Over the past several years, many employers have been blindsided by big class action lawsuits from employees who say they were misclassified as exempt from overtime and are owed millions in back pay. Farmers Insurance Exchange, Big Lots, and Electronics Boutique are just a few of the businesses hit by the suits. For a brief time, an appellate ruling in one case seemed to make it more difficult to bring class action overtime suits. But now, the California Supreme Court has reversed that ruling, meaning that these class actions will likely continue to plague California employers.
Managers Sue for Back Overtime
Several years ago, a class action lawsuit was filed on behalf of 1,400 store managers and assistant managers at 300 Sav-On Drug Stores in Southern California. The managers charged that they were improperly classified as exempt managerial employees because they spent more than half their time on non-exempt tasks.
The managers claimed they were uniformly misclassified as exempt from overtime based on job titles and job descriptions and without reference to their actual work. They contended that Sav-On’s store operations were standardized, making the managers’ duties and responsibilities similar in critical respects from store to store and region to region.
Sav-On argued that whether a particular manager was properly classified as exempt had to be determined individually—and not as part of a class action. That’s because, the company contended, managers’ job duties and the time spent on them varied significantly from manager to manager and store to store.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Trial and Appeals Courts Disagree
The trial court certified the case as a class action, finding substantial evidence that common issues—as opposed to issues unique to individual managers—predominated. The court pointed to evidence that: 1) no single class member ever received overtime compensation, 2) the policy to classify managers as exempt didn’t vary from store to store, and 3) Sav-On relied exclusively on job titles to determine who was exempt or nonexempt.
An appeals court, however, concluded that the case could not proceed as a class action. The simple fact that Sav-On’s policy was to treat all of its managers and assistant managers as exempt didn’t justify a class action. Showing that some managers spent more than half their time on nonexempt tasks didn’t prove that all managers did.
High Court Gives Go-Ahead
Now the California Supreme Court has upheld the trial court’s determination that common issues predominated. Based on evidence that classification based on job descriptions alone resulted in widespread misclassification, the Supreme Court found that a reasonable court could conclude that misclassification was the rule rather than the exception—and that would make a class action the most efficient means of resolving the managers’ overtime claims. The high court also said that California public policy encourages the use of class actions to efficiently resolve the claims of many individuals at the same time.
The case will now return to the trial court, where the actual merits of the overtime misclassification claim will be decided.
Impact on Employers
Because of this ruling, the overtime class action deluge probably won’t let up anytime soon. To help ensure that you’re not the next target, here are some practical tips:
- Don’t rely on job titles alone. Whether an employee is exempt or nonexempt depends on the duties the person actually performs, not on their title or on an outdated or inaccurate job description.
- Conduct audits of exempt employee duties. This can help you maintain a handle on duties managers are actually performing so you can make adjustments before you’re hit with a lawsuit.
- Teach exempt employees the difference between exempt and nonexempt work. This training can help ensure that managers remain exempt by spending at least 50 percent of their time on exempt duties.