Court of Appeal holds “flag bonus” pay plan did not violate “no borrowing” rule: Mora v. C.E. Enterprises

In Mora v. C.E. Enterprises (2025) 116 Cal.App.5th 72, the Court of Appeal (Second Appellate District, Division Six) held that an automotive technician pay plan providing a base hourly wage of at least double the minimum wage for all hours worked, plus a “flag bonus,” did not violate Labor Code § 226.2 or the “no borrowing” rule set forth in Gonzalez.

Plaintiffs, automotive technicians paid under an hourly plan with a “flag bonus pay” component, sued for wage and hour violations and PAGA penalties. Plaintiffs moved for summary adjudication, arguing the plan violated the “no borrowing” rule from Gonzalez v. Downtown LA Motors, LP (2013) 215 Cal.App.4th 36 by failing to separately compensate for non-productive time. The trial court denied the motion, finding the plan lawful on its face but identifying triable issues regarding implementation. Following a bench trial, the court ruled for Defendant, finding Plaintiffs’ reliance on a spreadsheet without specific examples or underlying records was insufficient to prove underpayment. Plaintiffs appealed.

The Court of Appeal affirmed the judgment. It rejected Plaintiffs’ argument that the plan violated the “no borrowing” principle, distinguishing Gonzalez. Unlike a pure piece-rate system where earnings are averaged to cover non-productive time, the court found that Defendant paid technicians a base hourly rate of at least double the minimum wage for every hour on the clock, whether productive or unproductive. The “flag bonus” was true incentive pay, not the sole source of compensation. Consequently, the plan did not “borrow” from the bonus to cover base hours, and the inability to earn bonus pay during unproductive time was irrelevant.

Regarding the PAGA claim, the Court of Appeal held that Plaintiffs failed to meet the substantial evidence standard due to a “manifestly deficient” record. The court noted that Plaintiffs excluded key trial records and Defendant’s PAGA brief from their appellate filings and failed to discuss the specific evidence in their opening statement of facts.

Full opinion

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