Opinion
F073753 F074361
08-01-2018
WARREN K. DAVIS, Plaintiff and Respondent, v. KOMOTO PHARMACY, INC., Defendant and Appellant.
Sagaser, Watkins & Wieland, Howard A. Sagaser, Ian B. Wieland and Allie E. Wieland for Defendant and Appellant. Strauss & Strauss and Michael Strauss for Plaintiff and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. CV278546)
OPINION
APPEAL from a judgment of the Superior Court of Kern County. David R. Lampe, Judge. Sagaser, Watkins & Wieland, Howard A. Sagaser, Ian B. Wieland and Allie E. Wieland for Defendant and Appellant. Strauss & Strauss and Michael Strauss for Plaintiff and Respondent.
-ooOoo-
INTRODUCTION
Warren K. Davis (Davis) brought suit against his former employer, Komoto Pharmacy, Inc. (Pharmacy), for wrongful termination, failure to pay overtime wages, and unfair business practices under Business and Professions Code section 17200, and failure to provide properly itemized wage statements under Labor Code section 226. After a bench trial, the court found in favor of Davis with respect to his claims of unpaid overtime, but denied the other three claims.
Pharmacy appealed the judgment, claiming that the court erred in finding Davis was not subject to the "executive exception" and therefore an exempt employee not subject to overtime laws. Davis responded and filed a cross-appeal, asserting that the court erred in denying his unfair competition law claim (Bus. & Prof. Code § 17200 et seq.; UCL) in light of the court's finding that Pharmacy failed to pay Davis overtime wages.
As the court's rulings with regard to the wrongful termination and wage statement claims are not challenged on appeal, we will focus our discussion and description of the relevant facts relating to the overtime wage and UCL claims at issue.
We affirm the judgment as to Davis's overtime wages. We reverse as to the UCL claim, but remand for the trial court to consider an appropriate remedy, if any, including whether and how to apply equitable defenses in its shaping.
FACTUAL BACKGROUND
Davis was employed as a pharmacist-in-charge of Pharmacy from 2002 until his termination on November 6, 2012. The role of pharmacist-in-charge is to ensure that the company is complying with state pharmacy laws and, as such, employees must follow his or her directions. As pharmacist-in-charge, Davis was required to fill out the Board of Pharmacy's self-assessment form and document if the pharmacy is operating illegally. Pharmacy viewed the pharmacist-in-charge as a pharmacy manager and part of the management team. Davis managed around 8 to 12 employees at the Pharmacy in his position as pharmacist-in-charge.
Davis performed duties that were managerial in nature, as well as other duties substantially similar, if not identical, to those performed by nonsupervisory, staff pharmacists. Pharmacy law requires a staff pharmacist to supervise a pharmacy technician who is filling prescriptions. The pharmacist has to verify the accuracy and appropriateness of the prescription. In that role, the staff pharmacist, even though not considered a managerial employee, has supervisory authority over the technicians working with him or her to ensure that the pharmacy is acting within the scope of the pharmacy laws. Pharmacy explained that it treated staff pharmacists as hourly employees, including paying overtime wages.
It is undisputed that Davis performed routine tasks, including many of the same tasks as the staff pharmacists such as checking prescriptions and refills, answering phones, talking to doctors and patients, ordering drugs, putting away orders, greeting customers, taking out trash and vacuuming the floor. While both the staff pharmacist and a pharmacist-in-charge may review the prescriptions that are filled by the technicians, it is the primary duty of a staff pharmacist to check the prescriptions.
Davis testified that he spent 95 percent of his workday doing "pharmacy work"—filling prescriptions, consulting with patients, checking prescriptions, ordering drugs, greeting customers at the counter, and talking with doctors' offices, insurance companies, and patients on the phone. Although Davis conceded that he also performed managerial duties, he was reluctant to perform some of them and his reluctance was an issue of discussion that would arise during evaluations and other conversations with Davis's supervisors.
