to inform the Legislature and the Governor of the availability of the report.

Existing law requires the administrative director, in consultation with the commission and other entities, to conduct a study of medical treatment provided to workers who have sustained industrial injuries and illness, and to report and make recommendations to the Legislature on or before July 1, 2004.

Existing law requires the administrative director, after consultation with the Insurance Commissioner, to contract with a qualified organization to study the 2003 and 2004 legislative reforms on insurance rates, and to submit the study to the Governor and Legislature. Existing law requires the Governor and the Insurance Commissioner to review that study and make recommendations, and authorizes them to submit proposals to the Legislature.

This bill would repeal these obsolete workers compensation study requirements.

Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, to compensate an employee for injuries sustained in the course of his or her employment.

Existing law requires the Commission on Health and Safety and Workers Compensation to undertake a specified study examining the causes of the number of insolvencies among workers compensation insurers to be conducted by an independent research organization, and requires the commission and the Department of Industrial Relations, no later than July 1, 2009, to publish the report of the study on its Internet Web site and to inform the Legislature and the Governor of the availability of the report.

This bill would repeal these obsolete workers compensation study requirements.

Existing law establishes a workers compensation system, administered by the Administrative Director of the Division of Workers Compensation, to compensate an employee for injuries sustained in the course of his or her employment.

Existing law requires the Commission on Health and Safety and Workers Compensation to undertake a specified study examining the causes of the number of insolvencies among workers compensation insurers to be conducted by an independent research organization, and requires the commission and the Department of Industrial Relations, no later than July 1, 2009, to publish the report of the study on its Internet Web site and to inform the Legislature and the Governor of the availability of the report.

This bill would repeal these obsolete workers compensation study requirements.

(Without Reference to File)

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1513

Author:(Williams)

As Amended Ver:September 9, 2015

Majority vote

(vote not available)

Original Committee Reference: INS.

SUMMARY: 1) Deletes three obsolete study requirements for the worker' compensation system; 2) clarifies and codifies the pay requirements for piece rate workers for nonproductive time and rest and recovery period time; and 3) establishes a process through which employers, during a prescribed time period, can make back wage payments for rest and recovery periods and nonproductive time in exchange for relief from statutory penalties and other damages.

The Senate amendments add provisions to this bill that do the following:

1. Change the author to Assembly Member Williams.

2. Provide that for employees compensated on a piece rate basis during a pay period, the following shall apply for that pay period:

   1. Employees shall be compensated for rest and recovery periods and other nonproductive time separate from any piece rate compensation.

   2. The itemized wage statement required under existing law shall provide specified information.

   3. Employees shall be compensated for rest and recovery periods at regularly hourly rate of pay that is no less than the higher of:

      1. An average hourly rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods.

      2. The applicable minimum wage (as defined).

   4. Employees shall be compensated for other nonproductive time at an hourly rate that is no less than the applicable minimum wage.

   5. The amount of other nonproductive time may be determined either through actual records or the employer's reasonable estimates, whether for a group of employees or for a particular employee, of other nonproductive time worked during the pay period.

   6. An employer who is found to have made a good faith error in determining the total or estimated amount of other nonproductive time worked during the pay period shall remain liable for the payment of compensation for all hours worked in other nonproductive time, but shall not be liable for specified civil penalties or liquidated damages based solely on that error, provided that specified requirements are met.

3. Provide that specified employers will shall have until April 30, 2016, to program their payroll systems to perform and record the calculations required to comply with the requirements for compensation for rest and recovery periods, and itemized statements, so long as the employer pays piece rate employees for all rest and recovery periods at or above the applicable minimum wage from January 1, 2016, to April 30, 2016, and pays the difference between the amounts paid and the average rate that would be owed, plus interest, by no later than April 30, 2016. This provision shall only apply to an employer that meets all of the following:

   1. The employer was acquired by another legal entity on or after July 1, 2015, and before October 1, 2015.

   2. The employer employed at least 4,700 employees in this state at the time of the acquisition.

   3. The employer employed at least 17,700 employees nationwide at the time of the acquisition.

   4. The employer was a publicly traded company on a national securities exchange at the time of the acquisition.

4. Provide the employer shall have an affirmative defense to any claim or cause of action for recovery of wages, damages, liquidated damages, statutory penalties, or civil penalties, based solely on the employer's failure to timely pay the employee the compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015, if, by December 15, 2016, an employer complies with all of the following:

   1. The employer makes payments to each of its employees for previously uncompensated or undercompensated rest and recovery periods and other nonproductive time from July 1, 2012, to December 31, 2015, using either of the following formulas:

      1. The employer determines and pays the actual sums due together with accrued interest.

      2. The employer pays each employee an amount equal to 4% of that employee's gross earnings in pay periods in which any work was performed on a piece rate basis from July 1, 2012, to December 31, 2015, as specified.

   2. Payment shall not be required for any part of the time period for which either of the following apply:

      1. An employee has, prior to August 1, 2015, entered into a valid release of claims not otherwise banned by the Labor Code or any other applicable law for compensation for rest and recovery periods and other nonproductive time.

      2. A release of claims covered by this bill executed in connection with a settlement agreement filed with a court prior to October 1, 2015, and later approved by the court.

   3. By no later than July 1, 2016, the employer provides written notice to the Department of Industrial Relations of the employer's election to make payments to its current and former employees in accordance with the requirements outlined above.

   4. The employer calculates and begins making payments to employees as soon as reasonably feasible after it provides the notice and completes the payments by no later than December 15, 2016.

   5. The employer provides each employee receiving a payment with an accompanying accurate statement that contains specified information.

5. Provide that an employer who makes a reasonable and good faith error to make the payments described above and to provide the accurate statement, shall not lose the affirmative defense if the employer, within 30 days of discovery or notice of the error, makes the payment plus interest and provides the accurate statement. The employer shall have the burden of proving that a failure to pay an employee was solely the result of good faith error.

6. Provide specified tolling provisions related to the statute of limitations.

7. Provide that any notice to the Labor and Workforce Development Agency (LWDA) on or before December 31, 2015, pursuant to the Private Attorneys General Act of 2004 (PAGA) alleging violations based upon failure to properly compensate employees for rest and recovery periods, is void as to those alleged violations. Beginning January 1, 2016, an aggrieved employee or representative shall give such written notice by certified mail to both the LWDA and the employer of any violation based on failure to compensate employees fully for rest and recovery periods and other nonproductive time.

8. Provide that the affirmative defense and related provisions shall not apply to any of the following:

   1. Damages and penalties previously awarded in an order or judgment that was filed and not subject to further appeal as of January 1, 2016.

   2. Claims based on the failure to provide paid rest or recovery periods or pay for other nonproductive time for which all of the following are true:

      1. The claim was asserted in a court pleading filed prior to March 1, 2014, or was asserted in an amendment to a claim that relates back to a court pleading filed prior to March 1, 2014, and the amendment or permission for amendment was filed prior to July 1, 2015.

      2. The claim was asserted against a defendant named with specificity and joined as a defendant, as specified.

   3. Claims that employees were not advised of their right to take rest or recovery periods, that rest and recovery periods were not made available, or that employees were discouraged or otherwise prevented from taking such breaks.

   4. Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016.

   5. Claims for paid rest or recovery periods or pay for other nonproductive time that were made in any case filed prior to April 1, 2015, when the case contained by that date an allegation that the employer has intentionally stolen, diminished, or otherwise deprived employees of wages through the use of fictitious worker names or names of workers that were not actually working.

   6. An employer that is a new motor vehicle dealer.

9. Provide that nothing in this bill shall limit or bar any action or proceeding by the Labor Commissioner or any private party for any failure to provide a rest and recovery period in accordance with any provision of law, other than actions or proceedings based solely on the employer's failure to timely pay the compensation due for rest and recovery periods.

10. Provide that nothing in this bill precludes a judge from awarding statutory, contractual or common fund attorney's fees or costs in connection with an action filed before October 1, 2015.

11. Contain a January 1, 2021, sunset date on the affirmative defense and related provisions of the bill.

FISCAL EFFECT: Unknown

COMMENTS: As passed by the Assembly, this bill deleted three obsolete study requirements for the workers' compensation system. However, Senate amendments add new language related to compensation requirements for rest or recovery periods and other nonproductive time for employees paid on a piece rate basis.

Existing law prohibits an employer from requiring employees to work during a meal or rest or recovery period mandated pursuant to an applicable statute, regulation, standard or order of the Industrial Welfare Commission (IWC), the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health. Failure to provide an employee with a meal or rest or recovery period entitles the employee to one additional hour of pay at his or her regular rate of compensation for each workday that the meal, rest or recovery period is not provided.

Existing IWC Wage Orders generally state that "authorized rest periods shall be counted as hours worked for which there shall be no deduction from wages." In addition, recently enacted legislation codified and clarified the requirement that a legally mandated rest or recovery period is counted as hours worked and therefore, shall not result in any deductions from an employee's wages. (SB 1360 (Padilla), Chapter 72, Statutes of 2014).

Therefore, there is generally no dispute that rest periods are hours worked for which employees must be paid. However, recent court decisions have addressed disputes about the exact nature of such compensation for employees paid on a piece rate basis, in particular with respect to the calculation of compensation for such rest periods and other nonproductive work time.

In March 2013, the California Court of Appeal held that California's minimum wage law requires employers who compensate employees on a piece rate basis to also pay those employees a separate hourly wage for all other time worked, including work performed before, after and between piece rate tasks ("non-productive time"). Gonzalez v. Downtown LA Motors LP, 215 Cal. App. 4th 36 (2013). In that case, the court held that automobile service technicians who were paid on a piece rate basis must also be paid at least the minimum hourly wage for the time they were required to wait between their piece-rate repair work. The court noted that California law requires that employees be paid "not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise."

