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The Legality of Flat-Rate Pay

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In February, a California body technician filed a lawsuit against Caliber Collision, seeking class-action status regarding allegations that one of the country’s largest MSOs underpaid its employees, violating California state law. 

The suit, filed Feb. 17 in Los Angeles, is still unresolved. Caliber, which has 232 shops in 11 states, did not respond to a request for comment. 

This lawsuit comes almost exactly two years after a separate lawsuit, involving technicians at an L.A. dealership, set precedents that drastically altered the way California collision repair businesses could pay employees. The 2013 ruling “banned traditional flat-rate pay systems” in the state, says Ben Mendoza Jr., executive committee member and immediate past president of the California Autobody Association (CAA).

It forced many shops to completely overhaul their pay structures; others to re-evaluate the number of technicians they employ. And it has left employers susceptible to litigation, similar to that filed against Caliber, if their plans don’t mesh with the new restrictions. 

Two years after these new requirements were put in place, the suit against Caliber could signal a lack of urgency among California repairers to meet the new requirements, and, according to some, it could provide widespread impact throughout the collision industry. 

“I think the reputable shops in our area have really taken note of the new regulations,” says Mendoza, who serves as the office manager of his father’s Santa Ana, Calif., shop, Kelly’s Body Shop. “But, there are always going to be people who don’t adapt as quickly. ... Regardless, it’s time to adapt and use this as an opportunity to make your business stronger and better support your employees.”

‘Perfect Storm’

The technician pay structure changes imposed by the Gonzalez v. Downtown LA Motors decision instituted in 2013 affect California shops only, says San Diego–based employment attorney Cory King, who also serves as the chair of the Collision Industry Conference (CIC) human resources committee. The court’s decision was premised on statutory and case law unique to California that does not exist in other states; most others follow the Fair Labor Standards Act (FLSA).

The difference, King explains, is that federal law permits employers to meet minimum wage requirements by averaging an employee’s flat-rate pay across his or her total hours worked; e.g., if a flat-rate body tech works an eight-hour shift, as long as the tech’s effective rate (total flat-rate wages divided by total hours) averages out to be greater than the applicable minimum wage, there is no minimum wage compliance issue.

However, the Gonzalez court interpreted California law to require minimum wage to be met for each hour an employee works; i.e., the averaging process under federal law is not allowed, and, further, the flat-rate wages are only intended to compensate the tech for the time spent actually doing flat-rate work. Techs are entitled to be paid at least minimum wage for all other time. 

It was a “perfect storm,” King says. It started “with a tech’s tenacious lawyer and a trial judge who did not understand flat-rate compensation, followed by an apathetic appellate court who rubber-stamped the trial court’s decision and the [California] Supreme Court who refused to even look at the issue. The result? A misguided decision that has led to a flood of class-action lawsuits.”

The changes were widely reported at the time of the ruling. Yet, when King discussed the issues at the annual CIC planning meeting in January and quizzed shop owners in attendance about the decision, few had an understanding of what was now considered legal.

Life without Flat Rate

Kelly’s Body Shop dropped its flat-rate system as quickly as it could following the 2013 ruling, Mendoza says, opting to transition employees to salary and hourly programs moving forward. 

It was a drastic switch, he says, one that was met by some resistance from technicians, many of which had spent 30 years being paid based on performance.

For some area shops that struggled with car count, he says, the changes led to technicians being let go. (“There were many six-tech shops that had to cut down to two or three,” he says.) For his shop, it was more a change in re-motivating the team. They decided to adopt a profit-sharing program to give the staff a more team-focused mindset; if the shop succeeds, you succeed, Mendoza explains.

Regardless of law, many shops around the country are turning away from traditional flat-rate models, whether due to team-based production systems or simply trying to eliminate the independent-contractor mentality that plagues many shop floors.

“It’s just the way the industry is going,” Mendoza says. “The biggest thing is finding a way to take care of employees. The only reason we’re [in business] is for our customers and for our employees. Without either one, you’re not going to be a successful shop. You can’t keep customers without maintaining your employees. You’re not going to keep employees without taking care of them. It goes hand in hand, and that’s what it should all come down to.” 

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