Piece-work pay plan that reduced weekly bonus violated FLSA

Reversing summary judgment against claims by two cable and internet installation technicians, the Ninth Circuit held that the employer’s piece-work-based pay plan, which included a bonus designed to decrease in proportion to an increase in the number of overtime (OT) hours worked, violated the Fair Labor Standards Act’s (FLSA) overtime provisions. The appeals court also revived the employees’ claims under a state law requiring employers to pay all wages earned and unpaid by the end of the first business day after termination, as well as one employee’s state-law retaliation claims.

Piece-work-based pay plan.

The employees in this consolidated appeal worked as technicians for Cable Communications, Inc. (CCI) installing cable television and internet services. One worked for CCI for almost a year and other for approximately five months. CCI guaranteed that technicians would earn at least the statutory minimum wage and paid them a fixed rate for each task completed. Each employee signed a document titled “Technician Pay Rate Program,” which stated that their gross earnings were the “[t]otal amount billed to the company by the employee for Piece Rate jobs completed in the pay period plus any bonus received …”

Calculating pay.

In calculating pay, CCI started by calculating a technician’s “Piece Rate Total” for a week (total value of piece-work tasks minus adjustments for incomplete work). If the technician worked no overtime, a “Production Bonus” (1/6 of the Piece Rate Total) was added to this amount. If the technician worked over 40 hours, the formula used for calculating the bonus was more complicated, but essentially CCI reduced the bonus paid by the amount of overtime premium CCI calculated was due on a technician’s Piece Rate Total. A technician’s pay each week was his Piece Rate Total plus—to the extent they were earned—his Piece Rate OT Premium, Production Bonus, and Production Bonus OT Premium.

Lawsuits.

The employees filed separate lawsuits against CCI, claiming the compensation plan violated the FLSA’s overtime provisions in Section 207 and Oregon’s statutory requirement that an employer pay all wages earned and unpaid after terminating an employee. One employee also claimed CCI violated Oregon’s laws prohibiting discrimination against a private employee who engages in whistleblowing and wage-claim discussions. The district court granted summary judgment in favor of CCI and the employees appealed.

FLSA claim.

Reversing, the Ninth Circuit first discussed FLSA overtime requirements, noting that determining the regular rate of compensation is key. For employees who are paid “on a piece-rate basis, the regular hourly rate of pay is computed by adding together total earnings for the workweek from piece rates and all other sources (such as production bonuses) and any sums paid for waiting time or other hours worked (except statutory exclusions).” This sum is divided by the hours worked in the week to yield the “regular rate” for the week. A pieceworker is entitled to be paid the total weekly earnings at the regular rate for all hours worked, plus overtime at one-half the regular rate multiplied by the hours worked over 40.

Diminishing “bonus” caused miscalculation of regular rate.

Comparing the requirements of the FLSA to CCI’s pay plan, the appeals court agreed with the employees that they were not paid all overtime required because the Production Bonus was designed to decrease in proportion to an increase in the number of overtime hours worked. If a CCI employee did not work overtime at all, the Production Bonus was simply 1/6 of the Piece Rate Total. Because the bonus was a portion of regular wages to be paid under the regular wage contract, it was not a true “bonus” as defined by the Department of Labor (DOL). Having agreed that the Piece Rate Total plus 1/6 of that amount formed normal weekly income, CCI had to divide the sum of those amounts by the number of hours worked in a week to properly determine the employee’s regular hourly rate for that week.
That is not what CCI did. Instead, it reduced the Production Bonus paid in a regular 40-hour workweek by the amount of overtime premium it calculated was due on a technician’s Piece Rate Total. Because the “bonus” was part of the normal income in a non-overtime week, diminishing it resulted in the employee being paid at a reduced hourly rate during weeks he worked overtime. That was expressly prohibited under DOL regulations. Because the diminishing “bonus” device caused a miscalculation of the regular hourly rate during weeks when overtime was worked, the pay plan violated the FLSA’s overtime provisions.
State-law wage claim. The appeals court also reversed summary judgment on the technicians’ claims under Or. Rev. Stat. §652.140(1), which requires employers to pay all wages earned and unpaid by the end of the first business day after a discharge or termination. The district court had concluded that the claims failed because the pay plan did not violate either Oregon law or the FLSA. Because the appeals court found otherwise, this conclusion could not stand.

Whistleblower claim.

Under Or. Rev. Stat. §659A.199, an employer is prohibited from retaliating against an employee who “has in good faith reported information that the employee believes is evidence of a violation of a state or federal law, rule[,] or regulation.” In granting summary judgment, the district court found that the employee’s complaints to supervisors were not protected activities because the term “reported” refers only to reports made to external authorities. Reversing, the appeals court examined the statutory text and legislative history, and concluded that the Oregon legislature intended the term “reported” to mean a report of information to either an external or internal authority.

Retaliation claim.

Summary judgment was also reversed on the retaliation claim under Or. Rev. Stat. §652.355, which prohibits an employer from firing or otherwise discriminating against an employee who has discussed, made, or consulted an attorney about a wage claim. Here, the employee complained to supervisors that CCI failed to properly pay him overtime, and he refused to work additional hours unless paid the proper rate. The district court found that Oregon case law does not recognize complaining about inadequate wages as “a wage claim” under Section 652.355, but the appeals court did not find the cited state court cases on point. Instead, it reviewed the statutory text and context and concluded that the employee’s claim survived in part.
In the Ninth Circuit’s view, the employee’s refusal to work additional overtime unless he was paid an overtime rate for those hours was a demand for future payment and did not qualify as a “wage claim.” However, “his complaints that CCI failed to properly compensate him for overtime were at least discussions or inquiries about a demand for past-due wages, if not the actual making of such a demand.” These were “precursors” to filing a formal demand in court and thus qualified for protection under Section 652.355. (Brunozzi v. Cable Communications, Inc., 9thCir, 167 LC ¶36,509).
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