Labor: Jury sides with exempt workers against Farmers Insurance. The $90-million verdict could prompt more suits in California.
Los Angeles Times, June 8, 2001
Section: The Nation, pages A1 and A9
Source: Lisa Girion, Times Staff Writer
Low-level managers whose long hours on straight pay helped fuel the economic boom are now trying to settle the score in a tidal wave of class-action lawsuits charging employers with robbing them of overtime.
Despite titles such as store manager and team leader, many workers in what some call white-collar sweatshops contend they spend more time assembling tacos, shoving merchandise onto display racks and running cash registers than doing anything that resembles managing the business.
And by borrowing the class-action muscle that pumped up tobacco and asbestos lawsuits, these white-collar workers are transforming hundreds of nickel-and-dime wage claims into multimillion-dollar assaults on corporations.
In the last two weeks alone, two high-profile employers, Rite Aid Corp. and U-Haul Co., agreed to settle cases for $25 million and $7.5 million, respectively, pending final court approval. Neither company admitted wrongdoing.
White-collar workers contend they've earned the money and, after legal expenses, the settlements aren't making them rich.
"There wasn't a whole lot of life outside working," said Robert McCorkle, a former salaried manager at U-Haul who believes he was paid less per hour than some subordinates.
"Ten hours was a short day," he said. "It wasn't uncommon to work 13 or 14 hours a day."
Many white-collar workers, who make up as much as one-third of the American work force, see themselves as slaves to jobs they blame for leaving them stressed, worn out and rarely available for spouses, children and other pursuits.
In every case, the issue is who, as a true manager, can be exempted from overtime pay? And who is a manager in title only and therefore entitled to premium pay for extra work?
"There's a very common misconception that if someone is paid a salary, then they are not entitled to overtime, which is just simply not the case," said Larry J. Shapiro, an employment law expert. "The key is what are their duties?"
In California, exempt employees must be paid at least twice minimum wage, and they must spend more than half their time on exempt duties--work that is intellectual, managerial or creative and that requires the use of discretion and independent judgment.
Some workers cry as they describe their jobs to Rene Barge, a Fountain Valley lawyer representing workers in five overtime suits. One woman who came to her said she was hospitalized for a bleeding ulcer after working 18 days straight preparing a store to open.
Store managers often complain that corporate overseers impose such strict staffing caps that it's hard to cover shifts, Barge said. "They often end up on the weekend with a skeleton staff and doing all the work themselves."
In a case that could spread the legal juggernaut to millions of administrative workers, 2,400 current and former claims adjusters are demanding overtime from Los Angeles-based Farmers Insurance Exchange.
"Being salaried meant there really was no start or stop time," said Rose Bell, lead plaintiff in the Farmers suit.
When Bell interviewed for her job in 1989, she said she was told she would work 8 a.m. to 4:30 p.m. and "occasionally I would have to work a little longer."
As it turned out, her weeks often ran to 60 hours, said Bell, who is on disability leave. She said bosses blamed her organizational skills, but eventually she concluded the workload was more than most people could handle in a regular week.
"Once I realized what was happening, I was furious," Bell said.
According to a survey for the court, the typical Farmers adjuster makes $30,000 a year and works 50 hours a week, said Steven G. Zieff, a San Francisco lawyer representing the adjusters.
Joyce Moses she said she put in nine-to-11-hour days, six days a week, while she worked for Farmers. She said she never got home in time to help her children with homework, and dinner was always late.
"One of my kids would call at 6:30 and say, 'Mom, I want to see you,' and it would break my heart," said Moses, adding that her new job, teaching high school computer classes, is a breeze by comparison.
At Farmers, she said she felt pressure to keep up with what she saw as an unrealistic caseload.
"My first year--I hate to admit it--I couldn't sleep," Moses said. "You are so wound up, so uptight."
The suit contends adjusters are the equivalent of production workers and ought to be paid overtime. An Alameda judge agreed, and in March an appellate court upheld that ruling. A hearing has been set for this month to determine what Farmers owes the adjusters. Zieff said damages could exceed $100 million.
A Farmers spokeswoman said the company has done nothing wrong and has asked the state Supreme Court to review the appellate decision, arguing that it could "add dramatically to a current explosion of class-action litigation."
In its petition for review, Farmers said the appellate court misapplied California's overtime law and erred in its analysis of the company structure and the adjusters' role. Because adjusters make settlement recommendations, Farmers' petition said, they should be considered administrators and exempt from overtime requirements.
"The benefit to the adjusters is they don't have to 'punch a clock,' but can tailor their work schedules to fit their personal and family needs," the petition said.
