California Overtime Laws and Class Action Cases
California’s basic overtime classification rule seems clear-cut: to be legally exempt from overtime requirements, workers must spend more than 51% of their time engaged in work that is primarily intellectual, managerial, or creative in nature and that requires the exercise of independent judgment and discretion. The Department of Labor has very strict requirements as to which positions qualify or do not qualify for exemption from overtime regulations. Simply put, employers cannot arbitrarily decide to classify an employee as salaried exempt to avoid overtime payment or meal and rest breaks. This rule can usually be applied in a straightforward manner when it comes to easy-to-classify positions such as lawyer, bus driver, or waiter (not exempt). However, it becomes more difficult in cases where the employer misclassifies his or her own employee, either because the role of the employee is unclear, or because the rules governing the employment are confusing. Misclassifications can be very expensive for employers, so it is important for employers to remain up-to-speed on all laws governing overtime in California.
The Risk of Not Being Informed of California Wage and Hour Laws
Large employers often find themselves having to defend against class action lawsuits for overtime wage claims. In almost all of these class action cases, the central issue is whether or not the salaried employees who are part of the class were incorrectly classified as exempt employees. Many employers find themselves paying out multi-million dollar settlements to avoid the costs and uncertainty of a trial. Although some lawsuits are the result of companies knowingly misclassifying employees in bad faith, the vast majority of defendants are employers who were unknowingly on the wrong side of the law. For this reason, it is critical for employers to spend time at least annually—but preferably quarterly—familiarizing themselves with updates and changes to federal and California wage and hour laws.
There are three main categories of exempt employees: executive exempt, professional exempt, and administrative exempt. Each category has its own specific criteria, but all require the employee to spend at least 51% or more of his or her working time exercising discretion, independent judgment, and making decisions independently that bind the company or have a significant impact, and supervising at least two other employees. Depending on the industry and type of work involved, there may be other specific requirements as well. New wage and hour orders are issued with regularity and enforced by the Division of Labor Standards Enforcement, setting forth specific regulations regarding wages, hours, and working conditions in different industries.
Relevant and Recent Case Law
Class action lawsuits for employees claiming mischaracterization have been rampant, especially in large states like California. However, in the past few years, the United States Supreme Court has issued several decisions that help employers battle class actions. The California Supreme Court, in Duran v. U.S. Bank National Association, also decided a case in favor of employers by making it more difficult for employees to certify class action lawsuits.
Duran involved an appeal from a judgment of the trial court, which held that a class of U.S. Bank loan officers had been misclassified as exempt from overtime and related requirements under California’s outside sales exemption (including meal and rest break regulations). The trial court decided liability by hearing testimony from the two named plaintiffs and a small group of randomly-selected class members. The trial court then extrapolated information from that small group to determine each class member’s uncompensated overtime. In both the liability and damages phase of the trial, the defendant was barred from presenting evidence related to any individuals outside of the sample group.
The California Supreme Court overturned the trial court decision, finding that the trial court’s handling of the case was “profoundly flawed” and that the court had violated the defendant’s due process rights. The impact of Duran on any specific case will depend on the particular issues and evidence involved. The plaintiff’s bar will continue to argue that wage and hour class actions should be certified, as Duran did not completely foreclose the possibility. However, Duran ensures that California courts do more than rubber-stamp motions for class certifications, and instead carefully consider if a class would be manageable at trial. Most importantly, employers must be allowed to present affirmative defenses as to each plaintiff. For this reason, Duran has raised the bar of class certification and will help employers battling similar cases.
The best way for employers to protect against class action suits brought by employees is to proactively review current employee overtime classifications and related policies. Employers must also remain up to speed with all changes to wage and hour law in California and nationally, as this is a vibrant area of law that changes frequently. If an employer is sued, however, the recent Duran decision does provide some much-needed ammunition against class certification.
One service we offer is an Employer’s Business Review (EBR). This review checks a company’s standing on employment law. This stand-alone report is a basic, yet thorough, HR and OSHA review which identifies a company’s exposure to labor laws. Unfortunately, our litigious society targets ‘cracks in the armor’ and this can cause significant headaches for employers. The EBR defines those ‘cracks’, and therefore a knowledgeable road map can be developed, keeping employees/attorneys from exploiting the 1500+ laws employers have to abide by.
The review consists of: Hiring Process; Pay Practice; Employment Compliance; Managing Employee Performance; Termination; Worker’s Compensation; OSHA Compliance and Risk Management. With the current aggressive stance of the US Dept. of Labor and their “We can Help” campaign (www.dol.gov/wecanhelp), it makes good sense to check one’s standing on employment law.
Have questions or if you’re unsure where you stand, feel free to give the experts at Employer’s Guardian a call. 916-635-2543 or EGConsult@employersguardian.com