On Thursday, July 16, 2015, the Washington State Supreme Court issued its ruling in Demetrio v. Sakuma Brothers Farms, Inc. While the case involved agricultural workers the implications of the decision reach every employer is Washington that pays their employees on a flat rate or piece rate basis. That means, if you own a body shop, automotive repair shop or are a chiropractor that compensates employees on a piece or flat rate basis, your business is impacted by this decision.
The Demetrio case involved a dispute about how piece rate agricultural workers should be paid for rest periods (breaks). To resolve this, the Supreme Court was asked to interpret the Washington Administrative Code (WAC) that addresses rest periods for agricultural workers. That WAC (296-131-020 (2)) provides:
(2) Every employee shall be allowed a rest period of at least ten minutes, on the employer’s time, in each four-hour period of employment. For purposes of computing the minimum wage on a piecework basis, the time allotted an employee for rest periods shall be included in the number of hours for which the minimum wage must be paid. [Emphasis Added].
You will note the similarity between the first sentence of that WAC with the first sentence of the WAC (296-126-092(4)) that address rest periods for non-agricultural employees:
(4) Employees shall be allowed a rest period of not less than ten minutes, on the employer’s time, for each four hours of working time. Rest periods shall be scheduled as near as possible to the midpoint of the work period. No employee shall be required to work more than three hours without a rest period. [Emphasis Added.]
In Demetrio, the employer argued that the term “on the employer’s time”, in the context of piece rate compensation, meant the employer paid for breaks as part of the wage they received under piece rate system because it incentivizes employees to work harder to make more money. To get a sense of the employer’s position let’s take a look a the following example:
Example 1. Joe works for the Widget Company as a piece rate/flat rate employee. Last week, he worked 5 days consisting of 8 hours each day. Joe earned $600 for that week. The 40 hours he worked that week includes the 20 minutes a day he was on break. During the week he spent a total of 1 hour and 40 minutes on break (20×5=100 minutes or 1 hour and 40 minutes). Based on last week’s earnings, his regular rate of pay is $15 per hour ($600/40=$15). The employer only owes Joe $600.
The Supreme Court disagreed with this approach. It found that the employer’s interpretation incentivized employees not to take breaks and created a culture where employees are encouraged to work through breaks. It found the term “on the employer’s time” means what it says. Hourly employees are paid their hourly rate for the time they spend on breaks. Employers that pay employees on a piece or flat rate must pay a wage separate and apart from the piece rate for time spent on breaks. Breaks and active work are considered hours worked for the employer. To correctly calculate what the employee is owed for time spent on breaks, the piece rate employee’s regular rate has to be determined by deducting the time spent on breaks from the hours worked. Sounds confusing? Not really. Let’s go back to our example.
Example 2. Joe works for the Widget Company as a piece rate/flat rate employee. Last week, he worked 5 days consisting of 8 hours each day. Joe earned $600 for that week working at a flat rate. In the 40 hours he worked last week, Joe spent 20 minutes each day on breaks, that translates into 100 minutes or 1 hour and 40 minutes on breaks last week. To determine Joe’s regular rate of pay, we have to deduct the 1 hour and 40 minutes he spent on breaks from the 40 hours he worked. That means that Joe spent 38 hour and 20 minutes in active work. His regular rate is $15.65/hr ($600/38hours and 20 minutes (38.33)). Joe is entitled to the $600 he earned from flat rate work plus an additional $26.14 (15.65 x 1 hour and 40 minutes (1.67)). Joe’s total wages for this week are $626.14.
So the question then becomes can Joe get paid two different hourly rates, one for his piece rate work and one for breaks? The answer is a resounding Ye-Maybe. Sakuma Brothers tried to argue that their employees should be paid minimum wage for breaks and the regular rate for piece work. The court rejected this approach. Then it left us hanging by observing that nothing in the decision infringes on the right of the parties to contract and an employer can agree to pay a higher hourly wage for breaks. (Like that is ever going to happen.) I don’t know where the court was heading on this. Either the parties are free to contract and agree to pay breaks at a different rate, even if that rate is lower that the regular rate for piece work, or they can’t negotiate the rate. I doubt there is a single employer in this state that pays their employees a higher rate of pay for time spent on breaks. Based on the Court’s apparent conclusion that the WAC to requires the wage rate for active work and breaks to be the same, does that mean an employer can’t contract to pay employees less that their regular rate for breaks, the answer appears to be a resounding “it’s not clear.” We don’t know if the Court would have viewed this case differently if the compensation terms were agreed to in advance. Unfortunately, the Court did not give clear guidance on this issue. So what’s the safe bet? Calculate the employee’s regular rate each week for piece or flat rate work by deducting time the employee was or should have been on breaks and then multiply the regular rate by the time spent on breaks. The sum of the money earned on piece rate or flat rate work plus the money owed for breaks is what the employee is owed.
I have a feeling there will be more to come and we will keep you updated as this decision percolates in the legal community and the courts.
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