The California Supreme Court handed workers a major victory Monday, in effect tripling the back pay they can seek if they are forced to work through meal and rest breaks required by state law.
The long-awaited decision affects hundreds of thousands of white-collar workers in industries such as retail, food service, insurance and banking who are called managers or assistant managers but who spend much of their day ringing up sales, stocking shelves or sweeping the floor alongside the workers they oversee.
Class-action lawsuits by employees seeking back pay for overtime and missed breaks have risen dramatically over the last decade, and lawyers predicted that Monday's ruling would encourage more suits and possibly lead another attempt to change labor laws and regulations.
Many of the past and pending claims have targeted major employers, involving thousands of current and former employees. Most eventually settle, with employers typically paying millions of dollars to avoid the prospect of even bigger losses at trial.
In November, IBM Corp. agreed to pay $65 million to settle claims that it illegally denied overtime pay to 32,000 computer technicians. Previous settlements by Allstate Corp., RadioShack Corp., Bank of America Corp., Smart & Final Inc. and Rite-Aid Corp. centered on employee claims that they were misclassified as managers so their employers could avoid paying overtime.
"This is the single biggest area of employment litigation today and California is the leader, for better or worse," said Christopher Ruiz Cameron, who teaches labor and employment law at Southwestern Law School. "Some employers would say we're terribly overregulated. But plain fact is that most of [the regulations] aren't enforced."
The Supreme Court's decision settles years of contradictory lower court rulings over the interpretation of legislation passed in 1999 and 2000; the decision allows employees who claim violations to recover lost wages as far back as three years instead of one. Employers argued for the one-year standard.
The court said its decision was "consistent with our prior holdings that statutes regulating conditions of employment are to be liberally construed with an eye to protecting employees."
The implications are "exponentially huge," said Donna Ryu, who teaches at Hastings College of Law in San Francisco and represented John Paul Murphy, the employee at the heart of this case. "Employers tried to basically argue for a two-year free ride on the backs of employees, thereby trying to get out of two years of liability."
The decision means that "now employees will be fully compensated when employers break the law," Ryu said.
Although he was the manager for the upscale Kenneth Cole clothing store in San Francisco, Murphy spent most of his nine-to-10-hour days covering the sales floor, processing markdowns and emptying the garbage, according to the court decision.
His supervisory title meant that Murphy was exempt from state rules requiring that he get an uninterrupted meal break and periodic rest breaks during his shift.
Murphy, who worked for the retailer from June 2000 until he quit in June 2002, would try to eat lunch while he checked office e-mail and voicemail, the justices wrote.
He said he rarely if ever had the opportunity to take a break and, on occasion, was unable to duck into the restroom.
California law is stricter than that of most states, requiring that employees get a 30-minute, unpaid meal break for every five hours worked and a 10-minute, paid rest break for every four hours worked. There is no required lunch break under federal law.
In addition, overtime pay kicks in for California workers after they've worked more than eight hours a day; federal regulations require time-and-a-half pay only if an employee works more than 40 hours during an entire workweek.
Kenneth Cole classified Murphy as an "exempt" employee; the status is intended for professionals, such as physicians or certified public accountants; outside sales representatives; and managers who spend half or more of their time on supervisory duties, according to state labor regulations.
After he left the company, Murphy filed a claim with the state labor commissioner, who agreed he was misclassified and entitled to overtime pay for shifts he worked beyond eight hours.
When Kenneth Cole challenged the commissioner's ruling in court, Murphy added claims for missed meal and rest breaks, which the trial court upheld. Monday's Supreme Court decision reversed an appellate court ruling in the company's favor.
The decision entitles Murphy to two years of back pay, the period of his employment at Kenneth Cole.
San Francisco attorney Robert Tollen, who represented Kenneth Cole, said he was "very disappointed" by the ruling, adding that the high court's action "creates a huge liability for employers across the state."
Lawyers for both sides agreed that the decision settles the back-pay question with little chance of federal court review.
But employers remain confused about how exactly they should ensure their employees get the required breaks, said Vince Sollitto, spokesman for the California Chamber of Commerce.
Business groups may try to push the Legislature to simplify the rules by aligning state law more closely with federal overtime rules, predicts Mark Schickman, a San Francisco attorney who represents employers.
Gov. Arnold Schwarzenegger issued emergency regulations in 2004 allowing workers to voluntarily waive their meal break in exchange for leaving work early. But withering criticism from labor groups, who complained that employers would pressure low-paid employees into giving up their lunch hours, forced the governor to withdraw the regulations after 10 days. Schwarzenegger tried again in 2005 but later abandoned the effort.
But Cameron dismisses that possibility. "As long as Democrats control both houses, it ain't gonna happen. That is the third rail of labor politics."