EXECUTIVE EXEMPTION - RECENT DEVELOPMENTS IN FEDERAL LAW

Under federal law, an employee qualifies for the executive exemption, and is not entitled to overtime pay, if the employee: (1) is paid a salary of not less than $455 per week; (2) has management as his/her “primary duty”; (3) regularly supervises more than two employees; and (4) either has the authority to hire and fire or his/her suggestions regarding hiring and firing are given particular weight. A recent opinion letter issued by the United States Department of Labor (DOL) and a recent federal court decision illustrate how this exemption applies to store managers.

The DOL opinion letter, dated September 21, 2006 (but published only recently), addresses whether a store manager who supervises between five to eight employees is exempt if the manager does not actually supervise eighty employee hours (the equivalent of two full-time employees) per week. In finding that such a store manager still qualifies for the executive exemption, the DOL noted that although there is usually only one employee working with the store manager at any given time, “a store manager, even when not present in the store, may satisfy the requirements [for the exemption] provided he or she does in fact customarily and regularly direct the subordinate employees’ work.” The DOL determined that the store manager qualifies for the exemption because the manager is responsible for overseeing the subordinates’ work even when the manager is not present at the store.

Similarly, in January, the U.S. District Court for the Southern District of Texas found that Starbucks store managers qualified for the exemption, even though they claimed to be nothing more than “glorified baristas” who spent seventy to eighty percent of their time waiting on customers, preparing drinks, cleaning the store, and maintaining equipment. (Mims v. Starbucks Corp.) The court reached this conclusion because their “primary duty” remained that of managing the store. The court noted that the store managers were the highest ranking employees in their respective stores, they supervised and motivated staffs of six to thirty employees, and they were responsible for driving sales and developing strategies to increase revenue, control costs and ensure compliance with Starbucks policies and procedures. The store managers also oversaw customer service, prepared store reports and communications, processed employee time records, payroll and inventory counts, and ensured the safety of store customers and employees. Indeed, even when they were not physically present in the store, the store managers remained primarily responsible for the store’s productivity and staff.

Are these opinions helpful for California Employers?

Unfortunately, no. Under California law, to qualify for the executive exemption an employee must: (1) receive a salary of at least two times the state minimum wage ($2,600/month or $600/week as of January 1, 2007); (2) be involved in the management of the enterprise of which he/she is employed (this includes departments and subdivisions); (3) customarily and regularly direct the work of at least two or more other employees; (4) have authority to hire or fire, or suggest and recommend hiring, firing, promotion or other changes in status that is given particular weight; (5) customarily and regularly exercise discretion and independent judgment; and (6) be “primarily engaged” in management duties.

At first glance, California’s “primarily engaged” requirement appears similar to the federal “primary duty” requirement for the executive exemption. However, California’s “primarily engaged” requirement means that the employee must be engaged in management duties more than one half or at least fifty-one percent of the time. Thus, unlike federal law, in California, the fact that an employee’s primary duty is managing is not determinative. Instead, the issue is whether the manager spends at least fifty-one percent of the time actually performing management duties. Accordingly, while the Starbucks managers at issue in Mims qualify for the executive exemption under federal law, they would not qualify for the exemption under California law because they spent seventy to eighty percent of their time performing non-management duties, meaning they were not “primarily engaged” in performing management duties.

So, what is the point?

Here’s the point. Unless and until California law changes, it is imperative to remember that under California law, the determination of whether an employee qualifies for the executive exemption depends first and foremost on how the employee actually spends his/her time at work.