On May 23, 2013, the California Court of Appeal affirmed a jury verdict awarding damages to a former Safeway assistant store manager. The Court found that a manager who performed various nonexempt tasks while simultaneously supervising other employees was not primarily engaged in the performance of exempt work. Prior to Heyen v. Safeway, there was no published precedential California case law specifically addressing how time spent simultaneously performing concurrent duties, which are both exempt and nonexempt, should be evaluated for purposes of the executive exemption.
Managers and assistant managers at retail locations have been the focus of many wage and hour lawsuits. In these cases, the employer often asserts that the employee is exempt under the executive exemption based upon the employee’s managerial duties and the employee contends that there was not enough discretion or managerial work to warrant application of the exemption. The issue in such cases generally comes down to whether the managers' “primary duties” are exempt or nonexempt. For employers in California, courts apply a quantitative test, asking whether more that 50 percent of the employee’s duties are exempt. Under federal law, the test is qualitative, taking into account factors such as the importance of the exempt duties to the job, the amount of time spent on them, the employee's freedom from direct supervision, and differences between the employee's pay and that of hourly workers.
Plaintiff Heyen worked at a Safeway store as an exempt assistant manager. Heyen claimed that the limited payroll budget available to her and Safeway's policy of providing superior customer service required her to perform both managerial and nonexempt (“hourly”) work in order to meet the company’s expectations. Heyen acknowledged that even while she was engaged in nonexempt work, she was at the same time still able to concurrently engage in management activities. So, for example, while she supervised her employees, she also assisted them by performing nonexempt tasks such as bagging groceries or stocking shelves.
After Safeway terminated her employment, Heyen filed a lawsuit to recover unpaid overtime pay, contending Safeway should have classified her as a nonexempt employee because she regularly spent more than 50 percent of her work hours doing nonexempt tasks. The case was tried to an advisory jury. The trial court instructed the jury that it should consider the primary purpose for "mixed" activities -- those that involved both nonexempt work and supervision. The jury found in Heyen’s favor, concluding that Safeway did not prove Heyen was exempt. The trial court accepted the jury’s determination and awarded Heyen over $26,000 in overtime. (Heyen’s case was the first case litigated to judgment, of several dozen cases involving over 350 plaintiffs currently pending before the same trial judge, all involving similar claims and issues.)
Court of Appeal Decision
On appeal, Safeway made two arguments, both of which the Court of Appeal rejected. First, it maintained that a managerial employee can simultaneously perform exempt and nonexempt work without losing the exemption. For example, while managers may be bagging or stocking, they are always managing by supervising and instructing other employees, observing the store and taking corrective action where needed. The Court of Appeal acknowledged the “intuitive appeal” of the defense argument, but nonetheless found that California law did not support it. Instead, the Court found that the only time such multi-tasking will be found to be exempt is when: (1) the nonexempt task is helpful in supervising employees; or (2) it contributes to the smooth functioning of the manager’s department. A fact-finder’s responsibility is to determine whether the primary purpose of performing a nonexempt task is for one of those permissible reasons or for some other reason. The Court determined that in Heyen’s case, there was sufficient evidence to support the jury’s verdict.
Safeway’s second argument was that although Heyen may have performed nonexempt tasks, Safeway had no reason to believe that she was doing so (because she never told anyone she was) and that it had a “reasonable expectation” that she was performing exclusively exempt work. Under California law and under the Fair Labor Standards Act, an employee who primarily performs nonexempt work can still be found to be exempt when an employer has a “realistic expectation” that the employee is performing exempt work based on the “realistic expectations of the job.” So, for example, courts have found that an otherwise exempt retail sales employee who was supposed to be performing exempt work more than fifty percent of the time, but failed to do so because of his own substandard performance, cannot evade the exemption, so long as the employer’s expectations were reasonable. In this case, however, the Court found that there was sufficient evidence to support Heyen’s argument that Safeway’s expectations were unrealistic based on the limited staffing that was available at the time and, as a result, it affirmed the verdict.
Guidance for Employers
Following Heyen, we expect to see even more cases challenging the exempt status of retail managers. Nevertheless, there are proactive measures that employers can take to guard against a claim like Heyen’s. Significantly, employers should remember that an employee’s job title and job description alone are not the key to exempt status. A business must examine the employee’s actual day-to-day job duties to determine if the nature of the employee’s actual work meets the exempt test. An all-too-common problem arises when a job has both managerial and nonexempt duties, allowing employees to claim that they spent over 50 percent of their work hours performing nonexempt work. Managerial employees should be informed that if they ever spend the majority of their time on nonexempt duties, they need to alert their supervisor. Further, employers should have a clear, written policy which states that managerial employees are never expected to perform non-managerial tasks for significant periods of time.