On September 20, 2018, the Washington Supreme Court considered whether an employer’s payment plan that includes “production minutes” or actual clock time as an employee's metric, qualifies as a “piece-work plan” under Washington’s Minimum Wage Act (MWA), chapter 49.46 RCW. The Washington court held that, if production is measured by actual clock time, it is not piece work and therefore employers cannot apply workweek averaging to determine minimum wage. Hill v. Xerox Bus. Servs., LLC, 2018 WL 4499755, at *1 (Wash. Sept. 20, 2018).
To set the stage, in Washington, hourly workers must receive at least minimum wage for each hour worked. Piece-rate workers, on the other hand, are entitled to their contractual piece rate for each unit of work (or the legal minimum wage), but that rate is not necessarily guaranteed for every hour individually worked; rather, a higher production hour might subsidize a lower production hour. The average for the whole week is used to see if the employee has been paid the minimum wage. Thus, Washington law permits workweek averaging to determine minimum wage compliance for piece rate workers, but not for hourly workers. The characterization of an employer’s payment plan, as either hourly or piece rate, can have a substantial effect on overall compensation.
The Washington court’s holding in Hill v. Xerox stemmed from Xerox’s compensation plan, which included paying call center employees for piece work. Each unit of work was referred to as a "production minute" (the time spent working on inbound customer calls measured in actual clock time). The plaintiff challenged the compensation plan in federal court, claiming she was an hourly employee and, therefore, Xerox failed to pay her minimum wage for each hour worked. On appeal, the Ninth Circuit could not find any Washington case law on point and therefore asked the Washington Supreme Court to answer the central question: whether Xerox's plan qualifies as piece rate compensation subject to workweek averaging.
In answering that question, the Washington court first noted that the Washington Department of Labor and Industries has not said whether time — specifically, minutes — constitutes a "unit of work." Interpreting the relevant law through a lens favorable to workers and concerned that allowing employers to classify portions of their employees’ work time as piece rate units would result in paying employees less than minimum wage for each hour worked — essentially creating a minimum wage loophole — the court held that "the MWA does not permit employers to use clock time as a 'unit of work' for piece rate pay." Consequently, the court concluded that excess pay for high production hours could not be used to offset the minimum wage for low production hours and such employees must be paid minimum wage for each hour worked. That being said, the court limited its holding to actual clock time.
Moving forward, employers who have employees working in Washington should ensure that precise, clock time is not used as a “unit of work” for piece rate pay. Further, because the MWA is “liberally construed in favor of the employee,” employers should proceed with caution if using time, in any form, as a unit of work. For example, it is possible that, in the future, the court’s reasoning in Hill may be used to limit systems that equate certain tasks to pre-established units of time, regardless of how much time the tasks actually took. That is, although the court limited its holding to a compensation plan measuring units by the precise amount of time per task, its overall logic and ultimate conclusions could easily be expanded.
This update is prepared for the general information of our clients and friends. It should not be regarded as legal advice. If you have any questions regarding this update, or for more information about this topic, please contact an attorney in our Labor & Employment Practice Group, or the attorney with whom you normally consult.