Nisei Farmers League v. Cal. Labor & Workforce Dev. Agency

Decision Date04 January 2019
Docket NumberF075102
Parties NISEI FARMERS LEAGUE et al., Plaintiffs and Appellants, v. CALIFORNIA LABOR AND WORKFORCE DEVELOPMENT AGENCY et al., Defendants and Respondents.
CourtCalifornia Court of Appeals Court of Appeals

Gibson, Dunn & Crutcher, Jesse A. Cripps, Perlette Michèle Jura, Los Angeles, Joseph C. Hansen, San Francisco, and Theodore M. Kider, Los Angeles, for Plaintiffs and Appellants.

Ogletree, Deakins, Nash, Smoak & Stewart, Robert R. Roginson, Jack S. Sholkoff and Kathleen J. Choi, Los Angeles, for California Trucking Association as Amicus Curiae on behalf of Plaintiffs and Appellants.

Xavier Becerra, Attorney General, Thomas S. Patterson, Assistant Attorney General, Mark R. Beckington and R. Matthew Wise, Deputy Attorneys General, for Defendants and Respondents.


LEVY, Acting P.J. Plaintiffs Nisei Farmers League and California Building Industry Association filed this action in the trial court challenging the constitutional validity of Labor Code 1 section 226.2, a recently enacted law articulating wage requirements applicable where an employer uses a piece-rate method of compensating its employees. The complaint was brought against the state labor agencies and agency officials responsible for enforcing the wage law (defendants).2 In their complaint, plaintiffs alleged among other things that provisions of section 226.2 were so uncertain as to render the statute void for vagueness. Other constitutional challenges to the validity of section 226.2 were premised on allegations that the statute would be applied retroactively. Defendants demurred to the complaint, arguing that the wording of section 226.2 was not unconstitutionally vague and that the other constitutional challenges asserted in plaintiffs' complaint were without merit because the statute was not retroactive. The trial court agreed with defendants' analysis, sustained the demurrer without leave to amend, and entered a judgment of dismissal. In doing so, the trial court also declined to grant plaintiffs' request for declaratory relief relating to an affirmative defense created by the statute. Plaintiffs appeal from the judgment.

Based on our review of the pertinent issues, we conclude that plaintiffs failed to allege an adequate basis for finding the statute to be facially unconstitutional. We also conclude that denial of the declaratory relief requested was appropriate. Thus, the demurrer was properly sustained without leave to amend. For these and other reasons more fully explained below, the judgment of the trial court is hereby affirmed.


Plaintiffs Represent Employers Using Piece-rate Wage Systems

Plaintiffs are organizations that claim to represent thousands of California employers in the agricultural and construction industries. Many of plaintiffs' member employers pay their employees on a piece-rate basis because that method of compensation creates incentives for higher productivity. Under a piece-rate system, employees are not paid by the hour, but rather are compensated based on activities, tasks, or units of production completed (see Vaquero v. Stoneledge Furniture, LLC (2017) 9 Cal.App.5th 98, 109, fn. 7, 214 Cal.Rptr.3d 661 ; Jackpot Harvesting Co ., Inc. v. Superior Court (2018) 26 Cal.App.5th 125, 135, 237 Cal.Rptr.3d 1 ( Jackpot Harvesting ) ), such as the quantity of produce picked, the number of yards of carpet installed, or the number of miles driven. Plaintiffs point out there are numerous studies showing that piece-rate systems which reward employee productivity generally lead to higher pay for employees, significantly increased productivity, and cost savings to consumers. Plaintiffs allege that their " ‘members’ employees regularly earn through piece-rate compensation sums that far exceed minimum wage or what they could expect to earn through hourly compensation." California has long recognized that wages may be paid on a piece-rate basis. ( § 200 [defining "wages" as including all amounts for labor performed by employees "whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation"].)

According to plaintiffs, the employers they represent design their piece-rate wage systems to cover all work performed by their employees throughout the work day, including rest breaks. Allegedly, these employers are careful to ensure that piece-rate compensation fully complies with minimum wage requirements. They ensure compliance with the minimum wage law at the end of each pay period "by dividing the hours worked by the payment made and making any additional payment necessary to ‘true up’ the total compensation to reach at least minimum wage." Plaintiffs further allege this piece-rate method of paying wages (including the method used to ensure compliance with minimum wage law) was understood by employers to be in accordance with established law, was the settled practice in the industry, and was consistent with defendants' own publications providing guidance to employers.

