California Restaurant Manager Not Entitled to Overtime Pay

A restaurant manager was an executive employee as defined by California law and therefore was not entitled to overtime compensation, the California Court of Appeal ruled. Most of the employee's duties were exempt managerial tasks and although the worker spent some time performing nonexempt tasks, that time amounted to less than 50 percent of his workweek, the court said.

From December 2008 to December 2012, Geraldo Ramirez managed two restaurants owned by Vipul Mehta and his wife Sushma Mehta. Ramirez worked 50 hours a week, splitting his time between the two restaurants. He received a $43,000 salary.

Ramirez's daily duties included counting cash, entering daily sales information, making daily bank deposits, writing checks, placing food orders, buying produce, marketing, preparing and delivering catering orders, and working the register. He was also required to prepare food and serve customers because the restaurants were understaffed.

The Mehtas sold one of the restaurants in December 2012. According to Ramirez, he was fired at that time, but the Mehtas claimed that Ramirez declined an offer of continued employment for less pay at the remaining restaurant.

One week after he ceased working for the Mehtas, Ramirez filed a lawsuit seeking unpaid overtime compensation. The trial court rejected Ramirez's claim, finding that, according to the executive exemption under California law, he was not entitled to overtime pay.

[SHRM members-only HR Q&A: What is the difference between California overtime exemption requirements and federal overtime exemption requirements?]

Ramirez appealed the trial court's ruling.

Six Components of Executive Exemption

California Labor Code section 515 authorizes the Industrial Welfare Commission to establish exemptions from the overtime compensation requirements for executive, administrative and professional employees. Wage Order No. 5-2001 governs overtime exemptions for restaurants. The executive exemption has six components:

• The employee's duties and responsibilities involve the management of the business.
  
• The employee directs the work of two or more other employees.
  
• The employee has the authority to hire or fire other employees.
  
• The employee exercises discretion and independent judgment.
  
• The employee earns a monthly salary not less than twice the state minimum wage.
  
• The employee is primarily engaged in managerial duties.
  

The trial court found that Ramirez primarily performed tasks falling within the exemption, noting that he directed the work of others, was authorized to hire and fire, customarily and regularly exercised independent judgment, and regularly and directly assisted the owners. Ramirez was paid a salary more than twice the minimum wage.

Although Ramirez did perform some nonexempt tasks, such as serving customers, the time spent on these activities was less than half of his work time, and so he was primarily engaged in managerial duties, the trial court found.

At issue on appeal were the first and sixth components of the executive exemption, the appellate court noted.

Ramirez argued that making bank deposits, inputting sales data, paying bills, calculating employee hours for payroll purposes, handling inventory, ordering supplies and marketing were not managerial functions. The appellate court disagreed, however, concluding that all of those tasks were directly related to managing the restaurants and contributed to the smooth functioning of the businesses. Furthermore, the tasks were all assigned to the manager and not performed by nonexempt employees.

The appeals court also noted that the evidence showed that Ramirez spent approximately 20.25 hours per week out of his 50-hour workweek performing nonexempt work. This was less than the "more than half" required to change Ramirez's status to nonexempt.

The court affirmed the trial court's decision that Ramirez was not entitled to overtime pay.        

Ramirez v. ISB Mehta Corp., Calif. Ct. App., No. H042072 (Feb. 27, 2017).

Professional Pointer: Assigning nonmanagerial tasks to managers, particularly if a business is short-staffed, may seem like a good way to manage limited resources. However, if the managers perform these tasks regularly and spend significant time doing so, they may no longer be considered exempt executive employees and may be owed overtime pay if they are working more than 40 hours a week.

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.

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