The Gonzalez case did not specifically involve the situation of rest periods. However, that issue was addressed in a subsequent California Court of Appeals decision in Bluford v. Safeway, 216 Cal. App. 4th 846 (2013). In that case, truck drivers were compensated primarily on the basis of miles driven and the performance of specific tasks, a common piece rate system of compensation. However, the plaintiffs alleged that this compensation system failed to provide them paid rest breaks as required by law because they were not paid a separate hourly wage for such breaks. The defendant argued that the piece rate compensation system already included compensation for rest breaks. However, the court held that piece rate compensation could not be "averaged" over non-piece rate (or rest break) time, and that such rest periods could not therefore be considered paid as required by California law.

Therefore, taken together, these recent court cases clarified that piece-rate workers must be separately compensated for non-productive time and rest and recovery periods.

Following these recent decisions, many employers have expressed concern about liability since they had not previously compensated employees paid on a piece rate system in such a manner. They and others have expressed concerns that these decisions may generate significant litigation and administrative workload for employers, the courts, and the Labor Commissioner, in actions to recover back wages and penalties. This litigation will be costly and there is significant uncertainty whether workers will recover back pay, and when that may occur.

Therefore, this bill represents compromise in an attempt to address many of these concerns. The legislation provides a means to resolve these issues in a way that is intended to: 1) reach more piece-rate workers and provide larger and more timely back pay recoveries than could be expected through litigation; 2) relieve employers of related liability for statutory penalties and damages for past violations; and 3) clarify compensation requirements going forward in a way that protects the right of piece-rate workers to be fully compensated for rest and recovery periods and other nonproductive time.

Supporters argue that this bill addresses a historically vexing challenge of calculating appropriate piece rate compensation, yet balances the needs of workers and employers. Specifically, supporters note that this bill provides clear guidance for employers on appropriate wages during rest periods, recovery periods, and nonproductive time, and that these wage rates would not create disincentives for workers who want to take their breaks. Supporters also note that this bill provides an affirmative defense for employers, but only if they retroactively compensate employees for their rest periods, recovery periods, and nonproductive time. Supporters argue that this bill is a fair compromise for both employers and workers, addressing a situation where there was a significant development in case law.

Opponents argue that although this bill would allow employers to come into compliance and avoid continued exposure for unpaid wage claims, it contains troubling provisions that unfairly exclude participation by some agricultural employers. Opponents argue that these arbitrary provisions set forth a troubling precedent that represents political targeting that sacrifices some companies to continued legal exposure in exchange for legal protections afforded to others. In particular, opponents argue that these provisions are an attempt to single out two agricultural employers for retribution, by leaving them exposed to multi-million dollar damage claims and penalties, while eliminating similar liability threats faced by dozens of other similarly-situated growers. Opponents state that, whatever the intent behind these changes, the result in unfair and unconstitutional.

Analysis Prepared by: Ben Ebbink / L. & E. / (916) 319-2091 FN: 0002384

Date of Hearing: September 11, 2015

ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT

Roger Hernández, Chair

ABPCA Bill Id:AB 1513 (

Author:Williams) – As Amended Ver:September 9, 2015

SUBJECT: Employment: workers’ compensation and piece-rate compensation.

SUMMARY: (1) Deletes three obsolete study requirements for the worker' compensation system; (2) clarifies and codifies the pay requirements for piece rate workers for nonproductive time and rest and recovery period time; and (3) establishes a process through which employers, during a prescribed time period, can make back wage payments for rest and recovery periods and nonproductive time in exchange for relief from statutory penalties and other damages. Specifically, this bill:

1. Provides that for employees compensated on a piece rate basis during a pay period, the following shall apply for that pay period:
   
   

   1. Employees shall be compensated for rest and recovery periods and other nonproductive time separate from any piece rate compensation.
      
      

   2. The itemized wage statement required under existing law shall provide specified information.
      
      

   3. Employees shall be compensated for rest and recovery periods at regularly hourly rate of pay that is no less than the higher of:
      
      

      1. An average hourly rate determined by dividing the total compensation for the workweek, exclusive of compensation for rest and recovery periods and any premium compensation for overtime, by the total hours worked during the workweek, exclusive of rest and recovery periods.
         
         

      2. The applicable minimum wage (as defined).
         
         

   4. Employees shall be compensated for other nonproductive time at an hourly rate that is no less than the applicable minimum wage.
      
      

   5. The amount of other nonproductive time may be determined either through actual records or the employer's reasonable estimates, whether for a group of employees or for a particular employee, of other nonproductive time worked during the pay period.
      
      

   6. An employer who is found to have made a good faith error in determining the total or estimated amount of other nonproductive time worked during the pay period shall remain liable for the payment of compensation for all hours worked in other nonproductive time, but shall not be liable for specified civil penalties or liquidated damages based solely on that error, provided that specified requirements are met.
      
      

2. Provides that specified employers will shall have until April 30, 2016, to program their payroll systems to perform and record the calculations required to comply with the requirements for compensation for rest and recovery periods, and itemized statements, so long as the employer pays piece rate employees for all rest and recovery periods at or above the applicable minimum wage from January 1, 2016 to April 30, 2016, and pays the difference between the amounts paid and the average rate that would be owed, plus interest, by no later than April 30, 2016. This provision shall only apply to an employer that meets all of the following:
   
   

   1. The employer was acquired by another legal entity on or after July 1, 2015, and before October 1, 2015.
      
      

   2. The employer employed at least 4,700 employees in this state at the time of the acquisition.
      
      

   3. The employer employed at least 17,700 employees nationwide at the time of the acquisition.
      
      

   4. The employer was a publicly traded company on a national securities exchange at the time of the acquisition.
      
      

3. Provides the employer shall have an affirmative defense to any claim or cause of action for recovery of wages, damages, liquidated damages, statutory penalties, or civil penalties, based solely on the employer's failure to timely pay the employee the compensation due for rest and recovery periods and other nonproductive time for time periods prior to and including December 31, 2015, if, by December 15, 2016, an employer complies with all of the following:
   
   

   1. The employer makes payments to each of its employees for previously uncompensated or undercompensated rest and recovery periods and other nonproductive time from July 1, 2012 to December 31, 2015 using either of the following formulas:
      
      

      1. The employer determines and pays the actual sums due together with accrued interest.
         
         

      2. The employer pays each employee an amount equal to 4 percent of that employee's gross earnings in pay periods in which any work was performed on a piece rate basis from July 1, 2012 to December 31, 2015, as specified.
         
         

   2. Payment shall not be required for any part of the time period for which either of the following apply:
      
      

      1. An employee has, prior to August 1, 2015, entered into a valid release of claims not otherwise banned by the Labor Code or any other applicable law for compensation for rest and recovery periods and other nonproductive time.
         
         

      2. A release of claims covered by this bill executed in connection with a settlement agreement filed with a court prior to October 1, 2015 and later approved by the court.
         
         

   3. By no later than July 1, 2016, the employer provides written notice to the Department of Industrial Relations of the employer's election to make payments to its current and former employees in accordance with the requirements outlined above.
      
      

   4. The employer calculates and begins making payments to employees as soon as reasonably feasible after it provides the notice and completes the payments by no later than December 15, 2016.
      
      

   5. The employer provides each employee receiving a payment with an accompanying accurate statement that contains specified information.
      
      

4. Provides that an employer who makes a reasonable and good faith error to make the payments described above and to provide the accurate statement, shall not lose the affirmative defense if the employer, within 30 days of discovery or notice of the error, makes the payment plus interest and provides the accurate statement. The employer shall have the burden of proving that a failure to pay an employee was solely the result of good faith error.
   
   

5. Provides specified tolling provisions related to the statute of limitations.
   
   

6. Provides that any notice to the Labor and Workforce Development Agency (LWDA) on or before December 31, 2015 pursuant to the Private Attorneys General Act of 2004 (PAGA) alleging violations based upon failure to properly compensate employees for rest and recovery periods, is void as to those alleged violations. Beginning January 1, 2016, an aggrieved employee or representative shall give such written notice by certified mail to both the LWDA and the employer of any violation based on failure to compensate employees fully for rest and recovery periods and other nonproductive time.
   
   

7. Provides that the affirmative defense and related provisions shall not apply to any of the following:
   
   

   1. Damages and penalties previously awarded in an order or judgment that was filed and not subject to further appeal as of January 1, 2016.
      
      

   2. Claims based on the failure to provide paid rest or recovery periods or pay for other nonproductive time for which all of the following are true:
      
      

      1. The claim was asserted in a court pleading filed prior to March 1, 2014, or was asserted in an amendment to a claim that relates back to a court pleading filed prior to March 1, 2014, and the amendment or permission for amendment was filed prior to July 1, 2015.
         
         

      2. The claim was asserted against a defendant named with specificity and joined as a defendant, as specified.
         
         

   3. Claims that employees were not advised of their right to take rest or recovery periods, that rest and recovery periods were not made available, or that employees were discouraged or otherwise prevented from taking such breaks.
      
      

   4. Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016.
      
      

   5. Claims for paid rest or recovery periods or pay for other nonproductive time that were made in any case filed prior to April 1, 2015, when the case contained by that date an allegation that the employer has intentionally stolen, diminished, or otherwise deprived employees of wages through the use of fictitious worker names or names of workers that were not actually working.
      
      

   6. An employer that is a new motor vehicle dealer.
      
      

8. Provides that nothing in this bill shall limit or bar any action or proceeding by the Labor Commissioner or any private party for any failure to provide a rest and recovery period in accordance with any provision of law, other than actions or proceedings based solely on the employer's failure to timely pay the compensation due for rest and recovery periods.
   
