Written By: Joseph J. Nardulli
Courts have recently been faced with the issue of whether a manager retains his or her exempt status when a portion of the manager’s duties fall within the non-exempt category of work.
Under California law, employees are entitled to overtime pay for any work in excess of eight (8) hours in one workday, or forty (40) hours in any work week, unless the employer affirmatively establishes that the employee qualifies for a statutory exemption (see Conley v. Pacific Gas & Electric Co. 2005 Cal.App.4th 260,266 [31Cal Reporter 4d 719] Lab.Code 8510, 515). One of these exemptions is set out in Industrial Welfare Commission (IWC) Wage Order No. 7 (2001), codified in California Code regulations title 8 Section 11070, and entitled “Order regulating wages and working conditions in the mercantile industry wage order”. This order defines executive exemption from overtime pay as follows:
The following requirements shall apply in determining whether an employee meets the test to qualify for an exemption:
1. A person employed in an executive capacity means any employee:
(a) Whose duties and responsibilities involve the management of the enterprise in which he or she is employed or at a customarily recognized department or subdivision thereof, and
(b) Who customarily and regularly directs the work of two or more other employees therein, and
(c) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight, and
(d) Who customarily and regularly exercises discrete and independent judgment, and
(e) Who is primarily engaged in duties which meet the test of the exception.
(f) Such an employee must also earn a monthly salary equivalent to no less than two times the state minimum wage for full time employment. Labor Code Section 515 defines full time employment as forty (40) hours per week.
A case which is particularly instructive as it relates to the executive or managerial exemption is the recent case of Heyan v. Safeway, 216 Cal.App 4th 795 (2013). The issue in the Heyan case was whether Heyan was “primarily engaged in managerial duties, i.e. whether she spent more than one-half of her time engaged in such duties” (Cal.Code Regs., tit 11070 Sub-2K).
Background
In Heyan, the managers were faced with a situation where they were limited by Safeway in the number of labor hours they were allowed based upon a formula or budget based upon the particular stores’ sales. This is referred to as the “O.R.”, and is calculated on a weekly basis. Managers were disciplined for exceeding the number of labor hours within their budget.
As a consequence, the Downey store where Heyan was employed in a management capacity was understaffed. In order to keep the store running, Heyan and other managers, as well as assistant managers, were forced to do clearly non-exempt tasks such as stocking shelves, bagging groceries, and working as a checker at the check-out line. These tasks were clearly within the realm of hourly employee work.
Safeway argued that the court should recognize Heyan as a managerial employee because he performed both “exempt” work (such as managing the store) and “non-exempt” work (such as bagging groceries or stocking shelves). Safeway’s position was found to be fundamentally flawed. The Court found that you must look at non-exempt and exempt activities separately in determining whether the manager is devoting over 50% of his or her time to exempt activities. The court clearly rejected Safeway’s contention that if there is some managerial work being done that the non-exempt work is part and parcel to the exempt work and all the manager’s time should be counted as exempt. Put another way, the Court stated that it did not recognize hybrid activities that have both “exempt and non-exempt” aspects. As a consequence, just as work of the same kind performed by a supervisor’s non-exempt employees is generally “nonexempt”, the supervisor is likely considered a non-exempt employee when the same work performed by the supervisor takes up a large part of the supervisor’s time.
The Court also found that tasks may be determined to be “exempt” or “non-exempt” based on the purpose that they serve for the organization or department in question. The court held that tasks performed because they are helpful in supervising the employees, or that contribute to the smooth functioning of the department, will be perceived as exempt. In such cases, the tasks will be looked upon as exempt even though the identical task performed for a different non-managerial reason would be non-exempt.
The test as to whether something is an exempt activity is whether the task is performed as part of the supervisor’s training of the non-exempt employee. Demonstrating the proper way to stock a shelf or run a cash register in order to instruct the non-exempt employee to perform these tasks would therefore be viewed as exempt, while performing the same duties without it being part of the educational process of the non-exempt employee would be seen as non-exempt.