On July 17, 2013, as reported in the California Auto Dealer Newsletter, the California Supreme Court denied the petition for review filed by Downtown LA Motors, LP in the case of Gonzalez v. Downtown LA Motors, LP.
The March 6, 2013 court of appeal decision in Gonzalez v. Downtown LA Motors, LP has garnered a lot of attention in the automotive dealer community this year and has been the subject of much criticism. The main criticism of this decision is that it wrongfully conflates hourly rate compensation rules and piece-rate compensation, grafting hourly rate rules onto a piece-rate compensation system.
Despite its failings, now that the California Supreme Court has denied review, Gonzalez remains good law and automotive dealers are well-advised to draft technician pay plans that comply with its requirements.
The Gonzalez court noted that California law provides: “Every employer shall pay to each employee, on the established payday for the period involved, not less than the applicable minimum wage for all hours worked in the payroll period, whether the remuneration is measured by time, piece, commission, or otherwise.”
The court held the general rule that “employers must pay for all hours worked and may not average paid, productive hours with non-paid, non-productive hours” applies to flag-rate employees. Therefore, the technicians were “entitled to separate hourly compensation for time spent waiting for repair work or performing other non-repair tasks directed by the employer during their work shifts.”
Late last year, a similar result was reached as to commissioned salespersons. In Balasanyan v. Nordstrom, a federal trial court held that hours spent in non-sales activities were uncompensated because “compensation must be directly tied to the activity being done, whether it is selling on commission or preparing to sell on commission,” and that “activities only indirectly related to sales or services must also be compensated.”
As a consequence of these decisions, California dealers, should immediately review their salesperson and technician pay plans to mitigate the risks posed by the Gonzalez v. Downtown LA Motors and Balasanyan decisions. These may include:
- Modifying flag and commission compensation to avoid so-called “uncompensated” hours, but paying at least minimum wage directly for each hour worked (including non-flag work and work indirectly related to sales, such as moving cars or participating in team meetings);
- Modify pay statements to itemize both flag hours and hourly rates (and totals) during the pay period and the corresponding number of hours worked; and
- Implementing arbitration agreements to control exposure to class-action lawsuits.
Consult qualified dealer labor and employment counsel to determine whether flag rate and commission pay plans require modification, and whether any other action is appropriate to mitigate risk based on the Gonzalez and Balasanyan cases.