Class Action Lawsuits Term Paper

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Action: Exemption and California Law

Class action lawsuit: introduction

Class action lawsuits refer to those civil suits brought by a group of people in similar situation. It is one of the most effective and cost-efficient method of bringing charges against an employer for unfair business practices that caused harm to one several employees or consumers. In most cases, class action lawsuits are brought against corporations and large organizations, but in some rare care, legal professionals can also register a class action against any organization if it notices unfair practices and can gather individuals who would testify to the same.

A simple example of such a lawsuit is consumers leveling charges against an organization for bringing defective product to the market. Usually one or two individuals start class action, which is later joined by people similarly situated. In many cases, class action lawsuit is actually announced in newspapers or through other means to gather more support and bring more similarly situated individuals to a common platform. It is usually for the court to decide if a case can be given class action status.

Examples of class action:

Some common examples of class action lawsuit are listed below:

employees of a corporation who have suffered from a pattern or practice of racial, age or gender discrimination;

homeowners and residents affected by a toxic spill or an environmental injury to their neighborhood;

consumers who purchased the same defective product or were harmed by similar unfair business practices committed by a corporation;

patients prescribed a medicine with undisclosed, dangerous side-effects;

merchants and consumers who pay inflated prices for products caused by the anti-competitive activities of large corporations; and investors who are victimized by fraud committed in connection with the purchase or sale of stocks and other securities.

Source: About Class Action Lawsuits: Lieff Cabraser Heimann & Bernstein, (http://www.lieffcabraser.com/about.htm)

CALIFORNIA OVERTIME PAY LAW AND EXEMPTION:

Now that we understand what class action is and how it can be applied, we are in a better position to study the 'exemption' employment rule and how this can lead to class action lawsuits. We must also bear in mind the class action lawsuits occur when some established state or federal law is violated. Usually it is the state laws, which have a greater bearing on the case, and not federal laws since they can often differ resulting in unwanted collision of interests. For example when a case concerning employment law is brought to the court, the judge will usually decide the case in the light of state laws. 'Exemption' classification is part of the employment law that grants employers the right to refuse overtime pay to employees who fall under some 'exempt' categories. The federal law states that every person who has worked more than 40 hours a week is entitled to overtime pay. California law on the other hand states that any person who has worked more than 8 hours a day becomes eligible for overtime pay. In this case, every employee, other than the ones who are 'exempt' can ask for overtime pay.

According to California overtime pay law, employees who fall under the following categories are not eligible for overtime pay:

Executive employees

Administrative employees

Computer programmers or software professionals

Professionals (Learned or Artistic)

California overtime pay laws however offer strict criteria for judging the eligibility or ineligibility of overtime pay. The employers cannot simply dismiss the complaint on the grounds of employees falling in exempt categories. They have to prove in the court that employees were actually ineligible for overtime pay. For example to prove that an allegedly 'exempt' employee was actually working in executive position, the employers needs to prove all of the following:

The employee's duties involve actual management of an enterprise or recognized department of a business;

The employee spends over half of his or her weekly work time engaged in actual exempt work.

The employee can hire or fire other employees, or make recommendations (which are actually given weight by the employer) on hiring, firing, or promotion of other employees;

The employee customarily and regularly exercises discretion and independent judgment on the job.

The employee must be full-time and salaried. The monthly salary must be twice California's minimum wage for full-time employment, or $1,993.33 a month."

Source: Harris & Kaufman: (http://www.harriskaufman.com/overtime.htm)

With this exemption classification come several problems. Employers often misuse this clause in order to deny an employee overtime pay. However California law allows class action against such employers when a group of employees find themselves being wrongly classified as 'exempt' or ineligible.

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If the employer can satisfactorily prove that the employee was working in executive, administrative or professional position then, the court exempts the employer from paying overtime.

In a landmark case of misuse of exemption classification Bell v. Farmers Insurance Exchange (2001) 87 Cal. App. 4th 805, the California Court of Appeal ruled in favor of the plaintiffs who claimed that their employers was wrongly classifying them as 'administrators' to evade overtime charges. In March 2001, the in-house adjusters brought a lawsuit against Farmers Insurance claiming that they had not been paid overtime according to the California overtime laws as they were conveniently termed as 'administrators'. This landmark case set the ground rules for when an employer can successfully exempt himself from paying overtime and the employee from receive the same. The Court ruled that adjusters were not administrators saying: "The undisputed evidence establishes that claims adjusting is the sole mission of the 70 branch claims offices where plaintiffs worked. The claims representatives are fully engaged in performing the day-to-day activities of that important component of the business." The court further learned that the "plaintiffs' role in the business organization places them clearly outside the category of administrative workers."

The Alameda County Superior Court jury ordered Farmers Insurance Exchange to pay $90 million in overtime pay to its 2,4000 employees. This was possibly the biggest such case in the history of United States. The court found that Farmers Insurance Exchange was misusing the exemption clause and had been engaged in this unfair practice for a long time. Plaintiffs' attorney Steven Zieff said: "Farmers has, and continues to, deprive their workers of their statutory overtime protection -- a fundamental public policy in California. The jury has spoken."

Bell is an extremely important class action lawsuit because it underscored the significance of applying 'role' test before classifying anyone as 'exempt' employees. Apart from the regular duties and salaries test, the Court stated that employers also need to focus on the role played by the employees in the organization to determine who is eligible or ineligible for overtime.

The Bell case demonstrates how an erroneous overtime pay exemption has enormous financial consequences... Bell discusses an important but often overlooked third requirement in the exemption analysis, namely the employee's role in the business. In addition to meeting the "duties" and "salary" tests, Bell holds that exempt administrative employees also must be employed in an administrative "role"... Bell underscores the need for companies to closely scrutinize who they classify as exempt for overtime pay purposes, as well as their overall compliance with wage and hour law." (Rosenberg, Fuchsman: 2001)

In any similarly important case, Cortez v. Purolator Air Filtration Products Co., 2000

WL 714190 (June 5, 2000), California Supreme Court ruled in favor of plaintiffs who complained of not receiving overtime wages on alternative 4/10 schedule. The Court decided the case under California's Unfair Competition Law (UCL) since non-payment of overtime is construed as a direct violation of California labor laws. Plaintiff Cortez on behalf of herself and 175 other employees of Purolator Air Filtration Products Co. brought class action lawsuit to California trial court. Unfair competition under California labor is defined as any "unlawful, unfair or fraudulent business or act or practice and unfair, deceptive, untrue or misleading advertising" (California Business & Profession Code 17200.) The defendants failed to convince the court of the validity of their argument on the issue. The company declared that employees had willingly chosen the alternative workweek schedule and thus was exempted from overtime pay but since there was lack of clear documentation of the same, the court ruled in favor of the plaintiff. Cortex case was important as it discussed some extremely pertinent issues connected with UCL and its application to wages and overtime. The court ruled that in 'representative' situation such as Cortez, the defendant company may be ordered to pay overtime to former employees even if they are not part of the plaintiff party but were similarly situated. The ruling played an important role in clarifying unfair competition clause of the California labor laws and further explained how exemption classification was to be applied in specific wage-and-hour situations.

In a recent exemption misuse case, more than 800 employees of Sav-On Drugs have accused the company of not paying overtime and wrongly classifying these employees as managers. "The Sav-on suit was filed by employees classified by the company as operating managers or assistant managers, who said they were denied time-and-a- half pay….....

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