   

9. Provides that nothing in this bill precludes a judge from awarding statutory, contractual or common fund attorney's fees or costs in connection with an action filed before October 1, 2015.
   
   

10. Contains a January 1, 2021 sunset date on the affirmative defense and related provisions of the bill.

FISCAL EFFECT: Unknown

COMMENTS: As passed by the Assembly, this bill deleted three obsolete study requirements for the workers' compensation system. However, Senate amendments add new language related to compensation requirements for rest or recovery periods and other nonproductive time for employees paid on a piece rate basis.

Existing law prohibits an employer from requiring employees to work during a meal or rest or recovery period mandated pursuant to an applicable statute, regulation, standard or order of the Industrial Welfare Commission (IWC), the Occupational Safety and Health Standards Board, or the Division of Occupational Safety and Health. Failure to provide an employee with a meal or rest or recovery period entitles the employee to one additional hour of pay at his or her regular rate of compensation for each workday that the meal, rest or recovery period is not provided.

Existing IWC Wage Orders generally state that "authorized rest periods shall be counted as hours worked for which there shall be no deduction from wages." In addition, recently enacted legislation codified and clarified the requirement that a legally mandated rest or recovery period is counted as hours worked and therefore, shall not result in any deductions from an employee's wages. (SB 1360 (Padilla), Chapter # 72, Statutes of 2014).

Therefore, there is generally no dispute that rest periods are hours worked for which employees must be paid. However, recent court decisions have addressed disputes about the exact nature of such compensation for employees paid on a piece rate basis, in particular with respect to the calculation of compensation for such rest periods and other nonproductive work time.

In March 2013, the California Court of Appeal held that California's minimum wage law requires employers who compensate employees on a piece rate basis to also pay those employees a separate hourly wage for all other time worked, including work performed before, after and between piece rate tasks ("non-productive time"). Gonzalez v. Downtown LA Motors LP, 215 Cal. App. 4th 36 (2013). In that case, the court held that automobile service technicians who were paid on a piece rate basis must also be paid at least the minimum hourly wage for the time they were required to wait between their piece-rate repair work. The court noted that California law requires that employees be paid "not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise."

The Gonzalez case did not specifically involve the situation of rest periods. However, that issue was addressed in a subsequent California Court of Appeals decision in Bluford v. Safeway, 216 Cal. App. 4th 846 (2013). In that case, truck drivers were compensated primarily on the basis of miles driven and the performance of specific tasks, a common piece rate system of compensation. However, the plaintiffs alleged that this compensation system failed to provide them paid rest breaks as required by law because they were not paid a separate hourly wage for such breaks. The defendant argued that the piece rate compensation system already included compensation for rest breaks. However, the court held that piece rate compensation could not be "averaged" over non-piece rate (or rest break) time, and that such rest periods could not therefore be considered paid as required by California law.

Therefore, taken together, these recent court cases clarified that piece-rate workers must be separately compensated for non-productive time and rest and recovery periods.

While the Gonzalez and Bluford decisions were in keeping with prior legal decisions and statutes in California, many employers have expressed concern about liability since they had not previously compensated employees paid on a piece rate system in such a manner. They and others have expressed concerns that these decisions may generate significant litigation and administrative workload for employers, the courts, and the Labor Commissioner, in actions to recover back wages and penalties. This litigation will be costly and there is significant uncertainty whether workers will recover back pay, and when that may occur.

Therefore, this bill represents compromise in an attempt to address many of these concerns. The legislation provides a means to resolve these issues in a way that is intended to: (1) reach more piece-rate workers and provide larger and more timely back pay recoveries than could be expected through litigation; (2) relieve employers of related liability for statutory penalties and damages for past violations; and (3) clarify compensation requirements going forward in a way that protects the right of piece-rate workers to be fully compensated for rest and recovery periods and other nonproductive time.

Among other things, this bill contains the following elements:

Prospective Pay Requirements for Rest and Recovery Breaks

Employers will be required to pay an average hourly rate that takes into account all earnings, with no reduction in pay during mandated breaks. This rate will 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.

Prospective Pay for Other Non-Productive Time

The legislation states what constitutes other compensable nonproductive time and allows for reasonable time estimates where such time cannot be measured precisely. Nonproductive time must be compensated at an hourly rate that is no less than the applicable minimum wage.

Back Payments and Relief From Related Penalties and Liquidated Damages

Covered employers will have 11½ months to make back payments to their employees for previously unpaid or underpaid rest and recovery breaks and other nonproductive time. Employers who do so will have a legal defense to claims for damages and other penalties associated with the prior failure to pay what was due for such time, going back to July 1, 2012. The major elements of this back payment and relief plan are as follows:

• Back payments are required for the time period of July 1, 2012, through December 31, 2015. Employers will have two options for calculating these payments – either use time records to calculate and pay the amounts actually due plus statutory interest or pay a percentage of gross earnings for the same time period, with credits allowed to employers who started paying piece-rate workers separately for breaks and other nonproductive time after the Gonzalez and Bluford decisions.

• Employers must notify the Department of Industrial Relations by July 1, 2016, of their election to make the back payments and make the required back payments by no later than December 16, 2016. Payments for employees who cannot be located must be made to the Labor Commissioner for deposit in the Unpaid Wage Fund.

• Employers will be required to maintain and provide appropriate documentation of the payments.

• Employers who make the required back payments will have an affirmative legal defense against any claim for damages or penalties based on the failure to separately compensate piece-rate workers for rest and recovery breaks and other nonproductive time prior to the effective date of the legislation (January 1, 2016).

• The statute of limitations for these claims will be tolled during the notice and payment periods. Certain claims will be excluded altogether, including claims resolved by final order or judgment, claims asserted in litigation prior to specified dates, and new claims arising after the law goes into effect.

• The back payment and penalty relief provisions will sunset after all time limits have run.

If an employer decides to do all of the above, he or she would have a limited safe harbor from resulting from the Gonzalez and Bluford decisions. However, it is important to note that the safe harbor isn’t a simple immunity from claims due to underpayment or nonpayment of nonproductive time and/or rest and recovery periods. Rather, it is an affirmative defense – the employer would need to prove-up that he or she met the above requirements. Outside of a good faith error, the employer loses the affirmative defense if he or she fails to meet the above requirements, and therefore loses access to the safe harbor.

Exclusions From the Affirmative Defense and Related Provisions

This bill provides that the affirmative defense and related provisions shall not apply to any of the following:

• Damages and penalties previously awarded in an order or judgment that was filed and not subject to further appeal as of January 1, 2016.

• Claims based on the failure to provide paid rest or recovery periods or pay for other nonproductive time for which all of the following are true:

  • The claim was asserted in a court pleading filed prior to March 1, 2014, or was asserted in an amendment to a claim that relates back to a court pleading filed prior to March 1, 2014, and the amendment or permission for amendment was filed prior to July 1, 2015.

  • The claim was asserted against a defendant named with specificity and joined as a defendant, as specified.

• Claims that employees were not advised of their right to take rest or recovery periods that rest and recovery periods were not made available, or that employees were discouraged or otherwise prevented from taking such breaks.

• Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016.

• Claims for paid rest or recovery periods or pay for other nonproductive time that were made in any case filed prior to April 1, 2015, when the case contained by that date an allegation that the employer has intentionally stolen, diminished, or otherwise deprived employees of wages through the use of fictitious worker names or names of workers that were not actually working.

• An employer that is a new motor vehicle dealer.
  
  

ARGUMENTS IN SUPPORT:

Supporters argue that this bill addresses a historically vexing challenge of calculating appropriate piece rate compensation, yet balances the needs of workers and employers. Specifically, supporters note that this bill provides clear guidance for employers on appropriate wages during rest periods, recovery periods, and nonproductive time, and that these wage rates would not create disincentives for workers who want to take their breaks. Supporters also note that this bill provides an affirmative defense for employers, but only if they retroactively compensate employees for their rest periods, recovery periods, and nonproductive time. Supporters argue that this bill is a fair compromise for both employers and workers, addressing a situation where there was a significant development in case law.

ARGUMENTS IN OPPOSITION:

Opponents argue that although this bill would allow employers to come into compliance and avoid continued exposure for unpaid wage claims, it contains troubling provisions that unfairly exclude participation by some agricultural employers. Opponents argue that these arbitrary provisions set forth a troubling precedent that represents political targeting that sacrifices some companies to continued legal exposure in exchange for legal protections afforded to others. In particular, opponents argue that these provisions are an attempt to single out two agricultural employers for retribution, by leaving them exposed to multi-million dollar damage claims and penalties, while eliminating similar liability threats faced by dozens of other similarly-situated growers. Opponents state that, whatever the intent behind these changes, the result in unfair and unconstitutional.

REGISTERED SUPPORT / OPPOSITION:

Support

California Conference of Machinists

California Labor and Workforce Development Agency

California Labor Federation, AFL-CIO

California Teamsters Public Affairs Council

California Trucking Association

Driscoll Strawberry Associates, Inc.

Grimmway Enterprises, Inc.

Maricopa Orchards LLC

Monterey County Farm Bureau

Santa Cruz County Farm Bureau

Taylor Farms

The Wonderful Company

Support if Amended

California Employment Law Council

Western Growers Association

Opposition

California Citrus Mutual

California Cotton Ginners Association

California Cotton Growers Association

California Employment Law Council

California Fresh Fruit Association

California Grain and Feed Association

California Pear Growers Association

California Tomato Growers Association

Fowler Packing Company

Gerawan Farming, Inc.

