Recently, in Mora v. C.E. Enterprises, Inc., the California Court of Appeal upheld a trial court’s decision in favor of an auto dealership alleged to have used an improper “piece rate” or “flag hours” compensation model.
Two former service technicians alleged that the dealership’s compensation system violated requirements for compensating for productive and non-productive time and failed to comply with Labor Code section 226.2. They claimed they were not fully compensated for all hours worked and sought relief under both traditional wage and hour claims and the Private Attorneys General Act (PAGA).
The court rejected the employees’ arguments, concluding that the dealership’s hourly pay plan complied with California wage laws.
Like many dealerships, C.E. Enterprises previously paid service technicians under a “flag” or piece rate system which assigned a pre-determined amount of time and monetary value to each task. In light of several Court of Appeal decisions, the employer changed to an hourly pay system whereby technicians earned at least double the minimum wage for all hours worked. As part of the new compensation system, employees could earn “flag bonus pay” when their efficiency, measured in “flag hours” assigned per service task, exceeded their guaranteed hourly and overtime earnings.
The trial court found that this “flag bonus” was a true bonus and not piece-rate compensation. In affirming the ruling, the appellate court distinguished C.E. Enterprises’ plan from...
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