Arenas v. El Torito Restaurants, Inc., 183 Cal. App. 4th 723 (2010)

The plaintiffs in this case are salaried managers at El Torito, El Torito Grill and Guadala Harry’s restaurants in California from May 2002 to the present. Plaintiffs alleged they were misclassified as employees exempt from overtime because they routinely spent more than half of their working hours performing duties delegated to non-exempt

The U.S. Department of Labor’s (the “DOL”) Wage and Hour Division recently issued a Wage and Hour Opinion Letter, FLSA 2009-3, addressing how a company can compute overtime payments retroactively for salaried employees it had mistakenly classified as exempt (not overtime-eligible) under the Fair Labor Standards Act (“FLSA” or the “Act”). The DOL reiterated its support for the half-time methodology in calculating back overtime due, endorsing the so-called “fluctuating workweek” model on a retroactive basis for remedying the misclassification of salaried employees. This is a significant development and, in so deciding, the DOL has “weighed in” on an issue that remains a source of lively debate in the federal courts.

Generally, the FLSA requires that overtime pay be calculated weekly (notwithstanding that an employer’s payroll period might be semi-monthly or bi-weekly) and that employees receive one and one-half times their regular hourly rate of pay for each hour worked in excess of 40 hours in a workweek. Here, the employer paid a guaranteed salary bi-weekly and expected the employees to work a minimum of 50 hours per week. The employer’s payroll software even converted the bi-weekly salary to an hourly rate by dividing the salary by 100, without regard to whether the employees worked more or less than 100 hours in the payroll period. When the employer concluded that it had mistakenly classified certain salaried employees as exempt, it wished to pay them back overtime retroactively, using a half-time methodology, reasoning that the employees had already been compensated straight-time for each hour over 40 worked in the workweek.

The DOL agreed. Since the fixed salary covered all the hours the employees worked in a workweek, straighttime already was included in the salary covering the hours worked over 40 and, as a result, the employees needed only to be paid an additional one-half of their actual regular rate for each overtime hour. Important to the DOL’s decision was the fact that the fixed salary was paid to the employees even when they worked less than 100 hours in the bi-weekly payroll period.

The Opinion Letter is particularly noteworthy for its generous interpretation of the fluctuating workweek’s “clear mutual understanding” requirement which, heretofore, many had understood meant that there had to be a “clear and mutual understanding” at the outset of how salary and overtime would be calculated and paid for hours worked. According to this Opinion Letter, the “clear and mutual understanding” criterion does not need to be set forth in writing and intent can be inferred from the parties’ conduct that the fixed salary was compensation for all hours actually worked by the employee in a given week, rather than for a fixed number of hours per week – a stance that adopts the minority view among judicial decisions that have considered the issue.

Combs v. Skyriver Communications, Inc., 159 Cal. App. 4th 1242 (2008)

Mark Combs sued his former employer, Skyriver Communications, and Skyriver’s former interim CEO, Massih Tayebi, for violations of the California Labor Code, the Unfair Competition Law and the Private Attorneys General Act of 2004. Combs, who was employed as the manager of capacity planning and later as the director of network operations, alleged

Harris v. Superior Court, 154 Cal. App. 4th 164 (2007)

Plaintiffs, members of four coordinated class actions filed against two insurance companies, alleged they were improperly classified as exempt employees in violation of the administrative exemption from the overtime requirements of California law. Applying the Administrative/Production Worker Dichotomy analysis, the Court of Appeal concluded that plaintiffs were primarily engaged in work that fell on

Bell v. Farmers Ins. Exchange, 115 Cal. App. 4th 715 (2004)

Following a jury trial, Farmers Insurance Exchange was ordered to pay a class consisting of 2,402 current and former claims representatives over $90 million in unpaid overtime and over $32 million in prejudgment interest. The claims representatives contended that Farmers had improperly classified them as exempt administrative employees and had unlawfully deprived them

California School of Culinary Arts v. Lujan, 112 Cal. App. 4th 16 (2003)

The employer, California School of Culinary Arts (CSCA), failed to pay its instructors overtime under Industrial Welfare Commission Wage Order 4-2001 on the ground that the instructors were subject to the professional exemption of the Wage Order. The California Division of Labor Standards Enforcement (DLSE) disagreed, contending that the exemption did

Alvarez v. IBP, Inc., 339 F.3d 894 (9th Cir. 2003)

Meat packing employees of IBP, Inc. (the world’s largest producer of fresh beef, pork and related products) filed a class action lawsuit alleging violations of the federal Fair Labor Standards Act (FLSA). The employees (all of whom were non-exempt from the overtime requirements of state and federal law) alleged that they should have been

Collins v. Overnite Transp. Co., 105 Cal. App. 4th 171 (2003)

The truck drivers in this case filed a class action, seeking unpaid overtime compensation from their employer, Overnite Transportation Company, a motor carrier. Overnite responded by filing a demurrer, seeking dismissal of the drivers’ claims on the ground that Wage Order No. 9 provides an exemption for motor carriers such as Overnite. The

Bothell v. Phase Metrics, Inc., 299 F.3d 1120 (9th Cir. 2002)

Rex Bothell, a former field service engineer employed by Phase Metrics, Inc., alleged that he had been improperly classified as an exempt administrative employee under state and federal law and sought unpaid overtime. Phase Metrics maintained that Bothell was essentially an account manager who performed his job independently, made or recommended decisions critical