Nisei Farmers League

Western Agricultural Processors Association

Analysis Prepared by: Ben Ebbink / L. & E. / (916) 319-2091

 THIRD READING  

Bill No: AB 1513

Author: Williams (D)

Amended: 9/9/15 in Senate

Vote: 21

SENATE LABOR & IND. REL. COMMITTEE: 5-0, 6/24/15

AYES: Mendoza, Stone, Jackson, Leno, Mitchell

SENATE LABOR & IND. REL. COMMITTEE: 4-1, 9/9/15 (pursuant to Senate Rule 29.10)

AYES: Mendoza, Jackson, Leno, Mitchell

NOES: Stone

ASSEMBLY FLOOR: 79-0, 4/16/15 (Consent) - See last page for vote

SUBJECT: Employment: Workers’ compensation and piece-rate compensation

SOURCE: Author

DIGEST: This bill provides an affirmative defense and safe harbor for employers who, by December 15, 2016, fully compensate their employees, as specified, for all under-compensated or uncompensated rest periods, recovery periods, or unproductive time between July 1, 2012 and December 31, 2015.

ANALYSIS:

Existing law:

1. Requires that, when an employee is compensated on a “piece rate” basis, the employer must include in the employee’s wage stub the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis. (Labor Code §226)

2. Provides that, if an employee suffers injury as a result of a knowing and intentional failure by an employer to provide a wage stub, the employee is entitled to recover the greater of all actual damages or $50 for the initial pay period in which a violation occurs and $100 per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of $4,000, and is entitled to an award of costs and reasonable attorney’s fees. (Labor Code §226 (e))

3. Provides that the Industrial Welfare Commission with the ability to adopt or amend working condition orders with respect to break periods, meal periods, and days of rest for any workers in California consistent with the health and welfare of those workers. (Labor Code §516)

4. Requires every employer to authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The employer must provide a rest period of 10 minutes for every 4 hours worked, and rest periods must be counted as hours worked and not be deducted from the employee’s wages. (IWC Wage Orders 1-15; Labor Code §226.7)

5. Requires that, if an employer fails to provide an employee a rest period, the employer must pay the employee one hour of pay at the employee’s regular rate of compensation for each workday that the rest period is not provided.
   (IWC Wage Orders 1-15; Labor Code §226.7)

6. Provides additional rest periods, known as recovery periods, to provide employees with a cooloff period to avoid heat illness. If an employer fails to provide an employee a recovery period, the employer must pay the employee one hour of pay at the employee’s regular rate of compensation for each workday that the rest period is not provided. (Labor Code §226.7)

Existing court decisions require that nonproductive time, which is time under the employer’s control for which the employee is not producing “pieces”, rest periods, and recovery periods must be compensated separately and distinctly at the minimum wage or more. (Gonzelez v. Downtown LA Motors (215 Cal.App.4th 36 (2013)) and Bluford v. Safeway Stores (C066074 (2013)))

This bill:

1. Codifies the Gonzalez and Bluford decisions that nonproductive time, rest breaks, and recovery breaks are separately compensated.

2. Codifies that, for rest and recovery periods, the rate of compensation is the higher of the average hourly rate or the applicable minimum wage.

3. Codifies that, for nonproductive time, the rate of compensation is not less than the minimum wage.

4. Codifies how nonproductive time, rest breaks, and recovery break compensation is calculated.

5. Allows employers to utilize an affirmative defense against claims of an employer’s failure to timely pay compensation due for rest periods, recovery periods, and nonproductive time if the alleged failure occurred between July 1, 2012, and December 31, 2015 if the employer:

1. Make payments to all current and former piece-rate employees for uncompensated or undercompensated rest and recovery periods and nonproductive time, plus interest, from July 1, 2012, to December 31, 2015; or

2. Make payments to all current and former piece-rate employees in an amount equal to 4% of the gross earnings from July 1, 2012, to December 31, 2015. Deductions for previous separate payments for rest, recovery, and nonproductive time are permitted, but must not exceed 1% of the employee’s gross earnings during the same period.

3. Provides a statement to the current and former employees that shows the calculation of hours worked and how the employer determined the wages due.

4. Provides payment to the current and former employees no later than December 15, 2016.

5. Provide notice to the Labor Commissioner on the employer’s election to make payments to current and former employees by July 1, 2016.

6. Preserves all records of hours worked, calculations of hours worked, and records of make whole payments to employees until December 16, 2020, and also furnish these records to the current or former employee upon request.

If the employer complies with the above, the employer shall have an affirmative defense for any action that seeks back wages, penalties, or liquidated damages relating to an employer’s failure to timely pay compensation due for rest periods, recovery periods, and nonproductive time, including to paying less than the minimum wage or having an inaccurate wage stub.

6. Permits specified employers to have an additional four months to program their payroll systems as long as the employer pays piece rate employees for all rest and recovery periods at or above the applicable minimum wage during the extension and pays the difference between the amounts paid and the amounts owed, plus interest, by April 30, 2016. To qualify for this additional four months, an employer must:

1. Have been acquired by another legal entity on or after July 1, 2015 and before October 1, 2015;

2. Have employed at least 4,700 employees in this state at the time of the acquisition;

3. Have employed at least 17,700 employees nationwide at the time of the acquisition; and

4. Have been a publically traded company on a national securities exchange at the time of the acquisition.

7. Tolls the statute of limitations from January 1, 2016 to July 1, 2016 for any claims based on the failure to compensate rest periods, recovery periods, and nonproductive time for piece-rate compensated employees where the employer has not provided notice to employees as discussed above. If the employer has provided a notice to the former or current employee, the statute of limitations is tolled until December 15, 2016.

8. Prohibits the safe harbor from applying to any of the following:

1. The damages or penalties were previously awarded in an order or judgment that was final and not subject to further appeal as of January 1, 2016;

2. Claims where the employees were not advised of their right to take rest or recovery breaks, the breaks were not made available, or employees were discouraged from taking such breaks;

3. Claims based on the failure to provide paid rest periods, recovery periods, or nonproductive time asserted in an action filed prior to April 1, 2015 where the case contains an allegation that the employer has intentionally stolen wages through the use of fictitious worker names;

4. Claims asserted in a court filing prior to March 1, 2014 or claims asserted prior to March 1, 2014 and amended prior to July 1, 2015;

5. Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016; and

6. An employer that is a new motor vehicle dealer.

Background

Piece rate compensation and recent court decisions. 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 could 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 is well established in the law, and it was not the subject of recent litigation. Rather, recent litigation addressed whether nonproductive time and rest breaks needed to be counted as hours worked when calculating the minimum wage equivalency for piece rate wages.

As was discussed above, both Gonzalez and Bluford found that rest periods, recovery periods, and nonproductive time must be compensated separately and at least at the minimum wage. While these decisions were in keeping with prior legal decision and statutes in California, many stakeholders raised concerns on the impact of Gonzalez and Bluford. For employers who did not compensate their employees for their nonproductive time, the potential liability from these decisions on employers can be significant.

Post-Gonzalez, it is clear the employer would be liable for separately compensated nonproductive time, rest breaks, and recovery breaks. However, the employer would also face, at a minimum, liability for paying less than the minimum wage, producing an incorrect wage stub, and failure to provide rest breaks. These violations trigger a penalty structure that is geared for employers who refuse to follow the minimum wage law and engage in wage theft, rather than employers who were caught up in an adverse court decision. This creates a challenging dynamic: while on one hand some employers may be facing insolvency due to liability they could not foresee, aggrieved workers are owed wages for their time.

Comments

How AB 1513 works. Broadly speaking, AB 1513 can be divided into two portions. The first portion deals with separate compensation for nonproductive time and rest and recovery periods. The second portion creates a narrow safe harbor for employers to address their liability under Gonzalez and Bluford. Each with be discussed below.

Piece rate compensation and separate compensation for nonproductive time and rest and recovery periods. As noted above, 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 codifies 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 piece rate. 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 provisions. As was discussed above, AB 1513 contains an unusual provision: a limited safe harbor for employers from claims resulting from Gonzalez and Bluford. In a nutshell, the AB 1513 safe harbor provides an 11 ½ month window for the employer to do the following:

1. Calculate back wages for both former and current workers;

2. Notifying the Division of Labor Standards Enforcement that the employer is utilizing the safe harbor;

3. Transmitting the back wages the effected workers, including information on how the back wages were calculated; and

4. If, after due diligence, a worker cannot be found, transmitting the wages to DLSE, with a processing fee.

If an employer decides to do all of the above, he or she would have a limited safe harbor from resulting from the Gonzalez and Bluford decisions. However, it is important to note that the safe harbor isn’t a simple immunity from claims due to underpayment or nonpayment of nonproductive time and/or rest and recovery periods. Rather, it is an affirmative defense – the employer would need to prove-up that he or she met the above requirements. Outside of a good faith error, the employer loses the affirmative defense if he or she fails to meet the above requirements, and therefore loses access to the safe harbor.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 9/10/15)

California Conference of Machinists

California Labor Federation

California Teamsters Public Affairs Council

California Trucking Association

Driscoll’s Strawberry Associates, Inc.

Grimmway Enterprises, Inc.