Zieff said Farmers is construing overtime exemptions too broadly.
"The idea that 2,400 people--one-third of their work force--is exempt is absurd," he said.
California Sees Surge in Lawsuits
Overtime class-action lawsuits have taken off in California, propelled by favorable laws and court rulings, such as one last year that increased from three to four the number of years of back pay workers can go after. In Los Angeles, at least three dozen cases have been filed in the last two years.
"This is not the kind of thing that has the sex appeal of a harassment lawsuit or a wrongful termination, but this is California employers' greatest [legal] exposure," said Joseph Beachboard, publisher of the California Employment Law Letter.
Many employers, particularly those with nationwide operations, may not realize that the rules are tougher in California, said David Kadue, a Los Angeles employers' lawyer.
"It turns out they've misclassified them," he said. "And then they find out it's not a matter of making it right for one employee. It's a matter of hundreds or thousands of employees represented by an aggressive plaintiffs' lawyer demanding millions on behalf of the class."
But until the threat of class-action lawsuits, workers' advocates say, there was little incentive for employers to pay overtime.
"It's so astounding how much money these companies save" by not paying, Barge said. "Where's the motivation for them to stop?"
Typically, the only fight in these cases is over whether a group of workers is similar enough to qualify as a class. Once a court declares a class, most employers settle.
Class certification "raises the stakes to astronomical proportions," said Diane Kimberlin, a Los Angeles lawyer representing four companies against white-collar overtime suits.
And the settlements often are dwarfed by the ongoing expense of paying overtime to whole tiers of workers previously on straight salary, said David Lewin, a professor at UCLA's Anderson School of Management and an expert witness in several cases.
"The consumer ought to understand that they are going to be paying more," Lewin said.
Retailers are so concerned about the growing pressure on payrolls that one trade organization recently pleaded with the California Supreme Court for relief.
Employers who once gave little thought to overtime issues are calling lawyers to determine their vulnerability.
"These kinds of cases have the potential of putting large companies out of business," said Tony R. Skogen, a Los Angeles lawyer who represents employers.
The suits are proliferating at a time when white-collar workers are putting in longer hours than ever and are much more likely to work overtime than blue-collar workers.
In 1983, 35% of white-collar workers put in more than 40 hours a week without overtime pay, according to a General Accounting Office report to Congress. By 1998, that number had jumped to 44%. By comparison, 19% of workers who get overtime put in more than 40 hours a week that year.
Feeling the squeeze, white-collar workers are seeking payback under overtime laws adopted during the Depression to protect laborers from overwork and to induce employers to hire more people.
"For many years, companies felt that they couldn't raise prices at all because the competition was too fierce, so the only way they could make money was to turn out more and more with the same people," said Alec Levenson, a labor economist with the Milken Institute. "We're seeing the consequences."
Federal law is more specific than California law about what duties may be considered management, but is more lenient in the amount of time a manager can spend doing menial duties.
"Under [federal law], an employer may be able to say a manager of a Burger King has his primary duty of managing people even though he's flipping burgers 55% of the time," Zieff said. "Under California law, that doesn't cut it. If more than 50% of your time isn't in the true exempt column, then you are entitled to overtime."
State Law Is Assailed as Vague
The problem for employers is that California law provides little guidance on what duties count as managerial, said Gary L. Birnbaum, a lawyer who represents Phoenix-based U-Haul.
"The California wage orders are unconstitutionally vague," he said. "They provide no definition--zero--of what is managerial."
A decade ago, overtime claims were mere blips on employers' radar screens, typically dispatched in state Labor Commission hearings.
The rebirth of arcane wage-and-hour laws as class-action suits changed that, said Matt Righetti, a San Francisco lawyer representing the U-Haul and Rite Aid workers.
"Plaintiffs' attorneys heard the clarion call that these cases are worth seven- or eight-figure settlement amounts," he said. "That draws a lot of attention to the business practices of various employers. And pretty soon it's a big gold rush."
In the Rite Aid case, a preliminary settlement would give 3,000 managers, assistants and trainees about $1,800 for each year they've worked in California stores since 1994, he said. In the U-Haul case, he said, a preliminary settlement would give 471 current and former California moving-center managers about $8,000 for each year worked as far back as 1993.
Labor groups are encouraging overtime suits, advising nonunion white-collar workers nationwide on the laws and how to take employers to court, said Mike Gildea, head of the AFL-CIO's Department for Professional Employees.
"We believe there is a pretty widespread epidemic of employers misclassifying workers," he said.