Liability for Unpaid Rest Breaks of Commission-Only and Piece-Rate Employees Clarified

Posted: October 7, 2020 | News

Over the past few years several Court decisions have held that employees who work under either piece-rate compensation or commission-only pay structures must be paid at least minimum wage for their non-productive time, including for their rest breaks. As one Court in Bluford v. Safeway Inc. (2013) 216 Cal.App.4th 864 explained, “rest periods must be separately compensated in a piece-rate system,” either under “the legal minimum wage or the contractual hourly rate.” Id. at 872.

 California subsequently passed Labor Code section 226.2, which provides that piece-rate workers must be paid for “rest and recovery periods and other nonproductive time separate from any piece-rate compensation.” Under section 226.2 “nonproductive time” is defined as “time under the employer’s control, exclusive of rest and recovery periods, that is not directly related to the activity being compensated on a piece-rate basis.”

A separate Court reached the same conclusion in Vaquero v. Stoneledge Furniture LLC (2017) 9 Cal.App.5th 98. In Vaquero, the Court found that employees who were paid under a payment plan that advanced employees sums against later commission sales similarly failed to properly compensate the employees. The Court reasoned that Labor Code section 226.2, which requires piece-rate workers to be compensated for rest, recovery, and other nonproductive time, applies to commissioned employees as well.

California requires employees to be provided with one 10-minute paid rest break for each four hours worked, or major fraction thereof. Those rest breaks are required to be on the clock and paid time for the employees. The Court analyses determined that payment plans that pay piece-rate or commission only violate these requirements because the employee cannot earn compensation during rest breaks. Thus, the rest breaks were effectively uncompensated which violated California law.

Until recently, it was unclear what remedies plaintiffs could seek for pay plans that did not provide pay for employee rest breaks.

On September 11, 2020, the California Court of Appeal for the Third Appellate District decided Sanchez v. Martinez. In Sanchez, piece-rate agricultural workers were not separately paid for their rest breaks. They proceeded to trial with both parties offering different arguments regarding the scope of damages available for the violation. The plaintiffs argued that they should be provided with both minimum wage compensation for their uncompensated rest breaks and that they also should be entitled to an additional hour of pay at their regular rate of pay under Labor Code section 226.7 because they were not provided with legally required paid rest breaks. Labor Code section 226.7 requires an employer to pay “one additional hour of pay”—often referred to as a “premium wage”—when it fails to provide an employee a rest break “in accordance with an applicable order of the Industrial Welfare Commission.”

The Court in Sanchez determined that allowing plaintiffs to recover both the hourly rate for the unpaid rest breaks and the hour of premium wages would amount to a double recovery. The Court determined that the language of Labor Code section 226.7 is “expansive enough to cover also employers that provided rest periods but then failed to pay for them.” The Wage Order requires that rest breaks be paid “and so an employer that provides rest periods, but only unpaid ones, has not provided rest periods ‘in accordance with an applicable order of the Industrial Welfare Commission.’”

Thus, employers who utilize pay plans that fail to provide pay for rest breaks are potentially exposed to an additional hour of premium pay for each day that the employer failed to provide paid rest breaks.

There are means available to adjust both piece-rate and commission-only plans to ensure that employees receive paid rest breaks while still earning and being incentivized through commissions or piece-rate compensation. The employment attorneys at Ferruzzo & Ferruzzo, LLP are happy to discuss and assist with implementing such plans. 

This blog is not meant to provide specific legal advice. For advice specific to your business, please contact any of the employment attorneys in our Employment Practices Group who are ready to assist you.