Multiple employees observed that Davis spent significant time performing similar tasks as the staff pharmacists. One staff pharmacist observed Davis counseling patients, standing at the prescription-filling counter, checking and verifying prescriptions, and standing at the drug inventory computer. However, he did not know exactly what Davis was doing at those locations or where he was located at any particular time. A vice president of Pharmacy approximated that Davis spent half of his time filling prescriptions. When Davis was working in his office, the vice president did not know how long he was working or what he was doing. However, a second pharmacy technician observed the staff pharmacist put medicine in the containers (i.e., fill, as opposed to check, prescriptions) the majority of the day and Davis put medicine in containers roughly 10 percent of the day. She stated that she often observed Davis on the floor of Pharmacy, checking prescriptions and doing the same activities as the staff pharmacists. Another employee observed that on a normal workday, Davis spent about 60 to 70 percent of his workday on his feet at Pharmacy's counter. Even though the employee was aware that Davis had to complete reports and do other managerial tasks, she observed that he primarily was filling prescriptions. Only one of the pharmacy technicians testified that Davis would usually stay in his office most of the day.
Scott Preston (Preston) was formerly employed by Pharmacy as its vice president of retail operations and was Davis's direct supervisor. He was a licensed pharmacist and had worked in the past as a pharmacist-in-charge. Preston observed Davis spent 80 percent of his time outside of his office. Preston explained that Davis was involved with inventory and purchasing, along with annual evaluations for the technicians and the clerks. However, Preston testified that Davis was reluctant to take on human resource issues, had difficulties delegating, and would not always follow through on those duties. Davis performed some managerial tasks, such as creating policies, conducting audits, training, reporting to the State Board of Pharmacy, and writing employee evaluations, but those activities were performed sporadically. In addition to managerial duties, Preston admitted that Davis also filled prescriptions, answered phones and helped customers.
Davis worked with Preston to draft memos to the staff regarding managerial issues. Davis also held staff meetings to discuss management issues with employees. Davis led morning meetings every day with the pharmacy technicians. While Davis was the pharmacy technicians' immediate supervisor, technicians would bring management complaints and requests for time off to other supervisors. Staff could go to at least three other managers besides Davis with personnel issues.
Pharmacy did not keep time records for when Davis clocked in and out each day and his pay stubs did not show the number of hours worked each pay period. Nor did other Pharmacy records indicate how many hours per day or per week Davis was working during the last four years of his employment.
The defense offered into evidence Pharmacy's job description of the pharmacist-in-charge position, setting forth tasks assigned including, but not limited to, responsibility for the day-to-day operations of Pharmacy, ensure staff is providing safe and efficient pharmaceutical services to customers, maintain pharmacy practice standards as required by state and federal law, and hire and develop staff. There is no specific mention of the pharmacist-in-charge checking and filling prescriptions or performing other routine tasks, including customer service.
The defense also placed into evidence various evaluations for Davis covering the relevant time periods. These evaluations reflect that one of Davis's strengths was customer service. A continual theme regarding the evaluations generally was to improve Davis's ability to get along with and manage employees and delegate responsibility to others, although no detail is provided. None of them reflect any specific admonishment for spending too much time checking or filling prescriptions or engaging in customer service activities.
A prescription tracking log summary for Pharmacy was provided for the period of November 21, 2011, through November 6, 2012. According to the computer records, during that period, the staff pharmacist reviewed 38,636, or 58 percent of the total prescriptions. During the same time period, Davis reviewed 17,752, or 26 percent of the total prescriptions.