Maricopa Orchards

Monterey County Farm Bureau

The Wonderful Company

OPPOSITION: (Verified 9/10/15)

California Citrus Mutual

California Cotton Growers Association

California Cotton Ginners Association

California Employment Law Council

California Fresh Fruit Association

California Grain and Feed Association

California Pear Growers Association

California Tomato Growers Association

Nisei Farmers League

Western Agricultural Processors Association

ARGUMENTS IN SUPPORT: Proponents argue that AB 1513 addresses a historically vexing challenge of calculating appropriate piece rate compensation, yet balances the needs of workers and employers. Specifically, proponents note that AB 1513 provides clear guidance for employers on appropriate wages during rest periods, recovery periods, and nonproductive time, and that these wage rates would not create disincentives for workers who want to take their breaks. Proponents also note that AB 1513 that provides an affirmative defense for employers, but only if they retroactively compensate employees for their rest periods, recovery periods, and nonproductive time. Proponents argue that AB 1513 is a fair compromise for both employers and workers, addressing a situation where there was a significant development in case law.

ARGUMENTS IN OPPOSITION: Opponents, including California Citrus Mutual and the California Cotton Growers Association, oppose AB 1513. While acknowledging that AB 1513 allows employers to come into compliance and avoid continued exposure from non-productive time wage claims, opponents argue that AB 1513 contains provisions that unfairly excludes participation by some agricultural employers. Opponents argue that safe-harbor exclusions, as expressly inserted by use of the March 1, 2014 date sacrifices some companies to continued legal exposure in exchange for legal protections afforded to others. Opponents also point to the provision excluding any company for which an active claim is open alleging the adding of “ghost” employees to reduce or eliminate employee wages from use of payment calculation formulas and exposure protections afforded by AB 1513.

ASSEMBLY FLOOR: 79-0, 4/16/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

NO VOTE RECORDED: Quirk

Prepared by: Gideon L. Baum / L. & I.R. / (916) 651-1556

9/11/15 8:43:13

**** END ****

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Tony Mendoza, Chair

2015 - 2016 Regular

Bill No: AB 1513 Hearing Date: September 10, 2015

Subject: Employment: workers’ compensation and piece rate compensation.

KEY ISSUE

Should the Legislature clarify the statutory requirements for piece-rate compensation?

Should the Legislature provide an affirmative defense and safe harbor for employers who, by December 15, 2016, fully compensate their employees, as specified, for all under-compensated or uncompensated rest periods, recovery periods, or unproductive time between July 1, 2012 and December 31, 2015?

ANALYSIS

Existing law requires that, when an employee is compensated on a “piece rate” basis, the employer must include in the employee’s wage stub the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis. (Labor Code §226)

Existing law provides that, if an employee suffers injury as a result of a knowing and intentional failure by an employer to provide a wage stub, the employee is entitled to recover the greater of all actual damages or $50 for the initial pay period in which a violation occurs and $100 per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of $4,000, and is entitled to an award of costs and reasonable attorney’s fees. (Labor Code §226 (e))

Existing law provides that the Industrial Welfare Commission with the ability to adopt or amend working condition orders with respect to break periods, meal periods, and days of rest for any workers in California consistent with the health and welfare of those workers.
(Labor Code §516)

Existing law require every employer to authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The employer must provide a rest period of 10 minutes for every 4 hours worked, and rest periods must be counted as hours worked and not be deducted from the employee’s wages.

(IWC Wage Orders 1-15; Labor Code §226.7)

Existing law require that, if an employer fails to provide an employee a rest period, the employer must pay the employee 1 hour of pay at the employee’s regular rate of compensation for each workday that the rest period is not provided.

(IWC Wage Orders 1-15; Labor Code §226.7)

Existing law provides additional rest periods, known as recovery periods, to provide employees with a cooloff period to avoid heat illness. If an employer fails to provide an employee a recovery period, the employer must pay the employee 1 hour of pay at the employee’s regular rate of compensation for each workday that the rest period is not provided.

(Labor Code §226.7)

Existing court decisions require that nonproductive time, which is time under the employer’s control for which the employee is not producing “pieces”, rest periods, and recovery periods must be compensated separately and distinctly at the minimum wage or more.

(Gonzelez v. Downtown LA Motors (215 Cal.App.4^th 36 (2013)) and Bluford v. Safeway Stores (C066074 (2013)))

This bill would:

1. Codify the Gonzalez and Bluford decisions that nonproductive time, rest breaks, and recovery breaks are separately compensated;

2. Codify that, for rest and recovery periods, the rate of compensation is the higher of the average hourly rate or the applicable minimum wage;

3. Codify that, for nonproductive time, the rate of compensation is not less than the minimum wage; and

4. Codify how nonproductive time, rest breaks, and recovery break compensation is calculated.

This bill would also allow employers to utilize an affirmative defense against claims of an employer’s failure to timely pay compensation due for rest periods, recovery periods, and nonproductive time if the alleged failure occurred between July 1, 2012 and December 31, 2015 if the employer:

1. Make payments to all current and former piece-rate employees for uncompensated or undercompensated rest and recovery periods and nonproductive time, plus interest, from July 1, 2012 to December 31, 2015; or

2. Make payments to all current and former piece-rate employees in an amount equal to 4% of the gross earnings from July 1, 2012 to December 31, 2015. Deductions for previous separate payments for rest, recovery, and nonproductive time are permitted, but must not exceed 1% of the employee’s gross earnings during the same period.

The employer must also:

3. Provides a statement to the current and former employees that shows the calculation of hours worked and how the employer determined the wages due;

4. Provides payment to the current and former employees no later than December 15, 2016;

5. Provide notice to the Labor Commissioner on the employer’s election to make payments to current and former employees by July 1, 2016; and

6. Preserves all records of hours worked, calculations of hours worked, and records of make whole payments to employees until December 16, 2020, and also furnish these records to the current or former employee upon request.

If the employer complies with the above, the employer shall have an affirmative defense for any action that seeks back wages, penalties, or liquidated damages relating to an employer’s failure to timely pay compensation due for rest periods, recovery periods, and nonproductive time, including to paying less than the minimum wage or having an inaccurate wage stub.

This bill would permit specified employers to have an additional 4 months to program their payroll systems as long as the employer pays piece rate employees for all rest and recovery periods at or above the applicable minimum wage during the extension and pays the difference between the amounts paid and the amounts owed, plus interest, by April 30, 2016. To qualify for this additional 4 months, an employer must:

1. Have been acquired by another legal entity on or after July 1, 2015 and before October 1, 2015;

2. Have employed at least 4,700 employees in this state at the time of the acquisition;

3. Have employed at least 17,700 employees nationwide at the time of the acquisition; and

4. Have been a publically traded company on a national securities exchange at the time of the acquisition.

This bill would require that the Department of Industrial Relations (DIR) to post on their website either a list of employers who have elected to utilize the safe harbor or copies of actual notices of the election of the safe harbor.

This bill would require that, if an employer who wishes to comply with the above-discussed requirements for an affirmative defense but cannot locate an employee, the employer must instead remit the payments to the Labor Commissioner, plus a fee no greater than $2,500, so that the Labor Commissioner may locate the employee. Prior to doing so, the employer must utilize due diligence and finding the employees including, but not limited to, a people locator service.

This bill would provide that an employer does not need to make any payments for the period of July 1, 2012 and December 31, 2015 if any of the following applies:

1. An employer has, prior to August 1, 2015, entered into a valid release of claims for compensation for rest and recovery periods and other nonproductive time;

2. A release of claims was executed in connection with a settlement agreement filed with a court prior to October 1, 2015, and was later approved by the court.

This bill would also toll the statute of limitations from January 1, 2016 to July 1, 2016 for any claims based on the failure to compensate rest periods, recovery periods, and nonproductive time for piece-rate compensated employees where the employer has not provided notice to employees as discussed above. If the employer has provided a notice to the former or current employee, the statute of limitations is tolled until December 15, 2016.

The safe harbor shall not apply to any of the following:

1. The damages or penalties were previously awarded in an order or judgment that was final and not subject to further appeal as of January 1, 2016;

2. Claims where the employees were not advised of their right to take rest or recovery breaks, the breaks were not made available, or employees were discouraged from taking such breaks;

3. Claims based on the failure to provide paid rest periods, recovery periods, or nonproductive time asserted in an action filed prior to April 1, 2015 where the case contains an allegation that the employer has intentionally stolen wages through the use of fictitious worker names;

4. Claims asserted in a court filing prior to March 1, 2014 or claims asserted prior to March 1, 2014 and amended prior to July 1, 2015;

5. Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016; and

6. An employer that is a new motor vehicle dealer.

This bill would allow for the assertion of an affirmative defense through an amended filing if the action was filed on or after March 1, 2014, unless the action is final and not subject to further appeals as of January 1, 2016.

This bill would protect the affirmative defense for employers if, after making a reasonable and good faith effort to comply with the requirements of the safe harbor, fails to make appropriate payments or provide accurate statements to all employees. The employer would have the burden of proving that the failure was solely the result of a good faith error.

This bill would make additional changes to law in order to allow the Labor Commissioner to enforce and effectuate the provisions of this bill.

This bill would also revise and recast the piece rate wage requirements after January 1, 2021 to reflect the cessation of the safe harbor provisions.

This bill would also delete three obsolete workers’ compensation study requirements.

COMMENTS

1. September 9^th Amendments:

On September 9^th, the author took the following amendments to address stakeholder concerns:

1. Clarify that that employers that track and pay for all hours worked in other nonproductive time, at the minimum wage or higher, need not separately track and report non-productive time on the wage statement.

2. Exclude new motor vehicle dealers from the safe harbor provisions.

3. Clarify that the tolling period ends on specified dates.

4. Clarify that the time to file specified pleadings is limited.

5. Clarify that the bill is neutral on attorney’s fees and does not preclude a judge from awarding attorney’s fees or costs in cases filed before October 1, 2015.

