Recent decisions of the California Court of Appeal and a federal district court threaten to invalidate decades-old piece and commission compensation systems used by thousands of employers and benefitting millions of moderate- and high-wage earners. Piece-rate and commission pay are authorized by the California Labor Code and had always been considered legal by the enforcement agencies. They have played a central role in enabling workers to reach the middle and upper-middle classes, and any employer paying piece rate or commission should be disturbed about needing to change its compensation system going forward.

Here’s an example of how the piece-rate payment system works for auto repair technicians: An auto manufacturer determines that it takes 4.5 hours for an average mechanic to replace a faulty transmission. As technicians get more skilled, they can do the job in four hours and, eventually, maybe three hours, but still get paid a flat rate for 4.5 hours. Therefore, a skilled technician might get paid for 100 or more hours in an 80-hour work cycle.

Although the immediate effects of the California decision fall on 32,000 California automobile technicians, countless others paid by commission or piece rate could be impacted. As the chief executive of the defendant in the case, I have directed our attorneys to petition the California Supreme Court to review the decision, which, once again, makes the cost and complexity of doing business in California much higher than in other states. There is a reasonable chance that the court will take up the case, because it involves a legal issue never addressed by that court.

The thrust of the appellate court decision, and one recently decided against a household name retailer in federal district court, is that the time that a piece-rate worker or sales person spends between tasks or actual selling activity must be compensated on an hourly basis.

Traditional system

In the auto service industry, this does not work. First, the flat-rate hours system automotive retailers in every state use has been in place for nearly a hundred years and offers a chance for technicians to develop skills, increase productivity and earn a good living. Dealers do not employ low-wage workers nor do they resort to wage theft. Our technicians in this case make, on average, $57,000 a year and some earn more than $100,000 a year. Our technicians are guaranteed double the minimum if their flat-rate hours fall short of that wage floor. On the flat-rate system, our techs earn wages 60 percent to 70 percent higher than twice the minimum wage.

Second, the effect of the court’s ruling is to create an entirely new and unprecedented layer of compensation to cover time spent doing tasks that are necessary in order to fulfill the requirements to complete the job. For example, a technician might have to walk to the parts counter to get parts, go to the special tool room to obtain a tool needed to do the job, discuss how to perform a particular repair with a supervisor, email the manufacturer to clarify a procedure, go to the restroom, etc. The flat-rate compensation system sets hourly standards for completing specific tasks that allow for the reality that not every second of the workday is spent turning wrenches. Under the court’s ruling, a dealer would have to record time and pay a technician when he is taking an extra break or asking a supervisor how best to do a complex task when an employee paid hourly would not have to record or be paid for that time.

Third, because there is no way to keep of a record of this so-called “down time” and faced with the prospect of runaway litigation, most California car dealers are considering abandoning the flat-rate system and turning the technicians into hourly workers. Surely this is not the state’s intent, but it is the reality that is unfolding before our very eyes.

The bottom line is this: The appellate and federal court decisions are bad for the auto industry, retailers, truckers and economy. Numerous national and California trade associations have volunteered to file letters asking the state Supreme Court to hear the case because of critical issues and, if it will, to adhere to compensation standards that have been authorized by law and followed by numerous California industries for decades to the betterment of our employees.

Darryl Holter is chief executive of Shammas Auto Group, which owns seven auto dealerships in downtown Los Angeles.