In 2005, the California Court of Appeal issued a revolutionary minimum wage decision in Armenta v. Osmose, Inc.1 It rejected the federal Fair Labor Standards Act (“FLSA”)2 rule that calculates minimum wage compliance by dividing all compensation during a pay period by the total hours worked to arrive at an average rate of pay. Armenta held that California minimum wage law forbids averaging wages over the course of the pay period to determine minimum wage compliance. Instead, Armenta held that employers must pay the minimum wage for each hour worked, and that it is irrelevant if an employee’s total compensation for a pay period far exceeds the minimum wage. Armenta is a classic case of bad facts making bad law. Although the ultimate result was correct – the employer should have been liable for failing to pay the wages it promised to pay – the case should have been decided on non-minimum wage grounds. Unfortunately, the Court of Appeal relied on a poorly reasoned DLSE Opinion Letter and decided the case on minimum wage grounds. The Court thereby created an interpretation of California minimum wage law that is contrary to the language of California’s Wage Orders, and necessarily results in lawful compensation structures (such as commission and piece rate pay plans) being rife with minimum wage violations. Employers need to be aware of the implications of Armenta and its progeny on their compensation arrangements.
The DLSE’s 2002 Opinion Letter
— The Wage Order Is Not “Equally Susceptible” To Both Interpretations
— Labor Code Sections 221-223 Are Irrelevant
The Facts in Armenta and the Trial Court’s Ruling
The Court of Appeal in Armenta Rejects the Averaging Approach
Subsequent Cases Compound Armenta’s Mistake
What Can Employers Do to Avoid Armenta-like Claims?
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