Beware State Wage and Hour Laws: Washington Supreme Court Upends Piece Work Calculations
August 13, 2015
Whenever I discuss federal law here on the blog, I usually add a disclaimer that reminds employers to check state and local laws before proceeding. With the proliferation of minimum wage increases, minding state and local laws is more important than ever. However, state laws can affect more than just the minimum wage. For instance, recently when answering questions certified to it by a federal district court, the Washington Supreme Court held that—as a matter of Washington state law—employers must pay employees for their rest breaks separately from their piece rate pay. The court further held that Washington law required that employers pay for those rest breaks at the greater of applicable minimum wage or the employee’s regular rate.
The Piece Rate Under the FLSA
We’ll cover the piece rate in more detail in a future post, but for now, it is enough to know that the Fair Labor Standards Act (FLSA) permits employers to pay non-exempt workers for their output, rather than by the hour. To ensure that the “regular rate of pay” complies with the FLSA’s minimum wage requirements, you divide the total weekly earnings by the total number of hours worked in that week. In the agriculture and construction industries, employers frequently pay this “piece rate” for discrete, repeated tasks. For example, rather than paying John $10.00 per hour, Widget Assemblers, Inc. can pay him $0.25 per widget correctly assembled. As long as the regular rate from assembling widgets exceeds the minimum wage, it is lawful under the FLSA. Of course, if John works more than 40 hours in a week assembling widgets, Widget Assemblers, Inc. must compensate him the overtime premium (based on his calculated regular rate that week). Alternatively, so long as the piece rate is enough to yield at least the minimum wage per hour, the company and John could agree beforehand that John will receive 1.5 times the normal piece rate for each piece produced during overtime hours. While this agreement is not technically required to be in writing, getting it in writing is strongly advised.
Piece work is well-suited to industries such as agriculture, construction, manufacturing, transportation, and more because it can benefit both the employer and the worker. The worker has an opportunity to increase his or her income (or to earn the same income in fewer hours) by being more efficient, while the employer can tie labor costs more directly to output.
The Washington Regulatory Quirk
In 2013, two farmworkers filed a class action in federal district court against their employer claiming that its (presumably FLSA-compliant) piece rate wage system deprived them of paid rest breaks that a Washington regulation, WAC 296-131-020(2), required. That regulation mandates that “[e]very employee shall be allowed a rest period of at least ten minutes, on the employer’s time, in each four-hour period of employment.” Of course, in a piece rate compensation system, employees on a break were not producing and therefore not earning their piece rate. According to the employees, “on the employer’s time” meant that an employer must pay a wage separate from the piece rate to compensate employees for the paid break.
Finding no authority from Washington courts as applied to piece rate workers in the roughly 25 years since the regulation was promulgated, the federal court ultimately certified two questions to the Washington Supreme Court: (1) Does a Washington agricultural employer have an obligation under WAC 296-131-020(2) and/or the Washington Minimum Wage Act to separately pay piece-rate workers for the rest breaks to which they are entitled? (2) If the answer is “yes,” how must employers calculate the rate of pay for the rest break time to which piece-rate workers are entitled?
The parties agreed that employers must provide rest breaks to agricultural employees that agricultural employees are entitled to some form of payment for those breaks, and that to answer the question, the court needed to interpret WAC 296-131-020. The court rejected the employer’s argument that the piece rate was sufficient on its own, even though the practice is blessed by the FLSA. Observing that rest breaks are critical to the health and effectiveness of employees, particularly in agriculture, and that Washington courts had rejected payment schemes that incentivized missing rest breaks at the expense of employee health, the Washington Supreme Court concluded that the regulations reference to “on the employer’s time” would require employers to pay for rest breaks separately from the piece rate.
On the second question, the court determined that because all hours worked “on the employer’s time” are treated equally, WAC 296-131-020(2) entitles pieceworkers to their regular rate of pay for rest break time. To calculate a pieceworker’s regular rate, employers tally the total piece rate earnings and divide those earnings by the hours the pieceworker actually worked (not including the rest breaks). The court contrasted this computation with the one employers used to assess minimum wage compliance, expressly noting that the paid rest break time is included in the denominator when the question is minimum wage compliance.
The net effect for Washington employers who weren’t on the losing end of this litigation is not particularly significant in the long run. Washington employers paying employees a piece rate now need to pay rest breaks separately. However, by doing so, either by making the extra payments and absorbing the extra labor costs, or adjusting the piece rate to compensate for the added fees, the additional payment is relatively simple. Washington is not the only state with this particular piece rate requirement. California law imposes a similar requirement as well.
The case should reinforce for employers that many state law rules and regulations are different and/or far more complex than federal law. It is not enough to rely on the FLSA alone when drafting compensation plans and auditing pay practices.