In a recent decision, Ramirez v. ISB Mehta Corp., a restaurant successfully defended a lawsuit filed by a former manager claiming that he was misclassified as an exempt employee. While the case is not officially published, it provides a few good lessons for restaurant operators’ classification of their employees. This Friday’s Five focuses on the lessons illustrated by this case:
1. Employers must approach classifying employees as exempt carefully
In Ramirez v. ISB Mehta, the plaintiff worked for Erik’s DeliCafe, a franchised restaurant in the Bay Area. The plaintiff filed a class action alleging that he was misclassified as an exempt employee and was entitled to overtime compensation because his duties as a manager primarily involved nonexempt work.
The plaintiff testified that his daily duties including counting cash, entering daily sales information, making daily bank deposits, writing checks, placing food orders, buying produce, marketing, preparing and delivering catering orders, and working the register (taking walk-in customer orders). Defendant provided plaintiff with a cell phone, but paid plaintiff $100 a month for the service.
The trial court rejected plaintiff’s overtime compensation and minimum wage claims, finding that he was an exempt employee under both the executive and administrative exemptions defined in Industrial Welfare Commission Wage Order No. 5-2001. The court found that plaintiff was primarily engaged in activities falling within those exemptions, such as:
- directing the work of others;
- authorized to hire and fire;
- customarily and regularly exercising independent judgment; and
- regularly and directly assisting the owner of the business
The evidence established that the employee’s duties and responsibilities also involved performance of non-manual work directly related to management policies or general business operations, and Employee was paid a salary more than twice the minimum wage.
2. To meet the executive exemption, the employer must meet six requirements
The court explained to meet the executive exemption, the following must be met:
The executive exemption has six components: (1) the employee’s “duties and responsibilities involve the management of the enterprise in which he/she is employed,” (2) the employee “customarily and regularly directs the work of two or more other employees,” (3) the employee “has the authority to hire or fire other employees …,” (4) the employee “customarily and regularly exercises discretion and independent judgment,” and (5) the employee earns a monthly salary “no less than two (2) times the state minimum wage for full time [40 hour per week] employment.” (Cal. Code Regs, tit. 8, § 11050, subd. 1(B)(1)(a)-(d), (f).)
The remaining component, at issue here, requires the employee to be “primarily engaged in duties which meet the test of the exemption.” (Cal. Code Regs, tit. 8, § 11050, subd. 1(B)(1)(e).)
3. Factors to review when employee is performing both exempt and nonexempt duties to determine if the employee spends more than 50% of their time on exempt duties
The court set out the factors used in determining if the employee spends more than 50% of their time on managerial duties when the employee performs both managerial and non-managerial work:
Work performed by a nonexempt employee is generally nonexempt work when performed by the supervisor; (2) the regulations do not recognize hybrid activities (activities having both exempt and nonexempt aspects); (3) identical tasks may be exempt or nonexempt depending on the manager’s purpose in engaging in the task or the task’s role in the work of the organization; and (4) in large retail establishments when certain tasks are customarily assigned to nonexempt employees, the performance of that work by a manager is nonexempt. (Heyen, supra, 216 Cal.App.4th at pp. 822-823.)
The court found that in this case bookkeeping tasks, maintaining inventory and ordering supplies and marketing the restaurant were exempt duties.
4. Employers bear the burden to prove that an employee is exempt
California courts have made clear that the employer bears the burden of proof when asserting that an employee is an exempt employee. “[T]he assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.” Ramirez v. Yosemite Water Co. (1999).
5. Even though the employer prevailed in this lawsuit, it can be risky to classify restaurant managers classified as exempt
While the employer prevailed in this case, the case illustrates the close factual analysis required in determining whether an employee meets an exempt classification. Especially in the restaurant context, it is likely that managers will be performing both nonexempt and exempt duties. It is very easy for disgruntled employees to contend after the fact that their duties primarily consisted of nonexempt, non-managerial tasks.