Disclaimer:  The following post should not be considered legal advice.  In fact we advise you to get legal advice before making any payments under the AB 1513 Safe Harbor provisions.

AB 1513 provides two “safe harbor” methods to employers:  the 4% method and the “actual sums due” method.  Back in May when we started writing the Safe Harbor report, we asked the DIR if they could provide a definition for “actual sums due”.  We can’t very well write a report that calculates the actual sums due if we don’t know the definition for it.  This is the response we got back from an attorney at the DIR:

The statute does not define “actual sums due.” As you may have noted, there is no statement in the statute to the effect that it is declarative of existing law, and the absence of a definition of “actual sums due” in subdivision (b)(1)(A) may have been deliberate given that the issue of compensation for rest periods and other nonproductive time for piece-rate employees (for time periods prior to the effective date of the statute) was (and still is) being litigated in the courts.

Thus, if an employer elects the “actual sums due” option, the employer will have to determine how to make that calculation.  And if the issue were then to be the subject of a challenge in court or in a wage claim (i.e., if the employer were sued, and sought to invoke the affirmative defense), a court or hearing officer would make the decision as to whether the employer appropriately determined the “actual sums due” for time periods prior to January 1, 2016, based on the facts and circumstances of a particular case and the applicable case law.  Given this, it is likely the “safest” option for an employer would be to calculate the “actual sums due” using the same formulas that apply going forward from January 1, 2016 (i.e., using the averaging formula, rather than just paying minimum wage for rest periods).

This was of course accompanied by a nice disclaimer:

It is our intent to provide helpful information concerning this new law to the public. Please note, however, that our responses through this email address do not constitute an official interpretation of the statute or official Department policy, and may not be cited or relied upon in any legal proceeding. To the extent there are complex or disputed issues concerning interpretation or application of the statute, those are ultimately questions that may need to be answered by the courts.

Well, this was better than nothing, and absent any other input from customers as to how they wanted to calculated the actual sums due, we went ahead and used the new calculations that AB 1513 put into effect January 1, 2016 for the Safe Harbor Report when the “Actual” method is selected.

Obviously since no one ever used the new calculation during the Safe Harbor period, the actual method resulted in calculation showing that money is due to employees.  Often the amounts were close to the calculations made by the 4% method (sometimes higher, sometimes lower).  But the actual method also requires that you pay interest.  The addition of interest put the amounts way over the 4% method.  The feedback we were getting from customers was that the 4% method was preferable because it was lower when interest was factored in.

Yesterday we received another email from the DIR with answers provided to additional questions we had submitted.  This response was written by the same attorney.  With regard to a question that touches on differences between the 4% method and the actual method in certain situations where employees may make only minimum wage, the answer include this:

I note in this respect that the statute does not specify how the actual sums due are to be calculated; this is a determination that would be made based on the statutory and case law during the period in which wages were earned (including the holdings of the Bluford and Gonzalez decisions), and not by the terms of section 226.2 itself, which was effective going forward from January 1, 2016.

Assuming that an employer might use the section 226.2(a) formula as the safest option for calculating actual sums due (in that the stated intent of the statute was to codify the prior Bluford and Gonzalez decisions) …

Here, the DIR attorney is admitting that the “actual sums due” would be based on the “statutory and case law during the period in which the wage were earned” but at the same time still takes the position that the new 226.2(a) formula might be the “safest option”.

What changed between May and now?  The Nisei Farmers League brought a suit against the California Labor and Workforce Development Agency over AB 1513.  Although the preliminary injunction was denied, two key points were raised with regard to the “actual sums due” method.

First, some terms in AB 1513, such as “actual sums due” were disputed by as being too vague and not defined by the law. From the judge’s decision, the CLWDA argued that:

the challenged language is understandable, even to a person of “common intelligence.”

Second, in denying the preliminary injunction, the judge noted that:

A fair reading of the statute is that, insofar as activities prior to its enactment are concerned, no new obligations were created;  either employers had fully compensated their employees for their work or they had not been fully compensated.

It logically follows that if the law created no new obligations, then the new obligation for paying break wages that went into effect January 1, 2016 can’t be applied to the Safe Harbor period.  See this analysis.  In addition, a person of “common intelligence” could not be expected to pay break wages during the safe harbor period using a formula that had not been invented until the DIR issued its regulations in December 2015.

What did the Gonzalez decision require?  Simply that time for rest and recovery periods taken while being paid piecework wages must be paid to employees separately at minimum wage.

We do know that some of our customers began paying employees separately for breaks when paying piecework wages after the Bluford and Gonzalez decisions.  If you started doing this, and if you determine that based on the statutory and case law in effect for the Safe Harbor Period your employees were in fact being compensated correctly, then using the “actual sums due” method may result in a calculation where you owe employees less wages for uncompensated rest and recovery time than the 4% method, even when any interest is factored in.  It could even be possible that employees are owed no back wages for rest and recovery periods using this standard.

If you are interested in using this definition of “actual sums due” to determine what may be owed to employees, please contact Brian at brian@datatechag.com.  We could provide an option to calculate break wages due based on the minimum wage instead of the regular rate of pay.  Some additional programming will be necessary to do this.  But if there is no interest in doing this calculation, then there is no need for us to do the programming.

There is an additional question of the DLSE’s average hourly piecework rate calculation that was issued after the Bluford and Gonzalez decisions and whether or not this is included in the “statutory and case law” governing how rest and recovery period are to be compensated.  Notably, we can’t find a link to this on the DIR’s web to the document describing this calculation.

Final note: there may be other factors that may influence your decision to use the 4% method or the actual sums due method.  For instance, you may be concerned that if you take the position that employees were due minimum wage as the “actual sums due” for rest and recovery periods, employees could still bring a suit saying that they actually were due the average hourly piecework rate or the regular rate of pay.  Again, seek legal advice when making this decision.


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