Court of Appeal Rejects Employee’s Claim That He is a Nonexempt Employee

In re United Parcel Service Wage and Hour Cases, (— Cal.Rptr.3d —-, Cal.App. 2 Dist., December 9, 2010), a court of appeal considered whether a United Parcel Service, Inc. (“UPS”) employee is a nonexempt employee and thus entitled to overtime compensation and penalties for missed meal and rest periods. The court of appeal held the employee is an exempt and administrative employee who is not entitled to overtime payments and other benefits that are afforded to nonexempt employees.


David Taylor (“Taylor”) has been employed by UPS since 1979. During his time with UPS, Taylor has held the position of air hub full-time supervisor, on-road supervisor, and most recently, center manager. In all of these positions, Taylor often worked as many as 10 to 12 hours per day, skipped breaks, and took “working lunch[es]” by eating a sandwich at his desk and continuing to work through his lunch break. All three positions are salaried and Taylor has been paid more than double California’s minimum wage in each position. Taylor has also received annual stock awards through a management incentive program and annual bonuses equal to one-half of his monthly salary. UPS’s nonexempt hourly employees are not eligible to receive stock awards through the management incentive program. In each of his three positions, Taylor “supervised numerous hourly employees and lower-level full- and part-time supervisors.”

Taylor filed a lawsuit against UPS in which he sought to recover unpaid overtime compensation and penalties for both missed rest periods and meal periods. UPS filed a motion for summary judgment on the grounds that Taylor is an exempt executive and administrative employee who is not entitled to overtime pay and other related benefits that are afforded to nonexempt employees. The trial court granted summary judgment in favor of UPS.


The court of appeal held the trial court correctly granted summary judgment in favor of UPS. The federal Fair Labor Standards Act does not preempt state law that gives greater protection to employees. “In many respects, California law provides broader protection of employee rights, and in such instances, California law controls.” Workers in California are entitled to overtime compensation if they work in excess of eight hours per day or 40 hours per week unless they fall within an exemption. The Industrial Welfare Commission (“IWC”) has promulgated numerous wage orders, including Wage Order No. 9-2001 (“Wage Order 9”), which governs workers in the transportation industry. Workers who are employed in a professional, administrative, or executive capacity are exempt from the provisions of Wage Order 9 that address overtime compensation, rest and meal periods, and related record -keeping requirements. An employer who claims that an employee is exempt bears the burden of proving the exemption.

In order to show Taylor was exempt as an executive employee, UPS was required to prove all of the following elements: (1) Taylor’s “duties and responsibilities involve management of the enterprise or a ‘customarily recognized department or subdivision thereof;’” (2) Taylor regularly and customarily directed the work of two or more employees; (3) Taylor had “the authority to hire or terminate employees, or his suggestion as to hiring, firing, promotion or other changes in status are given ‘particular weight;’” (4) Taylor regularly and customarily exercised independent judgment and discretion; (5) Taylor was “primarily engaged in duties that meet the test of the exemption;” and (6) Taylor’s “monthly salary is equivalent to no less than two times the state minimum wage for full-time employment.” There is no dispute that Taylor met the second and sixth elements.

The court held that the first element was met because Taylor managed a recognized department or subdivision. The court found “that a shift of specific workers, performing the same primary function as a permanent unit operating within a larger organizational structure, and recognized and supervised as such within that organization, constitutes a customarily recognized ‘department or subdivision’ within the meaning of Wage Order 9.” The court held that in all three positions, “Taylor supervised a specific, identifiable group of employees who performed a regular set of specific tasks for a designated geographic region within permanent units.”

The court found that Taylor was primarily engaged in management-related duties. The phrase “primarily engaged” under California law means that “‘more than one-half of the employee’s worktime’ is spent performing duties that qualify as exempt.” Management work is not only actual management of a department and supervision of employees “but also activities that are closely associated with the performance of . . . such managerial and supervisory functions or responsibilities.” Taylor’s primary duties in all three positions at UPS involved managing and supervising a defined unit of employees. Taylor conceded that he did not perform nonexempt hourly work, except that “he occasionally assisted a driver who was behind with package delivery” and once “a union grievance was filed against him for placing several packages on a sorting belt.”

Although Taylor did not participate in initial hiring decisions, he participated in promoting and discharging employees. “Wage Order 9 by its plain language does not require an exempt executive to have the ultimate authority to hire, fire or alter the job status of supervised employees.” The court concluded that UPS proved that the third element was met.

The court also concluded UPS proved the fourth element which requires that Taylor exercise discretion and independent judgment. On a daily basis, Taylor was responsible for making numerous discretionary decisions that impacted how the numerous employees who he supervised performed their jobs. Taylor argued that this element was not met because his “decisionmaking was dictated by stringent UPS procedures and methods.” The court stated, “While we agree an employee constrained by stringent protocols mandating a particular outcome to routine tasks would not be exercising discretion of the type contemplated by Wage Order 9, merely because an employer requires adherence to regulations, guidelines or procedures does not mean an executive does not exercise discretion or judgment.” The court concluded “that where government regulations or internal employer policies simply channel the exercise of discretion and judgment, as opposed to eliminating it entirely or otherwise constraining it to a degree where any discretion is largely inconsequential, the executive exemption may still apply.”

The court concluded the undisputed evidence showed that Taylor was an executive employee who was properly classified as exempt. Therefore, the trial court properly granted summary judgment in favor of UPS.

The court also found that summary judgment was properly granted to UPS on the ground that an administrative exemption applies in this case. In order to prove an administrative employee exemption, UPS was required to show each of the following: (1) Taylor’s “duties and responsibilities involve the performance of office or nonmanual work directly related to management policies or general business operations of UPS;” (2) Taylor regularly and customarily “exercises discretion and independent judgment;” (3) Taylor “performs work requiring special training, experience, or knowledge under general supervision only;” (4) Taylor’s “is primarily engaged in duties that meet the test of [the] exemption;” and (5) Taylor’s “monthly salary is equivalent to no less than two times the state minimum wage for full-time employment.” There was no dispute that the fifth element was met because Taylor did not dispute that he earns more than twice the state minimum wage. Also, Taylor did not raise any argument on appeal on the issue of the general supervision element and therefore forfeited any claim of error on this ground.

The court rejected Taylor’s argument that he was a production level employee who was not primarily engaged in duties that are directly related to UPS’s management policies or general business operations. The evidence shows that the “majority of Taylor’s regular job functions were administrative in nature.” He was not regularly engaged in the production level of the UPS system. Taylor did not participate in the delivery of packages or the loading, unloading, or sorting of packages. Instead, Taylor implemented policy and action plans to promote efficiency so that his units worked smoothly with other UPS units and he “trained, audited and supervised his employees to promote workplace safety and timely package delivery; and dealt with customers and union officials to promote positive customer and employee relations with management.” The court found that “[t]hese job functions can only reasonably be characterized as related to the running of UPS’s general business operations.”

The court found its analysis of the exercise of discretion and independent judgment element in regard to the executive exemption also applies to the administrative exemption. The court held UPS proved all of the required elements of the administrative exemption and properly classified Taylor as an exempt administrative employee.


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