Gonzalez v. Downtown LA Motors, LP (2013) 215 Cal.App.4th 36 is a landmark 2013 California Court of Appeal decision that clarified minimum wage obligations for employees compensated on a piece-rate basis. Drawing heavily on Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314 – which prohibited averaging for hourly employees – the Gonzalez court extended the principle to piece-rate systems. Piece-rate compensation rewards only productive tasks (the “pieces” or “flag hours”), so time spent on non-piece-rate activities (including waiting time under the employer’s control) must be separately compensated at no less than the minimum wage. Averaging effectively “borrows” from productive-time earnings to cover non-productive hours, which California law forbids because it undermines the statutory guarantee of minimum pay for all hours worked.

Following Gonzalez v. Downtown LA Motors, LP (2013) 215 Cal.App.4th 36, the dealership (operating as First Honda Simi Valley) replaced its pure piece-rate (“flag hour”) system in December 2014 with an hourly compensation that paid technicians double the applicable minimum wage for every hour recorded on the biometric time clock (including unproductive time and rest periods), with an additional “flag bonus” paid only when the technician’s flag-hour earnings exceeded the guaranteed hourly pay. The plan explicitly labeled the excess amount as a “bonus” and described as compensation for performance “above and beyond a median, expected level.”

“Flag hours” (also called “book hours,” “flat-rate hours,” or “warranty time”) are the predetermined, fixed amount of time that a manufacturer or industry standard assigns to a specific repair or maintenance task, regardless of how long the task actually takes the technician to perform. These flag hours are intended to represent the amount of time a reasonably skilled technician, using proper tools and working at a normal pace, should need to complete the job. For example, the manufacturer may assign 3.2 flag hours to replace a timing belt. If the technician finishes in 2 hours → they still “flag” (earn credit for) 3.2 hours. If the technician takes 5 hours → they still only flag 3.2 hours.

Plaintiffs Gustavo Mora and Mohammad Hanif, former service technicians, filed a lawsuit in 2018 alleging 7 causes of action for wage theft violations, and the case was later amended to include a PAGA cause of action on behalf of plaintiffs and “other employees of” First Honda. Plaintiffs contended that First Honda Simi Valley still violated California’s “no borrowing rule” because unproductive time generated no flag hours, and the dealership was therefore allegedly using potential bonus money to satisfy minimum-wage obligations.

The trial court initially ordered the parties to arbitrate the case pursuant to the parties’ stipulation, but subsequently withdrew the matter from arbitration at appellants’ request, after First Honda failed to timely pay its arbitration fees. After a bench trial, the trial court upheld the dealership’s post-Gonzalez hourly-plus-bonus compensation plan for service technicians and rejected both individual and PAGA claims.

The Second District Court of Appeal (Division Six) affirmed the judgment in favor of the Honda dealership in the published case of Mora v. C.E. Enterprises, Inc. – No. B337830 (November 2025).

The Court of Appeal rejected plaintiffs characterization, holding that the plan complied with California law because technicians were always paid at least double minimum wage for all hours worked, with any flag bonus paid on top as true incentive pay rather than as part of the base rate. The court distinguished Gonzalez, noting that the dealership never averaged or borrowed from productivity pay to meet the minimum-wage floor; the hourly guarantee stood alone and was always satisfied independently.

The court also held that the plan did not violate Labor Code section 226.2. Even assuming the flag bonus constituted piece-rate compensation, the dealership qualified for the safe-harbor provision of section 226.2, subdivision (a)(7) because it expressly paid “an hourly rate of at least the applicable minimum wage for all hours worked” in addition to any flag-hour bonus.

Finally, the court affirmed the trial court judgment against plaintiffs’ PAGA claim. Plaintiffs failed to exhaust administrative remedies as to alleged violations affecting sales and lube employees (the PAGA notice covered only service technicians), and their trial presentation – consisting largely of a law clerk’s assertion that thousands of pay records contained “deficiencies” without concrete examples or calculations – was insufficient to carry their burden of proof.