Can you still be paid per hygiene patient?

For decades California law has allowed employers to pay their employees on a piece rate basis.  However, recent court decisions have raised some significant questions regarding whether any employer can still pay its employees a piece rate and avoid liability.

May 19th, 2015
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By Christopher Boman, Esq. and Boris Sorsher, Esq. of Fisher & Phillips LLP

For decades California law has allowed employers to pay their employees on a piece rate basis. However, recent court decisions have raised some significant questions regarding whether any employer can still pay its employees a piece rate and avoid liability. This article will examine these disturbing new trends.

A. How Does Piece Rate Pay Work?

A piece rate employee is paid per the item they produce or the service they provide instead of being paid by the hour. For example, a piece rate employee who makes dresses would get paid $10 for each dress. If that employee made 40 dresses during that week, he would earn $400. This payment system was lawful as long as the total amount of pay received when divided by the number of hours worked was equal to or higher than the minimum wage.

Using the dressmaker example, if the dress maker had made 40 dresses, worked 40 hours, and earned $400, his employer would have paid him lawfully because his total pay ($400) divided by the total hours worked (40) produced an hourly rate of $10 per hour. That rate is higher than the minimum wage rate (which is $9 per hour) and therefore his pay was lawful. Until recently employers paying a piece rate using this model were complying with both state and federal law.

B. What Has Changed?

Under the federal wage and hour laws, piece rate pay has been and continues to be lawful. However, California’s courts have issued a number of troubling decisions which have altered the legal landscape.

First, in 2005 the courts decided Armenta v. Osmose, Inc., 135 Cal.App.4th 314 (2005) (“Armenta”). Second, in 2013 the courts decided Gonzalez v. Downtown LA Motors, 215 Cal.App.4th 36 (2013).

In Armenta, a court took the position that the traditional piece rate pay system described above is potentially unlawful. The court explained that the hours worked by employees who worked on a piece rate system can be characterized as either hours spent working on the specific item being produced that are characterized as “productive time” and those hours spent doing other work tasks that are characterized as “ non-productive time.” The “non-productive time” is all time the employee spends at work (excluding the lunch break) when he is not actually working on a specific “piece” or item.

The Armenta court took the position that under the traditional piece rate system the employee was really only receiving pay for the “productive time” and was not being paid for the non-productive time. The court then held that a separate rate had to be paid for all non-productive time and that this rate also had to equal the minimum wage.

Using the dressmaker example, if the employee had spent 35 of his 40 hours making dresses; five of his hours were non-productive hours. By this court’s reasoning that employee was owed an additional five hours of pay at the minimum wage rate. Thus, at a $9 minimum wage rate, the dressmaker should have been paid a total of $400 + ($9)(5) = $445.

In 2005, Armenta was treated as oddity because it overturned decades of settled precedent. As a result, few people paid much attention to that decision.

However, in 2013, in a case named Downtown LA Motors (“DTLA”), another court followed the reasoning in Armenta and reached the same decision with respect to automobile technicians. Other courts have followed in the footsteps of Armenta and DTLA and have reached similar conclusions in cases involving drivers and retail sales associates.

Unfortunately, as a result of these recent developments, the Plaintiff’s bar in California has taken notice and we are now seeing lawsuits in numerous industries where piece rate employees are arguing that they were paid in violation of the law. Because California often “leads the charge” for new theories of liability for plaintiff’s lawyers and the employees they represent, this troubling trend may spread across the country to your state.

C. How Does Armenta and DTLA Impact Dental Practices?

In our experience, a number of dental practices employ hygienists who are paid by the patient as opposed to being paid by the hour. Doing so makes perfect sense as this compensation system encourages productivity and efficiency. Unfortunately, because of the recent legal developments, these hygienists could be characterized as “piece rate” employees, which could lead to liability for a dental practice. For any practices compensate hygienists or other dental professionals on a per patient basis, we recommend a review of the compensation structure to determine the legal risks of doing so.

Christopher Boman is a partner and Boris Sorsher is an associate in the Irvine office of Fisher & Phillips (www.laborlawyers.com), a national labor and employment law firm.

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