Lawsuits based upon the misclassification of employees as overtime-exempt have been extremely common in California for the past 10 years. Given the incentives for filing such suits, it's not surprising that the trend continues. A new case involving an assistant manager working for a major grocery chain provides importance guidance on proper classification and should serve as a reminder for employers to audit any position potentially misclassified.
The rules on employee classification can be tricky and a number of tests must be applied. One of the most important tests focuses on the employee's job duties. In order to be properly classified as exempt, an employee must be "primarily engaged" in exempt duties. This means that an employer facing allegations of misclassification must prove the employee was performing exempt duties more than 50 percent of the time. This can be difficult when an employee also performs non-exempt duties.
This was exactly the issue with the grocery store assistant manager, and the jury was charged with determining whether or not she was misclassified as exempt. The jury was informed that duties such as forecasting sales, scheduling the work of employees, interviewing and hiring employees and preparing reports were exempt. Duties such as stocking shelves, gathering shopping carts and cashiering were non-exempt.
The jury was further instructed that the grocery store was required to prove that the plaintiff spent more than 50 percent of her time engaged in exempt tasks. This quantitative test requires, first and foremost, examining the actual tasks performed by the plaintiff. The jury was told that merely because an employee has the duty of managing is not sufficient to establish exempt status. They were instructed to examine the time spent on all of the plaintiff's activities and classify the time as either exempt or non-exempt. If the plaintiff was simultaneously doing exempt and non-exempt work, the jury was to consider the primary purpose for which the activity was undertaken in counting the time as exempt or non-exempt.
The grocery store argued that the instruction on how to count the time of simultaneous exempt and non-exempt activities was wrong. It proposed a different standard for determining whether a manager is performing exempt or nonexempt work. The standard was based upon the notion that a manager does not stop managing just because she performs some non-exempt tasks. So long as the manager is still actively functioning in her managerial capacity, and addressing her attention to managerial tasks such as observing how the store is running and considering how to make the store perform more efficiently and profitably, how to best model and train the store's employees in proper service activities, how to resolve any employee or operational problems that have arisen or are arising, and instructing employees in that regard, all the time should be considered exempt.
The plaintiff countered that the grocery store's proposed standard is inconsistent with California law. She relied upon an opinion from the Labor Commissioner which concluded that it would be impossible for an employee to be engaged with managerial work while at the same time performing other, non-exempt duties. In other words, there can be no activity which is concurrently exempt and non-exempt. It must be one or the other. The plaintiff argued that where she merely answers a question while stocking shelves, she is not performing managerial work. Rather, she is primarily engaged in non-exempt production work. In order to count as exempt work, the manager must clearly disengage from the non-exempt activity and engage in the exempt activity.
Although the court stated the grocery store's argument had some intuitive appeal, it ruled that California law did not support the "concurrent activity" approach. The court noted that the applicable regulations recognize that managers sometimes engage in tasks that do not involve the actual management of a department or supervision of employees. In those circumstances, the regulations do not say that those tasks should be considered exempt so long as the manager continues to supervise while performing them. Instead, the regulations look to the manager's reason or purpose for undertaking the task. If the task is performed because it is helpful in supervising the employees or contributes to the smooth functioning of the manager's department, the work is exempt; if not, it is non-exempt.
It is extremely common for managers to "roll up their sleeves" and pitch in with non-exempt production work. This is not a phenomenon isolated to small businesses. Employers must be aware that even if a manager never stops monitoring and managing, once the manager engages in non-exempt duties, there is a risk that the entire time performing those duties will be counted as non-exempt time when evaluating the "primarily engaged" test for exempt status.