Orange County Employment Lawyer Blog

An Irvine based business, doing business primarily in Orange County, but covering parts of all Southern California, called my Orange County employment law firm with a question. He has a dozen or so employees, and is unsure how to properly classify them so as to not get into any legal troubles.

His two choices are either exempt or non-exempt. Exempt essentially means you are salaried and meet one of several exceptions making you ineligible for overtime. Non-exempt, as you may guess, means you do not qualify for any of the exceptions and are thus entitled to overtime compensation.

As I have written in previous blog posts about overtime, California has by far the strictest and most complex labor laws in the country. California wage and hour laws are extremely "pro" employee, which often gets the uniformed small business owner (as well as corporate giants) into significant legal trouble.

It has been my experience that an employer's most common mistake is misclassifying an employee as exempt (i.e. a manager). Employers typically do this because managers (and other qualifying employees) are not entitled to overtime pay at the overtime premium rate of one and one half times the employee's regular rate of pay.

The problem is, just because you call someone a manager, does not make them one. Managers, for instance, must manage either an enterprise, a customarily recognized department or a subdivision thereof. Additionally, managers must also customarily and regularly direct the work of 2 or more employees and must have authority to hire/fire OR must have the ability to suggest/recommend the hiring/firing/advancement/promotion or other similar change of status of an employee. Lastly, a manager must customarily and regularly exercise discretion and independent judgement and must spend at least 51% of the time performing "exempt" work (i.e. managerial type work as described above)

I have seen it time and time again - an employer classifies an employee as a "manager" so he/she is exempt from receiving overtime pay. However, after analyzing the "managers" actual job duties, it often turns out that he/she is not in fact performing managerial tasks or given managerial authority. As a result, such an employee is then determined to be misclassified and as a result, is entitled to overtime compensation for all overtime hours previously worked for which he/she did not receive overtime compensation. What's more, if it turns out an entire group of employees were misclassified, then the case could be a class action.

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San Francisco Superior Court Judge John K. Stewart approved the $17.25 million final settlement of a class action complaint against energy giant PG&E. The class of employees filed suit against PG&E seeking compensation for unpaid overtime hours worked. The workers alleged, among other things, that they were misclassified as salary exempt meaning that they were not subject to California's strict overtime laws. As such, they worked many overtime hours without receiving any additional compensation other than their base salary.

The case, Conley v. Pacific Gas & Electric Co., was originally filed in March, 2000. Yes, 2000, which means it took 9 years for the case to resolve, an excruciating amount of time for the Plaintiffs and their attorneys to have an ongoing case. I have handled several wage and hour class actions during the last three years, so I am fully aware of the complexities of class actions and the amount of time it takes to litigate them. The biggest impediment to settling a class action is that once a class action is filed, the court must approve the settlement. As a result, the Defendant must offer enough money to satisfy the court that the settlement is fair and reasonable. Additionally, the Defendant is unable to settle with just the named Plaintiff and then dismiss the remainder of the complaint. Consequently, Defendant companies typically aggressively defend class actions.

PG&E spokeswoman Jennifer Zerwer, in typical "big company settles big lawsuit" fashion, said in regards to the settlement "PG&E truly appreciates the 20,000 men and women who work every day to provide safe and reliable energy to our customers. They are our most important asset. We believe these employees were properly classified, according to California law. We are pleased we were able to come to a compromise that is fair to both our employees and our customers." Loosely translated, we fought like mad for as long as we could to defend this case, but in the end came to grips with the fact we misclassified our employees and settled before we got into any more trouble.

PG&E workers get $17.25 million in OT case, The Mercury News, July 31, 2009