6. Provide that a publically traded company with more than 4,700 employees in California and 17,700 employees in the United States, acquired by another legal entity between specified dates in 2015, may defer full payment of wages for rest and recovery periods until April 30, 2016, provided that the company, prior to that date, pays all such wages due, and interest, and also pays at least minimum wage for such rest periods during the applicable payroll periods.

These amendments were developed through many discussions with the author’s office, the Administration, stakeholders, and Committee staff. Taken together, these amendments address many, though not all, of the points raised by stakeholders during the September 3^rd Senate Labor Committee hearing.

2. Background on Piece Rate Compensation and Recent Court Decisions:

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 could 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 is well established in the law, and it was not the subject of recent litigation. Rather, recent litigation addressed whether nonproductive time and rest breaks needed to be counted as hours worked when calculating the minimum wage equivalency for piece rate wages.

As was discussed above, both Gonzalez and Bluford found that rest periods, recovery periods, and nonproductive time must be compensated separately and at least at the minimum wage. While these decisions were in keeping with prior legal decision and statutes in California, many stakeholders raised concerns on the impact of Gonzalez and Bluford. For employers who did not compensate their employees for their nonproductive time, the potential liability from these decisions on employers can be significant.

Post-Gonzalez, it is clear the employer would be liable for separately compensated nonproductive time, rest breaks, and recovery breaks. However, the employer would also face, at a minimum, liability for paying less than the minimum wage, producing an incorrect wage stub, and failure to provide rest breaks. These violations trigger a penalty structure that is geared for employers who refuse to follow the minimum wage law and engage in wage theft, rather than employers who were caught up in an adverse court decision. This creates a challenging dynamic: while on one hand some employers may be facing insolvency due to liability they could not foresee, aggrieved workers are owed wages for their time.

3. How AB 1513 Would Work:

Broadly speaking, AB 1513 can be divided into two portions. The first portion deals with separate compensation for nonproductive time and rest and recovery periods. The second portion creates a narrow safe harbor for employers to address their liability under Gonzalez and Bluford. Each with be discussed below.

Piece Rate Compensation and Separate Compensation for Nonproductive Time and Rest and Recovery Periods

As noted above, 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 would codify 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 piece rate. 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 Provisions

As was discussed above, AB 1513 contains an unusual provision: a limited safe harbor for employers from claims resulting from Gonzalez and Bluford. In a nutshell, the AB 1513 safe harbor provides an 11 ½ month window for the employer to do the following:

1. Calculate back wages for both former and current workers;

2. Notifying the Division of Labor Standards Enforcement (DLSE) that the employer is utilizing the safe harbor;

3. Transmitting the back wages the effected workers, including information on how the back wages were calculated; and

4. If, after due diligence, a worker cannot be found, transmitting the wages to DLSE, with a processing fee.

If an employer decides to do all of the above, he or she would have a limited safe harbor from resulting from the Gonzalez and Bluford decisions. However, it is important to note that the safe harbor isn’t a simple immunity from claims due to underpayment or nonpayment of nonproductive time and/or rest and recovery periods. Rather, it is an affirmative defense – the employer would need to prove-up that he or she met the above requirements. Outside of a good faith error, the employer loses the affirmative defense if he or she fails to meet the above requirements, and therefore loses access to the safe harbor.

AB 1513 and Attorney Fees

As was noted above, AB 1513 provides an affirmative defense for employers who pay back wages and comply with specified requirements. The bill is silent on the payment of attorney fees when an affirmative defense is successfully utilized. Some stakeholders have raised concerns that this silence could lead to judges denying attorney fees if the affirmative defense is utilized. However, in being silent, AB 1513 does not alter or address one way or the other any existing statutory or common law as to attorney fees.

4. Calculating Unpaid Nonproductive Time, Rest Periods & Recovery Periods:

Under AB 1513, there are two methods for calculating unpaid or underpaid nonproductive time, rest periods, and recovery periods. The first method is to pay uncompensated or undercompensated rest and recovery periods and nonproductive time, plus interest. On the surface, this would appear to be a relatively simple calculation. However, significant conflicts between workers and employers on what constitutes as nonproductive time and productive time can exist. Further, such disputes can vary significantly from industry to industry.

Therefore, AB 1513 creates a second method for calculating unpaid or underpaid nonproductive time, rest periods, and recovery periods. In this method, the employer pays the worker 4% of his or her gross piece rate wages. While credits are allowed, they can only lower the payment to 3% of the worker’s gross piece rate wages. While the 4% figure is, by definition, an estimation of the unpaid rest and recovery periods and nonproductive time, it is an estimate that comes from prior cases and DIR enforcement actions involving unpaid rest and recovery periods and nonproductive time.

Further, it is worth noting that 4% of gross wages can be a significant figure. For example, the California annual average wage for farm workers is $19,950. Over the 3.5 year period that AB 1315 covers, the 4% calculation would yield back wages of $2,793 per worker. Even if the employer were able to take advantage of maximum credits, the back wages would drop to $2094.75.

5. Nonproductive Time and New Car Dealers:

As was discussed earlier, new car dealers are required to pay back wages that are actually owed and are excluded from the provision that allows an employer to pay former and current workers 4% of gross wages to enter AB 1513’s safe harbor. The California New Car Dealers Association (CNCDA) objects to this provision strongly, referring to their exclusion as “outrageous”. However, back wages from recent settlements suggest that the workers employed by the new car dealers have significantly higher rates of nonproductive time compared to workers employed in other industries who are paid on a piece rate basis.

For example, in the Gonzalez case, the court rules that workers had an average of 1.85 hours per day of nonproductive time. This is more than 23% of their workday, which is much higher than the 4% discussed above. Further, additional settlements from other cases involving new car dealers have yielded nonproductive time ranging from 19% to 25% of workers’ workdays, suggesting that the Gonzalez case was not an unusual situation. Noting the scale of the differences between new car dealers and other employers who compensate their employees on a piece rate basis, proponents argue that the exclusion of new car dealers from the 4% estimation provision is appropriate.

6. Proponent Arguments:

Proponents argue that AB 1513 addresses a historically vexing challenge of calculating appropriate piece rate compensation, yet balances the needs of workers and employers. Specifically, proponents note that AB 1513 provides clear guidance for employers on appropriate wages during rest periods, recovery periods, and nonproductive time, and that these wage rates would not create disincentives for workers who want to take their breaks. Proponents also note that AB 1513 that provides an affirmative defense for employers, but only if they retroactively compensate employees for their rest periods, recovery periods, and nonproductive time. Proponents argue that AB 1513 is a fair compromise for both employers and workers, addressing a situation where there was a significant development in case law.

7. Opponent Arguments:

Opponents, including California Citrus Mutual and the California Cotton Growers Association, oppose AB 1513. While acknowledging that AB 1513 would allow employers to come into compliance and avoid continued exposure from non-productive time wage claims, opponents argue that AB 1513 contains provisions that unfairly excludes participation by some agricultural employers. Opponents argue that safe-harbor exclusions, as expressly inserted by use of the March 1, 2014 date sacrifices some companies to continued legal exposure in exchange for legal protections afforded to others. Opponents also point to the provision excluding any company for which an active claim is open alleging the adding of “ghost” employees to reduce or eliminate employee wages from use of payment calculation formulas and exposure protections afforded by AB 1513.

8. Prior Legislation:

SB 435 (Padilla), Chapter 719, Statutes of 2013, extends existing rest period protections available within the Industrial Welfare Commission orders to workers paid on a “piece-rate basis” as well as make them applicable during an employee’s recovery period.

SUPPORT

California Conference of Machinists

California Labor Federation

California Teamsters Public Affairs Council

Driscoll’s Strawberry Associates, Inc.

Grimmway Enterprises, Inc.

Maricopa Orchards

Monterey County Farm Bureau

The Wonderful Company

Western Growers Association (as amended)

OPPOSITION

California Citrus Mutual

California Cotton Growers Association

California Cotton Ginners Association

California Employment Law Council

California Fresh Fruit Association

California Grain and Feed Association

California Pear Growers Association

California Tomato Growers Association

Nisei Farmers League

Western Agricultural Processors Association

-- END --

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Tony Mendoza, Chair

2015 - 2016 Regular

Bill No: AB 1513 Hearing Date: September 3, 2015

Subject: Employment: workers’ compensation and piece rate compensation.

KEY ISSUE

Should the Legislature clarify the statutory requirements for piece-rate compensation?

Should the Legislature provide an affirmative defense and safe harbor for employers who, by December 15, 2016, fully compensate their employees, as specified, for all under-compensated or uncompensated rest periods, recovery periods, or unproductive time between July 1, 2012 and December 31, 2015?

ANALYSIS

Existing law requires that, when an employee is compensated on a “piece rate” basis, the employer must include in the employee’s wage stub the number of piece-rate units earned and any applicable piece rate if the employee is paid on a piece-rate basis. (Labor Code §226)

Existing law provides that, if an employee suffers injury as a result of a knowing and intentional failure by an employer to provide a wage stub, the employee is entitled to recover the greater of all actual damages or $50 for the initial pay period in which a violation occurs and $100 per employee for each violation in a subsequent pay period, not to exceed an aggregate penalty of $4,000, and is entitled to an award of costs and reasonable attorney’s fees. (Labor Code §226 (e))

Existing law provides that the Industrial Welfare Commission with the ability to adopt or amend working condition orders with respect to break periods, meal periods, and days of rest for any workers in California consistent with the health and welfare of those workers.
(Labor Code §516)

Existing law require every employer to authorize and permit all employees to take rest periods, which insofar as practicable shall be in the middle of each work period. The employer must provide a rest period of 10 minutes for every 4 hours worked, and rest periods must be counted as hours worked and not be deducted from the employee’s wages.

