Seyfarth Synopsis: A court has temporarily suspended the deadline for employers to elect the statutory “safe harbor” for purposes of complying with recent legislation that makes it even more difficult for employers that pay with a piece rate rather than an hourly rate for any portion of an employee’s work.  

As we previously reported, the California Legislature’s enactment of AB 1513 (commonly known as the “piece rate pay law”), which became effective on January 1, 2016, has created significant challenges for California employers that pay employees on a piece-rate basis for any part of their work. This new law requires employers to pay piece-rate employees separately for rest and recovery periods and for “other non-productive time,” based on a specific formula, and requires detailed disclosures in wage statements.

AB 1513’s “Safe Harbor” for Past Violations

AB 1513 creates an affirmative defense to wage claims for employers that follow the law’s very specific “safe harbor” provisions. To come within the safe harbor, employers must (1) provide written notice of their intent to utilize the safe harbor procedures by no later than July 1, 2016, and (2) pay employees for all previously uncompensated rest and recovery periods and other non-productive time, plus interest, for the period from July 1, 2012, through December 31, 2015, by December 15, 2016.

Challenge to the Piece Rate Pay Law

An agricultural employer group, Nisei Farmers League, filed a lawsuit challenging AB 1513 on constitutional grounds. The lawsuit argues that AB 1513 is unconstitutionally vague, fails to provide employers with fair notice of its requirements, and is impermissibly retroactive. The League sought to enjoin enforcement of certain provisions of AB 1513, including the safe harbor, pending a trial of their claims.

On June 30, 2016, one day before the deadline to elect the safe harbor, the court entered an Order to Show Cause re Preliminary Injunction and Temporary Restraining Order. This Order restrains the Department of Industrial Relations from enforcing the deadline until at least July 18, 2016, the date of the hearing on the Order to Show Cause. If the court enters a preliminary injunction at the hearing, the DIR will be enjoined from enforcing the deadline until thirty days after the preliminary injunction expires, and from enforcing the payment requirement until 197 days after the preliminary injunction expires. If the court does not enter a preliminary injunction, then the deadline will become effective ten days later (on July 28, 2016).

What Does This Mean for Piece Rate Employers?

The Order provides piece-rate employers with some additional time (at least until July 28, 2016, and longer if the court enters a preliminary injunction) to decide whether to invoke the safe harbor if they have not already done so. Employers that already made this election may have additional time to comply with the back-pay requirements if the court enters a preliminary injunction on July 18. In either case, the many California employers struggling to comply with the unclear and burdensome requirements of AB 1513 should watch this legal challenge closely.