Overtime Lawsuits Headed Into Overtime
By JENNIFER BELLANTONIO
Two Orange County companies have found themselves targets for the latest trend in class action lawsuits: overtime.
Anaheim-based apparel retailer Pacific Sunwear of California Inc. and Irvine-based Mexican fast food chain El Pollo Loco Inc. are among scores of California businesses that have faced multimillion dollar suits seeking overtime pay for managers and other workers under a 2000 state law.
“I ride bikes and there are two types of bike riders,” said Joseph Stein, chief financial officer at El Pollo Loco. “Those who have fallen and those who will fall. If they haven’t had a suit filed against them, they will. It’s just a matter of time.”
Employers have forked out millions to settle overtime cases.
Just last month Starbucks Corp. struck a deal for $18 million with its California store managers. Last summer, Rite Aid Corp. settled with 3,000 managers and assistants for $25 million.
Before that, Bank of America Corp. settled with 6,000 personal assistants for $22 million, while SBC Communications Inc.’s Pacific Bell paid $35 million to settle a lawsuit filed by 1,500 engineers.
But the tide may be shifting for employers as a result of a recent state appellate ruling. In a case against Albertson’s Inc.’s Sav-On Drug Store, the Second District Court of Appeals in April limited the ability of lawyers to pursue overtime claims as class actions.
“That hit the plaintiffs like a lightening bolt,” said Matthew Righetti, a partner at Righetti & Wynne PC in San Francisco representing Sav-On employees. “If that decision is applied literally by the trial courts and followed by other courts, you’ll never get another case certified under the executive exemption.”
That means that workers would have to go ahead with cases individually, which would be tough, according to Righetti. He said few can afford their own attorneys and will lose the economies of scale of class actions.
Righetti, who also is representing plaintiffs in the Pacific Sunwear suit, said he’s appealing the Sav-On decision to the California Supreme Court this month.
For now, the Sav-On ruling has done little to deter law firms from pursuing overtime suits.
“There are 13 to 15 firms in California that are doing this mostly full-time,” said Mark Thierman, founder of Reno-based Thierman Law Firm. “It’s become a cottage industry.”
Trial lawyers say it’s a workers rights issue. Employees should be receiving overtime pay and aren’t, they argue.
The hot issue: the definition of a manager.
Under California’s “Eight-Hour Day Restoration and Workplace Flexibility Act of 1999,” which became law on Jan. 1, 2000, nonexempt employees,generally those with no managerial responsibilities,must be paid overtime if they work longer than 40 hours a week.
But managers are exempt from overtime under the law. They are defined as employees with jobs where more than half of their duties are managerial or professional.
Since the law took effect, though, employees in several managerial positions have filed suits seeking overtime pay, arguing that less than half of their jobs are managerial.
These cases are difficult for employers to defend, according to Ernest W. Klatte, a partner at Costa Mesa-based Rutan & Tucker LLP who specializes in labor and employment law.
“The employer has the burden of proving the manager is exempt,” Klatte said. “That can be difficult to do with retail establishments that are spread throughout the state. It may be difficult to prove what a given manager is doing at a given location.”
It’s even trickier for national chains that promote uniformity, since national laws can differ from state laws, Klatte said.
The result: potentially crippling class action suits that employers often settle.
Why?
“Because the potential liability is high and because of the difficulties in proving that an entire class of managers is exempt,” Klatte said.
Enter Sav-On. The appellate court ruling didn’t speak to the heart of this issue but found in that case there wasn’t a “preponderance of common issues” among Sav-On managers because their duties varied by store.
“It remains to be seen what impact it will have,” Klatte said. “The Sav-On case will not prevent these lawsuits from being filed in the future. It will be an ongoing issue.”
That’s good for lawyers such as Thierman, who represented plaintiffs against Starbucks.
“I don’t think it’s the end of the business,” he said. “But I do think it’s closing the barn doors after the horses have left because most of the big (national chains) have been hit already. Unless I’m missing somebody, I think I’m running out of chains.”
Thierman, who said he is juggling 35 class action overtime suits, latched onto the issue about five years.
His said his wife led him to it.
At the time, Thierman represented his wife and others in one of the first class action overtime suits against Pacific Bell, which settled for about $28 million in that case, he said. Prior to that, he represented employers for about 20 years, he said.
“For years I’ve been telling my employers don’t do this, don’t do that. And nobody listened to me,” Thierman said.
Thierman concedes class action lawsuits are lucrative because lawyers get a percentage of any recovery.
“It’s only lucrative as a class action,” he said. “I would never do it on an individual basis.”
He added that the cost to litigate a $5,000 claim is $100,000 to $200,000, while the cost to do a multimillion dollar lawsuit “is only three times that.”
“You get economies of scale,” he said. “If you say the attorneys are making too much, then cut down the attorney’s percentage. But don’t prevent the aggregation.”
Employers don’t see it that way. They say lawyers are riding a gravy train because the law is obscure and vague,an argument lawyers don’t entirely deny.
“I’m not so sure this system we have isn’t a trap waiting to be sprung,” Thierman said. “We have this exemption for managers, then we define managers in a reasonable but obscure way. And then we have exemptions to the exemptions. If we have an obnoxious rule, let’s enforce it to the hilt so someone will change it.”
Thierman and other overtime lawyers show no signs of letting up their efforts to recruit plaintiffs. Thierman does so through his Web site, www.laborlawyer.net, while San Diego-based Dostart Clapp & Coveney LLP runs www.overtimelawpage.com.
Overtime law is so competitive that Righetti said he stopped listing clients on his site.
“Other plaintiffs’ attorneys would shop our site,” he said.
The lawsuits have awakened California businesses to the issue, though a number already are sensitive to it.
Take Alhambra-based food Jacmar Cos., the largest shareholder of Huntington-Beach based Chicago Pizza & Brewery Inc. and the largest franchise operator of Garden Grove-based Shakey’s Inc.’s pizza parlors.
William Tilly, chairman and chief executive of the food distributor and restaurant operator, said the company’s avoided suits by planning.
“Companies have to be very careful,” he said. “We have hundreds of employees at Jacmar who not only receive time and a half but double time.”
Thierman said the Sav-On ruling only may be a “reprieve” for employers, so they “should be thinking of long-term solutions.”
“They have to look at their whole compensation plans,” he said. “They could have restructured it in terms of an hourly rate and overtime (wages) and it would have cost them the same.”
Plus, he said it would “balance out the incentive for the company to have people work tons and tons of hours and not have a life.”
