By Jack Steven Sholkoff (Los Angeles)
In a severe blow to employers, the California Supreme Court affirmed, and effectively encouraged, the use of class action lawsuits against employers to recover overtime wages from employers. Giving extraordinary deference to trial courts, and potentially moving away from its prior holdings on wage and hour law, the Court, on August 26, 2004, in Sav-On Drug Stores, Inc. v. Superior Court, affirmed the trial court’s certification of an overtime class action claim. The Court’s decision makes it absolutely imperative that employers review their employee wage classifications with legal counsel to minimize their risk of misclassification liability.
In recent years, significant numbers of California employers have faced charges that they have improperly failed to pay their employees overtime. Because California permits employees to recover unpaid wages going back, in some cases, up to four years, the stakes in these cases are extraordinarily high: cases involving hundreds of employees can easily result in liability to an employer in the tens of millions of dollars. The primary mechanism that permits employees to sue as a group is the class action lawsuit. The Court’s decision in Sav-On will almost certainly make it easier for employees to bring and maintain such lawsuits against employers.
In Sav-On, the plaintiffs were operating managers (OM) and assistant managers (AM) of Sav-On retail outlets. The plaintiffs contended that Sav-On had improperly classified the OMs and AMs as exempt employees. The plaintiffs urged class certification because Sav-On itself, as does virtually every other employer, relied upon a uniform job description as well as operational standardization when classifying the employees. The trial court agreed. The Court of Appeal reversed, finding that whether an OM or AM was exempt was inherently an individualized inquiry because of the differences between all of the managers’ duties. The Supreme Court reversed the Court of Appeal and affirmed the decision of the trial court granting class certification.
The Supreme Court held that the trial court had discretion to find, based upon evidence presented by the plaintiffs, that the employer’s "uniform classification policy was put into practice under the standardized conditions alleged" and that despite potential differences between the plaintiffs, "misclassification was the rule rather than the exception." Accordingly, based upon these findings, the trial court had discretion to hold that a class action would be the most efficient method for resolving the case. Put simply, the Court punted; it held that in most cases, the trial court’s determination whether to certify a class in overtime misclassification cases cannot be disturbed by an appellate court.
Equally important, the Court rejected the primary argument against class certification posited by employers. Sav-On had argued that whether a manager was exempt was inherently an individualized decision, requiring an analysis of the actual duties performed by each manager. Sav-On’s position was reasonable, and was based upon language contained in the Supreme Court’s prior decision in Ramirez v. Yosemite Water, Inc., 20 Cal.4th 785 (1999). Ramirez had held that in determining whether an employee is exempt, a court should determine "how the employee actually spends his or her time" and whether this practice "diverges from the employer’s realistic expectations." Because the managers were doing different duties, Sav-On, as many employers before them, argued that class certification was inappropriate, since individual mini trials would be required to determine whether each individual performed exempt duties.
The Court disagreed. The Court stated that the determination of whether an employee is exempt from overtime requirements involves analyzing the job’s requirements and the employer’s reasonable expectations. This, the Court concluded, can be handled on a class wide basis. The Court stated:
"A reasonable court could conclude that issues respecting the proper legal classification of AM’s and OM’s actual activities, along with issues respecting defendant’s policies and practices and issues respecting operational standardization, are likely to predominate in a class proceeding over any individualized calculations of actual overtime hours that might ultimately prove necessary."
This is not to say that an employer cannot demonstrate that individual issues predominate in a case such that a class should not be certified. However, in light of Sav-On, it is likely that most trial courts will likely follow the Supreme Court’s analysis and find class certification appropriate.
The Court also appears to have clarified its decision in Ramirez, and especially its focus in Ramirez upon the actual duties performed by an employee when determining an employee’s exempt/non-exempt status. Ramirez appeared to hold that in any classification analysis, the ultimate issue is "how the employee actually spends his or her time." In Sav-On, the Court stated that while each individual employee’s actual duties are important, this factor must be analyzed in conjunction with the employer’s expectations and the requirements of the job. As a result, an employer classifying an employee’s job must not only parse out which of the employee’s duties are exempt and non-exempt and then determine which predominate, but the employer must also carefully monitor the employee’s actual performance to ensure that the employee is actually performing duties that comport with the employee’s job description.
In sum, Sav-On does not help employers. It provides trial courts with significant discretion in determining whether to certify a class in wage and hour cases, thereby increasing the uncertainty in predicting the outcome of these cases. Also, the case imposes further duties on employers seeking to preserve the exempt status of their employees.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.