Class-Action Lawsuits for Overtime Pay Allowed

Times Staff Writers

In a closely watched labor law case, the California Supreme Court cleared the way Thursday for a class-action lawsuit brought by Sav-on Drug Stores workers who say they were misclassified as managers and improperly denied overtime.

The unanimous ruling overturned a lower-court decision that would have discouraged such suits.

Plaintiffs’ attorneys maintain that many workers -- despite being given titles such as “store manager” or “team leader” -- spend most of their day on non-managerial tasks such as stocking shelves or tending a cash register, rather than overseeing any aspect of the business.


Companies had hoped that the lower court’s position would slow a wave of overtime litigation that has swept the state in recent years, costing firms hundreds of millions of dollars in judgments and settlements. A broad swath of corporate California has been hit, including Farmers Insurance Group, Bank of America Corp., RadioShack Corp., Rite Aid Corp., Starbucks Corp., Taco Bell Corp. and United Parcel Service Inc.

As a result of the high-court ruling, experts said, California businesses can expect a renewed surge of class-action litigation seeking overtime pay.

“There are probably a fair number of these lawsuits waiting in the wings for the court to clarify what the standards are,” said Steven Katz, a Los Angeles lawyer who wrote a friend-of-the-court brief for other businesses in the Sav-on case. “Now that that has happened, I think we’re going to see those suits being filed.”

A spokeswoman for Sav-on, which has about 300 stores in California, declined to comment on the ruling. Rex S. Heinke, a Los Angeles attorney who represented the drugstore chain, said he couldn’t comment because the litigation was ongoing.

The California Supreme Court ruling came the same week that new federal overtime regulations took effect. Those rules, which are expected to reduce the amount of overtime paid to workers and reduce litigation, were opposed by organized labor and embraced by the business community.

The federal regulations, however, are expected to have little effect in California, which has its own labor laws.

Under the state statutes, workers who spend more than 50% of their time performing the duties of hourly workers, even if they’re called managers, are eligible for overtime pay. Eligible workers who put in more than eight hours a day on the job are supposed to be paid for the overtime at time-and-a-half -- 1.5 times their usual hourly rate.

Under federal law followed in most other states, managers may be exempt from overtime pay if their primary duties are supervisory.

The state high court’s decision stemmed from a lawsuit brought by two Sav-on managers who contended that the chain misclassified its assistant managers and operating managers as exempt from the state’s overtime wage laws.

Lawyers in the case have estimated that 600 to 1,400 Sav-on workers may be entitled to back pay if the lawsuit succeeds.

A trial judge in Los Angeles agreed to certify the suit as a class action, a move that was appealed by Sav-on, a unit of Albertsons Inc., which is based in Boise, Idaho. The state Court of Appeal reversed the trial judge, finding that managers in different stores spent their time in such different ways that they were not similar enough to be treated the same in a mass trial or settlement.

In overturning the Court of Appeal’s decision, the high court stressed that it was not ruling on the factual merits of the plaintiffs’ case. The judges said the employees had presented enough evidence of common grievances to have their lawsuit certified as a class action.

“The record contains substantial, if disputed, evidence that deliberate misclassification was defendant’s policy and practice,” Justice Kathryn Mickle Werdegar wrote for the court.

Without class actions, she added, there would be a “multiplicity of trials conducted at enormous expense to both the judicial system and the litigants.”

Brad Seligman, an Oakland lawyer who represented the Sav-on workers, said the ruling might prompt employers to be more careful about how they classify jobs. Others suggested that businesses might now turn to state lawmakers and the Schwarzenegger administration for relief from such lawsuits.

The Sav-on case, Seligman said, also is significant because the court emphasized that there was a strong public policy argument in favor of class actions generally.

“This will make it much harder for a defendant to argue in other cases that you can’t have a class because you have to prove each individual’s claims,” said Seligman, who is also representing 1.6 million female Wal-Mart Stores Inc. employees in a federal discrimination case.

He said the Supreme Court indicated in its ruling that surveys, statistics and other kinds of evidence could be used to support class certification.

Dennis Riordan, another lawyer for the Sav-on employees, said the decision was “absolutely critical to working people, particularly those who really aren’t managers.”

“The decision makes it clear that the Court of Appeal not only was wrong,” he said, “but egregiously wrong.”