(IWC Wage Orders 1-15; Labor Code §226.7)

Existing law require that, if an employer fails to provide an employee a rest period, the employer must pay the employee 1 hour of pay at the employee’s regular rate of compensation for each workday that the rest period is not provided.

(IWC Wage Orders 1-15; Labor Code §226.7)

Existing law provides additional rest periods, known as recovery periods, to provide employees with a cooloff period to avoid heat illness. If an employer fails to provide an employee a recovery period, the employer must pay the employee 1 hour of pay at the employee’s regular rate of compensation for each workday that the rest period is not provided.

(Labor Code §226.7)

Existing court decisions require that nonproductive time, which is time under the employer’s control for which the employee is not producing “pieces”, rest periods, and recovery periods must be compensated separately and distinctly at the minimum wage or more.

(Gonzelez v. Downtown LA Motors (215 Cal.App.4^th 36 (2013)) and Bluford v. Safeway Stores (C066074 (2013)))

This bill would:

1. Codify the Gonzalez and Bluford decisions that nonproductive time, rest breaks, and recovery breaks are separately compensated;

2. Codify that, for rest and recovery periods, the rate of compensation is the higher of the average hourly rate or the applicable minimum wage;

3. Codify that, for nonproductive time, the rate of compensation is not less than the minimum wage; and

4. Codify how nonproductive time, rest breaks, and recovery break compensation is calculated.

This bill would also allow employers to utilize an affirmative defense against claims of an employer’s failure to timely pay compensation due for rest periods, recovery periods, and nonproductive time if the alleged failure occurred between July 1, 2012 and December 31, 2015 if the employer:

1. Make payments to all current and former piece-rate employees for uncompensated or undercompensated rest and recovery periods and nonproductive time, plus interest, from July 1, 2012 to December 31, 2015; or

2. Make payments to all current and former piece-rate employees in an amount equal to 4% of the gross earnings from July 1, 2012 to December 31, 2015. Deductions for previous separate payments for rest, recovery, and nonproductive time are permitted, but must not exceed 1% of the employee’s gross earnings during the same period. This methodology cannot be utilized by new motor vehicle dealers with 25 or more employees.

The employer must also:

3. Provides a statement to the current and former employees that shows the calculation of hours worked and how the employer determined the wages due;

4. Provides payment to the current and former employees no later than December 15, 2016;

5. Provide notice to the Labor Commissioner on the employer’s election to make payments to current and former employees by July 1, 2016; and

6. Preserves all records of hours worked, calculations of hours worked, and records of make whole payments to employees until December 16, 2020, and also furnish these records to the current or former employee upon request.

If the employer complies with the above, the employer shall have an affirmative defense for any action that seeks back wages, penalties, or liquidated damages relating to an employer’s failure to timely pay compensation due for rest periods, recovery periods, and nonproductive time, including to paying less than the minimum wage or having an inaccurate wage stub.

This bill would require that the Department of Industrial Relations (DIR) to post on their website either a list of employers who have elected to utilize the safe harbor or copies of actual notices of the election of the safe harbor.

This bill would require that, if an employer who wishes to comply with the above-discussed requirements for an affirmative defense but cannot locate an employee, the employer must instead remit the payments to the Labor Commissioner, plus a fee no greater than $2,500, so that the Labor Commissioner may locate the employee. Prior to doing so, the employer must utilize due diligence and finding the employees including, but not limited to, a people locator service.

This bill would provide that an employer does not need to make any payments for the period of July 1, 2012 and December 31, 2015 if any of the following applies:

1. An employer has, prior to August 1, 2015, entered into a valid release of claims for compensation for rest and recovery periods and other nonproductive time;

2. A release of claims was executed in connection with a settlement agreement filed with a court prior to October 1, 2015, and was later approved by the court.

This bill would also toll the statute of limitations from January 1, 2016 to July 1, 2016 for any claims based on the failure to compensate rest periods, recovery periods, and nonproductive time for piece-rate compensated employees where the employer has not provided notice to employees as discussed above. If the employer has provided a notice to the former or current employee, the statute of limitations is tolled until December 15, 2016.

The safe harbor shall not apply to any of the following:

1. The damages or penalties were previously awarded in an order or judgment that was final and not subject to further appeal as of January 1, 2016;

2. Claims where the employees were not advised of their right to take rest or recovery breaks, the breaks were not made available, or employees were discouraged from taking such breaks;

3. Claims based on the failure to provide paid rest periods, recovery periods, or nonproductive time asserted in an action filed prior to April 1, 2015 where the case contains an allegation that the employer has intentionally stolen wages through the use of fictitious worker names;

4. Claims asserted in a court filing prior to March 1, 2014 or claims asserted prior to March 1, 2014 and amended prior to July 1, 2015; and

5. Claims for unpaid wages, damages, and penalties that accrue after January 1, 2016.

This bill would allow for the assertion of an affirmative defense through an amended filing if the action was filed on or after March 1, 2014, unless the action is final and not subject to further appeals as of January 1, 2016.

This bill would protect the affirmative defense for employers if, after making a reasonable and good faith effort to comply with the requirements of the safe harbor, fails to make appropriate payments or provide accurate statements to all employees. The employer would have the burden of proving that the failure was solely the result of a good faith error.

This bill would make additional changes to law in order to allow the Labor Commissioner to enforce and effectuate the provisions of this bill.

This bill would also revise and recast the piece rate wage requirements after January 1, 2021 to reflect the cessation of the safe harbor provisions.

This bill would also delete three obsolete workers’ compensation study requirements.

COMMENTS

1. Background on Piece Rate Compensation and Recent Court Decisions:

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 could 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 is well established in the law, and it was not the subject of recent litigation. Rather, recent litigation addressed whether nonproductive time and rest breaks needed to be counted as hours worked when calculating the minimum wage equivalency for piece rate wages.

As was discussed above, both Gonzalez and Bluford found that rest periods, recovery periods, and nonproductive time must be compensated separately and at least at the minimum wage. While these decisions were in keeping with prior legal decision and statutes in California, many stakeholders raised concerns on the impact of Gonzalez and Bluford. For employers who did not compensate their employees for their nonproductive time, the potential liability from these decisions on employers can be significant.

Post-Gonzalez, it is clear the employer would be liable for separately compensated nonproductive time, rest breaks, and recovery breaks. However, the employer would also face, at a minimum, liability for paying less than the minimum wage, producing an incorrect wage stub, and failure to provide rest breaks. These violations trigger a penalty structure that is geared for employers who refuse to follow the minimum wage law and engage in wage theft, rather than employers who were caught up in an adverse court decision. This creates a challenging dynamic: while on one hand some employers may be facing insolvency due to liability they could not foresee, aggrieved workers are owed wages for their time.

2. How AB 1513 Would Work:

Broadly speaking, AB 1513 can be divided into two portions. The first portion deals with separate compensation for nonproductive time and rest and recovery periods. The second portion creates a narrow safe harbor for employers to address their liability under Gonzalez and Bluford. Each with be discussed below.

Piece Rate Compensation and Separate Compensation for Nonproductive Time and Rest and Recovery Periods

As noted above, 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 would codify 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 piece rate. 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 Provisions

As was discussed above, AB 1513 contains an unusual provision: a limited safe harbor for employers from claims resulting from Gonzalez and Bluford. In a nutshell, the AB 1513 safe harbor provides an 11 ½ month window for the employer to do the following:

1. Calculate back wages for both former and current workers;

2. Notifying the Division of Labor Standards Enforcement (DLSE) that the employer is utilizing the safe harbor;

3. Transmitting the back wages the effected workers, including information on how the back wages were calculated; and

4. If, after due diligence, a worker cannot be found, transmitting the wages to DLSE, with a processing fee.

If an employer decides to do all of the above, he or she would have a limited safe harbor from resulting from the Gonzalez and Bluford decisions. However, it is important to note that the safe harbor isn’t a simple immunity from claims due to underpayment or nonpayment of nonproductive time and/or rest and recovery periods. Rather, it is an affirmative defense – the employer would need to prove-up that he or she met the above requirements. Outside of a good faith error, the employer loses the affirmative defense if he or she fails to meet the above requirements, and therefore loses access to the safe harbor.

AB 1513 and Attorney Fees

As was noted above, AB 1513 provides an affirmative defense for employers who pay back wages and comply with specified requirements. The bill is silent on the payment of attorney fees when an affirmative defense is successfully utilized. Some stakeholders have raised concerns that this silence could lead to judges denying attorney fees if the affirmative defense is utilized. However, in being silent, AB 1513 does not alter or address one way or the other any existing statutory or common law as to attorney fees.

3. Calculating Unpaid Nonproductive Time, Rest Periods & Recovery Periods:

Under AB 1513, there are two methods for calculating unpaid or underpaid nonproductive time, rest periods, and recovery periods. The first method is to pay uncompensated or undercompensated rest and recovery periods and nonproductive time, plus interest. On the surface, this would appear to be a relatively simple calculation. However, significant conflicts between workers and employers on what constitutes as nonproductive time and productive time can exist. Further, such disputes can vary significantly from industry to industry.

Therefore, AB 1513 creates a second method for calculating unpaid or underpaid nonproductive time, rest periods, and recovery periods. In this method, the employer pays the worker 4% of his or her gross piece rate wages. While credits are allowed, they can only lower the payment to 3% of the worker’s gross piece rate wages. While the 4% figure is, by definition, an estimation of the unpaid rest and recovery periods and nonproductive time, it is an estimate that comes from prior cases and DIR enforcement actions involving unpaid rest and recovery periods and nonproductive time.