The 2013 Court of Appeal Decisions

In 2013, two watershed Court of Appeal decisions upended the expectations of any employers who may have assumed that a piece-rate system carried out in the manner described above would fully comply with the law. These two decisions were Gonzalez v. Downtown LA Motors, LP (2013) 215 Cal.App.4th 36, 155 Cal.Rptr.3d 18 ( Gonzalez ) and Bluford v. Safeway Inc . (2013) 216 Cal.App.4th 864, 157 Cal.Rptr.3d 212 ( Bluford ).

In Gonzalez , automotive service technicians were paid piece-rate compensation based on the completion of repair tasks. The plaintiffs in Gonzalez , a class of former technicians who had worked for the defendant employer, claimed that they should be paid a separate hourly minimum wage for time spent during their workshifts waiting for vehicles to repair and performing other nonrepair tasks directed by the employer, even though the employer supplemented the technicians' compensation at the end of the pay period to cover any shortfall between the piece-rate compensation and minimum wage for all hours worked. ( Gonzalez , supra , 215 Cal.App.4th at p. 40, 155 Cal.Rptr.3d 18.) The Court of Appeal concluded the plaintiffs' legal position was correct and held that they were "entitled to separate hourly compensation for time spent waiting for repair work or performing other nonrepair tasks directed by the employer during their workshifts...." ( Id . at pp. 40–41, 155 Cal.Rptr.3d 18.) As explained in Gonzalez , even though the employer in that case paid its employees on a piece-rate basis rather than hourly, the employees' nonproductive work time that was not part of the compensated piece-rate activity of repairing cars had to be separately compensated to satisfy minimum wage law, since the minimum wage law applied to each hour worked.3 Accordingly, the employer's practice of averaging hourly wages at the end of the pay period (by dividing total compensation paid by the total hours worked over the course of the pay period) was insufficient to show compliance with the law. ( Id . at pp. 40–42, 48–49, 155 Cal.Rptr.3d 18.)

In so holding, the Gonzalez court expressly relied on the reasoning of Armenta v. Osmose, Inc . (2005) 135 Cal.App.4th 314, 317–324, 37 Cal.Rptr.3d 460 ( Armenta ). ( Gonzalez , supra , 215 Cal.App.4th at pp. 40, 45–53, 155 Cal.Rptr.3d 18.) In Armenta , where an employer paid its employees hourly wages for specified "productive" work time only, and did not pay the employees for other "nonproductive" work time, the appellate court concluded that the employer's minimum wage obligation could not be met by averaging wages over the total hours worked in the pay period; rather, the California minimum wage law attached to each hour worked by the employees, including the unpaid nonproductive hours. ( Armenta , supra , 135 Cal.App.4th at pp. 317, 321–324, 37 Cal.Rptr.3d 460.) In finding Armenta's analysis of California's minimum wage law to be persuasive, Gonzalez rejected the employer's argument that Armenta , as an hourly wage case, should not be applied to workers who are compensated on a piece-rate basis. Instead, Gonzalez directly applied Armenta to the piece-rate compensation system before it, following Armenta's rule that averaging an employee's wages for all hours spent on the job during the pay period (where the employee's work time included both paid/productive hours and unpaid/nonproductive hours) would not suffice to show compliance with the minimum wage law for each hour worked. ( Gonzalez , supra , 215 Cal.App.4th at pp. 40–41, 48–49, 155 Cal.Rptr.3d 18, also citing Cardenas v. McLane Food Services, Inc . (C.D.Cal. 2011) 796 F.Supp.2d 1246, 1252 [holding that "a piece-rate formula that does not compensate directly for all time worked does not comply with California Labor Codes, even if, averaged out, it would pay at least minimum wage for all hours worked"; see also Vaquero v. Stoneledge Furniture, LLC, supra, 9 Cal.App.5th at p. 110, 214 Cal.Rptr.3d 661 [noting "[a]ll of the federal courts that have considered this issue of California law have reached a similar conclusion and have held employers must separately compensate employees paid by the piece for nonproductive work hours"].)

In Bluford , the second of the two 2013 decisions impacting piece-rate compensation practices, a Safeway truckdriver sued Safeway for failure to pay its truckdrivers for their rest periods. It was alleged that under Safeway's piece-rate wage system, compensation was paid to truckdrivers based on miles driven and the performance of certain tasks, but the system did not provide any payment for rest periods. ( Bluford , supra , 216 Cal.App.4th at p. 870, 157 Cal.Rptr.3d 212.) Safeway responded that payment for rest periods was indirectly provided as part of its overall piece-rate system by being subsumed in the mileage rates it paid to its drivers. ( Id . at p. 871, 157 Cal.Rptr.3d...

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