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On Aug. 26, the California Supreme Court issued its long-anticipated decision in Sav-on Drug Stores v. Superior Court, in which it unanimously held that a statewide class of plaintiffs could proceed with their lawsuit. The plaintiffs claim that Sav-on Drug Stores Inc. misclassified approximately 1,400 former store managers and assistant managers as exempt salaried employees and wrongly denied them overtime pay. California law exempts bona fide managerial employees from overtime pay requirements. In order to qualify for the exemption, however, the employee must spend more than 50 percent of each workday on managerial duties such as hiring, firing, discipline, evaluation, training, monitoring performance of employees and scheduling, directing and distributing work. The Sav-on plaintiffs allege that they spent the bulk of their time performing non-managerial tasks such as stocking shelves and operating cash registers. Proving that allegation would entitle them to be paid time-and-a-half for hours worked beyond 40 in a week or eight in a day. The Supreme Court’s Sav-on decision confirms that individuals can use the class action procedure to bring claims on behalf of entire categories of current and former employees. The U.S. Department of Labor recently cited the proliferation of these class actions as a reason for revising and “clarifying” the federal overtime regulations, which became effective on Aug. 23. California employers, who have seen a flood of class action overtime suits in the past several years, must comply with the new federal regulations as well as existing state law. In Sav-on, the state Supreme Court reversed a 2002 court of appeal decision that denied certification of the class. The appellate court found that the plaintiffs’ claims were not suitable for certification as a class action because the managers performed tasks that were not “uniform or identical.” The Supreme Court reinstated the suit based on what it found to be an overwhelming “standardization” of operations and job duties, as well as classification policies and practices which the court found to be classwide or companywide in scope. Allowing for substantial deference to the trial court in its review for abuse of discretion, the Supreme Court determined there was sufficient evidence for the trial court to conclude that common issues predominated over individual ones. The possibility that the damages phase could require an individualized assessment of the hours actually worked by the manager in question was not sufficient to defeat class certification. The Supreme Court, however, did not decide whether the Sav-on managers were actually misclassified. Instead, the justices considered only whether common issues predominated over individual ones and did not determine the underlying merits of the case. The Supreme Court was troubled that Sav-on gave titles and job descriptions to its managers without reference to the actual work they performed. The court’s opinion expressed concern that employers would seek to make employees exempt from overtime “solely by fashioning an idealized job description that had little basis in reality.” Here, the court found that Sav-on’s use of standardized job descriptions demonstrated that the company potentially misclassified all of its managers. One of the court’s findings may chill employers from voluntarily reclassifying employees. In allowing class certification, the court relied on the admitted fact that Sav-on voluntarily reclassified all of its assistant managers from exempt to non-exempt without changing their job descriptions or duties. The Supreme Court considered this as evidence of Sav-on’s “pattern or practice” of misclassifying its managers. According to the opinion, the trial court “could rationally have regarded the reclassification as common evidence respecting both [Sav-on's] classification policies and the [assistant managers'] actual status during the relevant period.” The Supreme Court did not consider whether Sav-on’s voluntary reclassification qualified as a “subsequent remedial measure,” a doctrine that can prevent the introduction of after-the-fact corrective measures as evidence to prove noncompliance with the law on a prior occasion. In its decision, the court only considered the issue of commonality, the sole basis upon which defendants claimed the lower court had abused its discretion. The Supreme Court acknowledged that commonality is simply “one of many relevant considerations.” In order to obtain class certification, a plaintiff must also prove by substantial evidence that there is an ascertainable class, that the class representatives have claims or defenses typical of the class, that they can adequately represent the class, and that there is a sufficient number of potential class members so that joinder of these claims would be impractical. The Sav-on ruling does not hold that class treatment is appropriate in every wage-and-hour case and does not speak to whether other types of employment claims are suitable for class treatment. The court’s focus on the “standardization” of the managerial positions at Sav-on may also not be present in other cases. The Sav-on opinion addresses the managerial exemption only, and employers should be prepared to distinguish the decision when another overtime exemption, such as the administrative or professional exemption, is at issue. Finally, Sav-on holds that if class treatment is not “manageable,” even after the class has been certified, decertification is the proper remedy. California employers can use the Sav-on decision as a guidance tool in the following areas: � Employers cannot rely solely on titles or job descriptions when deciding whether to classify their employees as exempt or non-exempt. Care should be taken to ensure that job titles and job descriptions accurately describe the work being performed by the employee and the employer’s expectations of the position. Job descriptions should be individualized as much as possible. � Employers should act to minimize standardization of their managerial and other exempt positions by highlighting differences from store to store or facility to facility, differences among the various exempt positions and the unique aspects of each exempt employee’s work-related role and responsibility. � Employers should conduct an audit or study at least annually to determine how their exempt employees actually spend their time and what tasks they perform. If an employer finds that exempt employees are not meeting the company’s reasonable expectations of the duties the employee should be performing, written counseling may be appropriate. Employers should keep records of the work actually performed by exempt employees. � Employers should educate their exempt employees about overtime exemptions and what type of work is exempt and non-exempt under California and federal laws. In the Sav-on litigation, the trial court, in certifying the class, relied in part on its finding that the company did not provide such training to its managers. � If an employer decides to reclassify any of its employees from exempt to non-exempt, care should be taken to ensure that the reclassification is based on changes in the law, changes in job duties of the employees and/or changes in the employer’s expectations of its employees. Otherwise, courts may use the reclassification as evidence of a prior misclassification, at least for purposes of determining class certification. Louise Ann Fernandez chairs the labor and employment practice group at Jeffer, Mangels, Butler & Marmaro and is located in the firm’s Los Angeles office. Travis M. Gemoets is a litigation associate at the firm.

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