Retail Manager for ‘Lightly Staffed' Stores In California Has Misclassification Claims

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By Lisa Nagele-Piazza

April 13 — A former retail manager for clothing shops located in fitness centers in California raised triable issues about whether he was misclassified as an exempt executive under state law and due additional wages, a federal judge ruled April 10.

Denying summary judgment to Equinox Holdings Inc., Magistrate Judge Laurel Beeler of the U.S. District Court for the Northern District of California found that Joseph Smith presented a genuine factual dispute about the amount of time he spent performing nonexempt duties. He also raised a genuine dispute as to whether the corporate office's level of control and supervision limited his use of discretion and independent judgment, the court said.

Equinox argued that, if Smith engaged in the amount of nonexempt activities he contends, then he wasn't performing the work he was hired to do and therefore can't “shunt himself into non-exempt status.” But Smith testified that the stores were “small and lightly staffed,” which made it unavoidable for him to perform nonexempt tasks. Thus, a jury must decide whether the company had realistic expectations and whether Smith's practices diverged from those expectations, the court said.

Dispute About Discretion, Independent Judgment

From 2008 through 2013, Smith worked as a manager for three retail shops in California that sell workout clothing in Equinox fitness facilities. According to the case record, Smith's duties included hiring, coaching and training sales associates and on-duty managers, loss prevention and inventory management, and product presentation. Smith was also responsible for ensuring that the stores followed corporate policies with regard to marketing, merchandising, dress code, and other organizational standards.

Equinox terminated Smith's employment in December 2013 for allegedly “ringing up his own sales and giving unauthorized discounts.” Thereafter, Smith filed a multicount complaint in federal court alleging, among other things, that Equinox improperly classified him as an exempt employee and denied him benefits such as overtime compensation.

Equinox moved for summary judgment, maintaining that Smith was an exempt executive.

To show that Smith was an exempt executive under California law, Equinox must demonstrate he customarily and regularly exercised discretion and independent judgment, the court said.

Smith argued that even though he was a district manager, he had “minimal authority and discretion over his work” because he had to obtain approval from the corporate office on most decisions.

Smith contended that he had no input into his stores' budgets and didn't have authority to determine the labor hours that were allocated to his stores. He also said the corporate office directed him in managing, merchandising, and “how to clean and maintain” the shop.

An employee who simply applies his knowledge in following prescribed procedures or in deciding which procedure to follow isn’t exercising discretion and independent judgment, the court explained. “That said, a regulated workplace does not rule out independent judgment,” it added.

Thus, “the court cannot say as a matter of law that Mr. Smith did or did not regularly exercise discretion and independent judgment within the meaning of the executive exemption,” the court held.

Manager Says ‘Primarily Engaged' in Nonexempt Work

The court also found a genuine issue of material fact as to whether Smith was “primarily engaged” in exempt work.

“Under California law, the phrase ‘primarily engaged' means ‘more than one-half of the employee's worktime' is spent performing duties that qualify as exempt,” the court said.

Smith contended that the stores were minimally staffed, and thus, he spent most of his time doing the same work as nonexempt sales associates, such as stocking shelves, folding merchandise and ringing up customer sales.

But the company said that nonexempt associates' percentage of total sales contribution is generally the same as the percentage of the total operating hours that they worked. For example, the company said, “an associate who works 60% of the hours in a given shop will ring up 60% of sales.” Equinox argued that Smith’s “register history” during his tenure shows that he only “rang up” 3 percent of sales in his shops, and this implies he wasn’t engaged primarily in nonexempt work.

“If it proves true, that would indeed be a striking fact,” the court said. “With or without it, though, Mr. Smith's own testimony raises a factual issue on this point that the court cannot decide as a matter of law,” it held.

Minami Tamaki LLP represented Smith. Jackson Lewis PC represented Equinox.

To contact the reporter on this story: Lisa Nagele-Piazza in Washington at lnagele@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com

Text of the opinion is available at http://www.bloomberglaw.com/public/document/Smith_v_Equinox_Holdings_Inc_et_al_Docket_No_314cv00846_ND_Cal_Fe/1.