Appellate Ruling Is Seen as Deathknell For Overtime Suits

By AMANDA BRONSTAD

Staff Reporter

An appellate ruling narrowly limiting the extent to which wage-hour lawsuits can be certified as class actions may stem filings that have cost California businesses hundreds of millions of dollars in the last two years.

Sav-On Drug Stores Inc.'s victory in the Second District Court of Appeals last month overturned a lower court's ruling certifying 1,400 current and former assistant managers and operations managers in stores throughout California as a class.

The ruling could reduce a flood of multi-million dollar lawsuits to a trickle, local attorneys said.

"It's the difference between having a multi-million dollar case and a case worth a few thousand dollars at the most," said Rex Heinke, partner at Akin Gump Strauss Hauer & Feld LLP representing Sav-On.

The impact could be substantial for California employers. In December, Pacific Bell paid $35 million to settle a lawsuit filed by 1,500 engineers. In October, Bank of America Corp. settled with 6,000 personal assistants for $22 million. Last summer, Rite Aid Corp. settled with 3,000 managers and assistants for $25 million, and Farmer's Insurance Exchange paid $90 million in a judgment favoring 2,400 claims adjusters.

An $18 million settlement struck last month between Starbucks Corp. and its California store managers may prove to be the last in the string.

Matt Righetti, a partner at Righetti & Wynne PC in San Francisco representing the Sav-On employees, said he plans to appeal the ruling to the California Supreme Court this month.

"This court has an agenda," he said of the ruling. "It wanted a published opinion that had the appearance of not creating a new law, but in fact was doing just that. It recognized that by doing this it was going to gut an entire new genre of employment litigation, namely wage-hour class actions."

The lawsuits took shape after the state passed the "Eight-Hour Day Restoration and Workplace Flexibility Act of 1999," which became effective Jan. 1, 2000. Under the Act, employers must pay overtime to nonexempt employees for work done after an eight-hour workday. Nonexempt employees, generally those with no managerial responsibilities, are eligible for overtime compensation. Employees with jobs where more than half the duties are professional or managerial, under state law, are exempted from overtime payments.

Since the Act was passed, however, employees in several managerial positions have filed suits seeking overtime pay, arguing that less than 50 percent of their jobs were managerial.

Anticipating potentially crippling class action lawsuits, most employers have settled, said Richard Simmons, employment law attorney with Sheppard Mullin Richter & Hampton.

"This will cause employers to rethink those settlements and fight them," Simmons said of the Sav-On ruling.

The Sav-On decision, by Los Angeles Appellate Judge Irving Feffer, is the first published opinion at the appellate level on class certification in wage-hour lawsuits, making it a precedent.

"They're going to be able to point to this case and say that unless the plaintiff can show the duties of the purported class are the same, and the amount of time spent on those duties are the same, there should not be a class action," Heinke said.

In the appellate ruling, Feffer said that in order to have a class action, "questions of law or fact that are common to all members of the class must predominate over the questions of law or fact that are individual to each member."

Sav-On argued that each manager's job duties varied depending on the size, location and number of employees at each Sav-On store.

Appeal coming

Righetti said the ruling has a "profound" impact on the ability of employees to sue employers for overtime wages, since many cannot afford their own attorneys and will lose the economies of scale that come with class actions.

Further, current Sav-On employees who make up about 500 of the 1,400 members of the class will be less likely to file suits for fear of losing their jobs, he said.

He argued that the ruling goes against Sav-On's description of the managers. "Sav-On continues to classify these people as all exempt without individual analysis," Righetti said. "That's the irony of an injustice behind the Court of Appeals decision."

But Heinke said, "Our essential point was that there is no uniformity as to the tasks or the amount of time these employees are spending on them. There is no way you can decide whether these 1,400 employees are exempt or not exempt, and without such uniformity there's no efficiency in a class action. You have 1,400 individual cases."

For reprint and licensing requests for this article, CLICK HERE.