The California Courts of Appeal in Mora v. C.E. Enterprises, Inc. recently upheld a common pay model used by auto dealerships and similar businesses. The Court confirmed that a hybrid structure of paying service technicians an hourly wage, supplemented by a bonus based on completed “flag hours,” fully complies with state wage-and-hour law, including the rules governing piece-rate compensation under Labor Code § 226.2. The decision is a win for employers. The experienced counsel at MNK Law, APC provides expert advice regarding these or any other issues for employers, and can be reached at 562.362.6437, or info@mnklawyers.com.
The Case
The plaintiffs had argued that the plan functioned as an improper piece-rate system because technicians frequently accrued “unproductive time” and, in their view, the bonus earnings indirectly helped the employer satisfy minimum-wage obligations, which is prohibited by the “no borrowing rule” previously established in Gonzalez v. Downtown LA Motors. The Plaintiffs claimed this setup resulted in unpaid nonproductive time and violated California’s minimum-wage requirements.
The court disagreed, finding that dealerships that pay technicians an hourly wage of at least twice the minimum wage for all hours worked, including nonproductive time and rest breaks, are in compliance, as the hourly rate alone satisfied all minimum-wage and overtime obligations. The “flag-hour” bonus was properly treated as a supplemental incentive, not a mechanism for meeting baseline pay requirements.
Takeaways for Employers
The decision confirms that employers may lawfully use hourly-plus-bonus models as long as the hourly component independently meets all wage obligations. The ruling also highlights the importance of clearly written pay plans, accurate timekeeping, and payroll practices that match the employer’s stated policies.
These are a few further steps employers can take to maintain compliance with California’s wage-and-hour requirements.
• Review current pay plans to ensure they align with the court’s guidance and do not run afoul of the “no borrowing rule.”
• Confirm for technicians or similar employees who use their own tools that their pay meets the statutory requirement of at least twice the applicable minimum wage.
• Update compensation structures for 2026, when California’s minimum wage will rise to $16.90 per hour. In examples like this this case, the required double-minimum-wage rate for employees who provide their own tools would go up to $32.80 per hour.
MNK Law, APC can be contacted for further expert legal advice, at info@mnklawyers.com, or telephone at 562.362.6437.