Further, it is worth noting that 4% of gross wages can be a significant figure. For example, the California annual average wage for farm workers is $19,950. Over the 3.5 year period that AB 1315 covers, the 4% calculation would yield back wages of $2,793 per worker. Even if the employer were able to take advantage of maximum credits, the back wages would drop to $2094.75.

4. Nonproductive Time and New Car Dealers:

As was discussed earlier, new car dealers are required to pay back wages that are actually owed and are excluded from the provision that allows an employer to pay former and current workers 4% of gross wages to enter AB 1513’s safe harbor. The California New Car Dealers Association (CNCDA) objects to this provision strongly, referring to their exclusion as “outrageous”. However, back wages from recent settlements suggest that the workers employed by the new car dealers have significantly higher rates of nonproductive time compared to workers employed in other industries who are paid on a piece rate basis.

For example, in the Gonzalez case, the court rules that workers had an average of 1.85 hours per day of nonproductive time. This is more than 23% of their workday, which is much higher than the 4% discussed above. Further, additional settlements from other cases involving new car dealers have yielded nonproductive time ranging from 19% to 25% of workers’ workdays, suggesting that the Gonzalez case was not an unusual situation. Noting the scale of the differences between new car dealers and other employers who compensate their employees on a piece rate basis, proponents argue that the exclusion of new car dealers from the 4% estimation provision is appropriate.

5. Proponent Arguments:

Proponents argue that AB 1513 addresses a historically vexing challenge of calculating appropriate piece rate compensation, yet balances the needs of workers and employers. Specifically, proponents note that AB 1513 provides clear guidance for employers on appropriate wages during rest periods, recovery periods, and nonproductive time, and that these wage rates would not create disincentives for workers who want to take their breaks. Proponents also note that AB 1513 that provides an affirmative defense for employers, but only if they retroactively compensate employees for their rest periods, recovery periods, and nonproductive time. Proponents argue that AB 1513 is a fair compromise for both employers and workers, addressing a situation where there was a significant development in case law.

6. Opponent Arguments:

The California New Car Dealers (CNCDA) opposes AB 1513, arguing that new car dealers should be exempted from the bill. Specifically, CNCDA argues that their exclusion from estimated wage calculations is unjust, and that they do not have the necessary records to fall under the “safe harbor” affirmative defense. CNCDA further notes that AB 1513 tolls the statute of limitations on nonpayment/underpayment of rest periods, recovery periods, and nonproductive time, allowing workers to pursue past claims even if the car dealer is currently complying with Gonzalez. Finally, CNCDA raises concerns that AB 1513 may lead to wages discrepancies between state and local minimum wages, leading to higher wages for nonproductive time than productive time.

7. Prior Legislation:

SB 435 (Padilla), Chapter 719, Statutes of 2013, extends existing rest period protections available within the Industrial Welfare Commission orders to workers paid on a “piece-rate basis” as well as make them applicable during an employee’s recovery period.

SUPPORT

California Conference of Machinists

California Teamsters Public Affairs Council

California Labor Federation

Driscoll’s Strawberry Associates, Inc.

OPPOSITION

California New Car Dealers Association (CNCDA)

-- END --

 THIRD READING  

Bill No: AB 1513

Author: Committee on Insurance

Amended: 3/26/15 in Assembly

Vote: 21

SENATE LABOR & IND. REL. COMMITTEE: 5-0, 6/24/15

AYES: Mendoza, Stone, Jackson, Leno, Mitchell

ASSEMBLY FLOOR: 79-0, 4/16/15 (Consent) - See last page for vote

SUBJECT: Workers’ compensation: studies

SOURCE: Author

DIGEST: This bill deletes three obsolete study requirements for the workers’ compensation system.

ANALYSIS:

Existing law:

1. Establishes a workers’ compensation system that provides benefits to an employee who suffers from an injury or illness that arises out of and in the course of employment, irrespective of fault. This system requires all employers to secure payment of benefits by either securing the consent of the Department of Industrial Relations to self-insure or by securing insurance against liability from an insurance company duly authorized by the state.

2. Requires that, not later than July 1, 2009, the Commission on Health and Safety and Workers’ Compensation (CHSWC) publishes a study to examine the causes of the number of insolvencies among workers’ compensation insurers from 1998 to 2008. (Labor Code §77.7)

3. Requires that, not later than July 1, 2004, the administrative director conducts a study of medical treatment provided to workers who have sustained industrial injuries and illnesses. Existing law also requires that this study be conducted in consultation with the CHSWC, other state agencies, and researchers and research institutions with expertise in health care delivery. (Labor Code §127.6)

4. Requires that, not later than January 1, 2006, the administrative director, after consultation with the Insurance Commissioner, contracts with a qualified organization to study the effects of the 2003 and 2004 legislative reforms on workers’ compensation insurance rates. (Labor Code §138.65)

This bill deletes the above-discussed study requirements.

Background

As was discussed above, existing law contains three study requirements, all three of which contain deadlines which have already passed. All three studies have either been published by CHSWC or addressed by other studies. Therefore, deleting these provisions will not impact ongoing research or the workers’ compensation system.

The Assembly Insurance Committee’s analysis also notes that this bill may be a vehicle “for other noncontroversial changes to the workers' compensation laws that achieve consensus among all stakeholders, should these issues arise during this Legislative Session.” To date, such a consensus issue has yet to be found in this legislative session.

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/24/15)

None received

OPPOSITION: (Verified 6/24/15)

None received

ASSEMBLY FLOOR: 79-0, 4/16/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

NO VOTE RECORDED: Quirk

Prepared by: Gideon Baum / L. & I.R. / (916) 651-1556

6/29/15 15:53:20

**** END ****

SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS

Senator Tony Mendoza, Chair

2015 - 2016 Regular

Bill No: AB 1513 Hearing Date: June 24, 2015

Subject: Workers’ compensation: studies.

KEY ISSUE

Should the Legislature delete three obsolete study requirements?

ANALYSIS

Existing law establishes a workers’ compensation system that provides benefits to an employee who suffers from an injury or illness that arises out of and in the course of employment, irrespective of fault. This system requires all employers to secure payment of benefits by either securing the consent of the Department of Industrial Relations to self-insure or by securing insurance against liability from an insurance company duly authorized by the state.

Existing law requires that, not later than July 1, 2009, the Commission on Health and Safety and Workers’ Compensation (CHSWC) publishes a study to examine the causes of the number of insolvencies among workers’ compensation insurers from 1998 to 2008. (Labor Code §77.7)

Existing law requires that, not later than July 1, 2004, the administrative director conducts a study of medical treatment provided to workers who have sustained industrial injuries and illnesses. Existing law also requires that this study be conducted in consultation with the Commission on Health and Safety and Workers’ Compensation, other state agencies, and researchers and research institutions with expertise in health care delivery. (Labor Code §127.6)

Existing law requires that, not later than January 1, 2006, the administrative director, after consultation with the Insurance Commissioner, contracts with a qualified organization to study the effects of the 2003 and 2004 legislative reforms on workers’ compensation insurance rates. (Labor Code §138.65)

This bill would delete the above-discussed study requirements.

COMMENTS

1. Need for this bill?

As was discussed above, existing law contains three study requirements, all three of which contain deadlines which have already passed. All three studies have either been published by CHSWC or addressed by other studies. Therefore, deleting these provisions will not impact ongoing research or the workers’ compensation system.

The Assembly Insurance Committee’s analysis also notes that this bill may be a vehicle “for other noncontroversial changes to the workers' compensation laws that achieve consensus among all stakeholders, should these issues arise during this Legislative Session.” To date, such a consensus issue has yet to be found in this legislative session. Committee staff will continue to work with Assembly Insurance Committee staff to ensure that any possible amendments are communicated in a timely manner to Committee members and staff.

2. Proponent Arguments:

None on file.

3. Opponent Arguments:

None on file.

SUPPORT

None Received.

OPPOSITION

None Received.

-- END --

Date of Hearing: April 8, 2015

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

ABPCA Bill Id:AB 1513

Author:(Committee on Insurance) – As Introduced Ver:March 5, 2015

SUBJECT: Workers’ compensation: studies

SUMMARY: > Specifically, this bill: >

EXISTING LAW: >

FISCAL EFFECT: >

COMMENTS: >

REGISTERED SUPPORT / OPPOSITION:

Support

>

Opposition

>

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086

Date of Hearing: April 8, 2015

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

ABPCA Bill Id:AB 1513

Author:(Committee on Insurance) – As Amended Ver:March 26, 2015

SUBJECT: Workers’ compensation: studies

SUMMARY: Repeals three obsolete requirements that certain studies be undertaken. Specifically, this bill:

1. Repeals the statute that required to Commission on Health and Safety and Workers' Compensation to conduct a now-completed study on the causes of the workers' compensation insurer insolvencies that occurred in the late 1990's and early 2000's.
   
   

2. Repeals the statute that required the Administrative Director (AD) of the Division of Workers' Compensation to conduct a now-completed study and report to the Legislature concerning industrial injuries.
   
   

3. Repeals the statute that required the AD to conduct, in consultation with the Insurance Commissioner, a now-completed study of the impacts of the 2003 and 2004 workers' compensation reforms on workers' compensation insurance rates.

EXISTING LAW established the requirements for the studies noted above to be completed by specified dates.

FISCAL EFFECT: None.

COMMENTS:

1. Purpose. The purpose of this bill is two-fold: first, it repeals obsolete statutory requirements governing workers' compensation reports and studies; second, it is a vehicle for other non-controversial changes to the workers' compensation laws that achieve consensus among all stakeholders, should these issues arise during this Legislative Session.
   
   

REGISTERED SUPPORT / OPPOSITION:

Support

None

Opposition

None

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086