California Employment Law
APRIL 2002
Overtime Class Actions –
A Victory For California Employers Against
Overtime Class Actions
In recent years, class action lawsuits alleging denial
of overtime pay to “misclassified” workers have
been the rage in California. The potential for
recovery of millions of dollars in damages by
employees, combined with the opportunity to earn
significant statutory and contingent legal fees, has
fueled a feeding frenzy among the plaintiffs’
attorney bar. Moreover, reports in the media that
employers have chosen in many instances to settle
these cases for huge sums before trial has given even
further incentive to plaintiffs’ attorneys to file
claims.
The reason for the proliferation of these types of
cases in California has been, in large part, due to the
fact that California overtime laws differ significantly
from their federal counterparts. Federal law
essentially provides that in determining whether an
employee is entitled to overtime, an analysis must
be undertaken of the “primary duty” the employer
expects the employee to perform. Contrastingly,
California law focuses on an analysis of the work
“engaged in” or actually performed by an employee.
Under California law, if an otherwise exempt
employee spends more than half of his or her time
engaged in non-exempt activities, then that
employee is entitled to overtime compensation for
all hours worked in excess of 8 hours per day or 40
hours per week. Thus, the store “manager” whose
primary duty is to manage but who actually spends
half of his or her time performing tasks that hourly
workers perform, will more than likely be
determined to be non-exempt and entitled to
overtime pay.
Many California employers have assumed that there
is little hope of successfully defending
misclassification overtime class actions because
such cases typically involve large numbers of
“manager” employees who routinely perform
multiple tasks on a daily basis; and the employers do
not have the ability to mitigate the amount of
overtime claimed because the hours actually worked
by exempt employees are often not recorded. On
April 19, 2002, however, the California Court of
Appeals, Division Four, provided employers with a
surprising and welcome ruling that should take some
steam out of the overtime class action engine. In
Sav-On Drug Stores, Inc. v. Superior Court of Los
Angeles County, 2002 DJDAR 4347 (2002), the
Court issued a preemptory writ commanding the trial
court to vacate its order granting class certification
and to enter an order denying class certification.
In most respects, the Sav-On case appears to be a
typical overtime “misclassification” class action. The
plaintiffs asserted that Sav-On improperly and
unlawfully failed to pay overtime to a class of assistant
managers (AM’s) and a class of operating managers
(OM’s). The plaintiffs further alleged that Sav-On
misclassified the AM’s and OM’s as managerial
employees exempt from overtime wages, even though
the class members were primarily engaged in nonmanagerial tasks during the class period.
Kirkpatrick & Lockhart LLP
After a certification hearing, the trial court granted
the plaintiffs’ request for certification of the
requested AM and OM classes. Thereafter, Sav-On
petitioned the Court of Appeal for a writ of mandate
to compel the trial court to deny class certification.
In granting Sav-On’s petition, the Court ruled that
the plaintiffs failed to satisfy their evidentiary
burden of establishing by a preponderance of the
evidence that common issues predominated over
individual issues. This “commonality” requirement
is a basic element necessary for class action
certification. The Court noted that the defendant
had “showed that the stores and the circumstances
under which AM’s and OM’s operate are not
identical but rather involve significant variations
affecting their tasks and the amounts of time spent
on those tasks.” In fact, the evidence demonstrated
that the Sav-On stores where the 1,400 OM’s and
AM’s worked, varied widely. Examples of such
variations included the following: Sav-On’s
approximately 300 stores ranged in size from 5,700
square feet to 50,000 square feet; sales volume
varied widely among stores; hours of operation
ranged from 24 hours 7 days per week to 11 hours 5
days per week; the number of hourly employees
ranged from 8 to 80; salaried managers supervised
between 3 and 35 hourly employees; and the
management style and experience level of each
store’s general managers differed significantly. The
Court held that these variances from store to store
necessarily meant that the job duties of Sav-On AM’s
and OM’s also varied from store to store, and that
issues concerning what task each class member
performed for what period of time would
predominate over common issues. Additionally,
Sav-On offered the declaration of 51 AM’s and OM’s
that corroborated that AM and OM job duties were
different depending on the size, location, type, sales
volume and experience of a manager in any given
store.
Although the Court’s decision specifically stated
that it was limited to the facts of the case, the basis
of the decision should nonetheless have a wide
impact on other class actions brought against
California employers who maintain numerous and
diverse job sites. The Court’s decision should cause
plaintiffs’ counsel to pause when considering
whether he or she can overcome the commonality
hurdle to class action certification when the target
employer has a large number of such employees
working at multiple and diverse job sites. While the
Sav-On decision has provided California employers
with some hope of avoiding class action claims, the
decision has not altered the standard for determining
whether an individual “managerial” employee is
entitled to overtime compensation under California’s
liberal overtime law. Consequently, California
employers who desire to minimize their liability for
overtime claims should continue to carefully
analyze whether their exempt managers are properly
classified as exempt.
PAUL W. SWEENEY, JR.
MICHAEL L. MALLOW
FOR MORE INFORMATION, please contact any of the
following K&L California employment law lawyers:
Los Angeles Michael L. Mallow
310.552.5038 mmallow@kl.com
Los Angeles Thomas H. Petrides
310.552.5077 tpetrides@kl.com
Los Angeles Paul W. Sweeney, Jr.
310.552.5055 psweeney@kl.com
San Francisco Charles L. Thompson, IV 415.249.1017 cthompson@kl.com
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This publication/newsletter is for informational purposes and does not contain or convey legal advice. The information herein
should not be used or relied upon in regard to any particular facts or circumstances without first consulting a lawyer.
© 2002 KIRKPATRICK & LOCKHART LLP.
ALL RIGHTS RESERVED.