Blog: The California Workplace Advisor

In yet another sign that the tide is turning in employers’ favor on the wage/hour class action front, a California appellate court has upheld the denial of certification in a case challenging the exempt status of managers and assistant managers at Sears auto centers.  Dailey v. Sears, Roebuck & Co.  Evidence of material variations in the way individual managers spend their time, the court held, indicates that individual issues would predominate over issues common to the class, rendering certification inappropriate.

The plaintiff in Dailey was an assistant manager and then a manager of a Sears auto center in the San Diego region.  After his termination, the plaintiff filed a class action, claiming that he and all other managers and assistant managers in the region had been misclassified as exempt employees and were entitled to overtime and premiums for missed meal periods.  He argued that class treatment was warranted because Sears had uniform policies and practices that resulted in all managers spending more than half of their time performing non-exempt work such as customer service, sales, inventory, and mechanical work, and that as such, as a class they had been misclassified as exempt.  In support of class certification, the plaintiff submitted declarations from four other managers as well as himself stating that they spent most of their time performing non-exempt work, regularly worked 50 hours per week, and were unable to take meal breaks.

In opposition, Sears argued that there were wide variations among the members of the proposed class in how managers spent their time.  It submitted declarations and testimony from six corporate managers and 21 class members attesting to significant differences in the proportion of time spent in non-exempt functions, ranging from 1% to 40%.  Sears’ evidence also disputed the existence of a company policy or practice mandating a non-exempt mix of work, instead showing that managers had substantial discretion to adjust staffing levels and set their own work schedules.  Based primarily on evidence of wide variations in the mix of exempt and non-exempt duties among managers, the trial court denied class certification.

The Court of Appeal affirmed, holding that Sears had submitted sufficient evidence to support a finding that individual issues predominated.  It rejected the plaintiff’s argument that in crediting Sears’ evidence of variation over his evidence of a common practice, the trial court had improperly decided the merits of his claims.  The court held that when the parties’ evidence conflicts relevant to whether common or individual questions predominate, the trial court is permitted to credit one party’s evidence over the other.  The plaintiff also protested the trial court’s refusal to consider random sampling to minimize and manage individual questions.  The appellate court rejected that argument as well, noting that the use of such techniques to determine liability rather than simply damages was controversial and that in any event, the plaintiff had simply proposed the methodology; he had not submitted actual data evidencing that existence of a common policy or practice.

What this means for employers:  This case reflects the encouraging trend of courts being more stringent in their examination of class certification motions in wage and hour cases, which inevitably benefits employers.  That said, employers are well advised to periodically review their exempt employee classifications, particularly those that fall in the gray area.  Audits by the U.S. Department of Labor are on the rise, including in California, with the agency pursuing an aggressive enforcement agenda.  In addition, individual overtime claims based on misclassification remain common both in the courts and before the California Labor Commissioner.