PROCEDURAL HISTORY
Following a bench trial, the court found in favor of Davis with respect to the overtime claims and awarded him the aggregate amount of $79,341.32 in damages based on unpaid overtime premiums and the applicable interest. In finding that Pharmacy did not prove its affirmative defense, the court held that Pharmacy had the burden of proving Davis's exempt status and failed to do so. The court explained in its statement of decision:
"[Pharmacy] has failed to meet its burden that more than 50% of Davis's time was engaged in exempt duties. [Pharmacist]'s witnesses conceded that Davis performed nonexempt duties such as filling and checking prescriptions, answering phones, attending to ordinary customer service, and the like. A task is either exempt or nonexempt. The defendant has the burden of quantifying the exception, and [Pharmacy] has not done so here. (Heyen v. Safeway, Inc. (2013) 216 Cal.App.4th 795.) The defense witnesses also conceded that Davis worked sometimes more than eight hours in a day and more than 40 hours in a week. The court also finds it to be true that frequently Davis worked less than eight hours in a day and less than 40 hours in a week. However, the facts and law do not support that Davis's overtime was offset by compensating time off, since this was not a policy of the company and there was no such agreement in writing.
"Davis is therefore entitled to some overtime pay which he did not receive."
Although the court found in Davis's favor with regard to his overtime claim, the court also found that Davis was not a credible witness. The court found that Davis was evasive when answering questions. Rather than answer questions in a straightforward manner, he would manipulate his testimony to his advantage. The court did not find the amount of time that Davis estimated he worked each week was accurate, and therefore had to rely on imprecise evidence to find that 15 hours of overtime a month was a fair estimate.
With regard to the UCL claim, the court determined that the facts as presented and determined by the court did not support a finding of an unlawful business practice under Business and Professions Code section 17200. The court held that the failure to pay Davis overtime was made in good faith based on its genuine belief, and the potentially correct assumption, that Davis was an exempt employee and therefore the failure to pay was not an unfair business practice as envisioned by the UCL.
After trial, Davis moved for an award of attorney fees, which the court granted in the amount of $45,000. The court then issued an amended judgment in favor of Davis in the amount of $140,902.47, accounting for the attorney fees, costs, and additional interest.
Pharmacy appealed the judgment, contending that the court erred in applying the wrong legal standard in determining Davis was a nonexempt employee entitled to overtime and that the court erred in finding that Pharmacy failed to meet its burden of showing that Davis spent the majority of his time performing exempt, managerial tasks. Davis filed an opposition to the appeal as well as a cross-appeal, asserting that the court erred in denying his UCL claim because equitable defenses such as good faith do not defeat that claim. (See Bus. & Prof. Code, § 17200 et. seq.)
DISCUSSION
Pharmacy raises four principal arguments on appeal. First, it contends that the trial court erred as a matter of law by failing to examine the purpose with which Davis performed certain tasks, most notably, checking prescriptions, to determine whether the activity was exempt. (Heyen v. Safeway Inc. (2013) 216 Cal.App.4th 795, 822-823 (Heyen).) Second, Pharmacy argues the trial court erred in not examining the realistic expectations of the employer when determining if activities performed by Davis were exempt. (See Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 801-802 (Ramirez).) Third, Pharmacy argues that the court erred in determining that Pharmacy failed to meet its burden of quantifying the percentage of time Davis spent performing exempt tasks. Finally, Pharmacy contends that the court erred in preventing Pharmacy's new pharmacist-in-charge from testifying.
In response, Davis contends that Pharmacy waived its right to raise the exemption defense because it was not raised in Pharmacy's answer, and presents a cross-appeal, claiming the trial court erred in denying his UCL claim.
I. Overview of the Executive Exemption
Under California law, employees are entitled to overtime pay for any work in excess of eight hours in one workday, or 40 hours in any one workweek, unless the employee qualifies for a statutory exemption from the state's overtime laws. (Lab. Code, §§ 510, 515; Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 324.) In light of the remedial nature of laws regulating the wages, hours, and working conditions of employees, "exemptions from statutory mandatory overtime provisions are narrowly construed." (Ramirez, supra, 20 Cal.4th at p. 794.)
Pharmacy notes that on April 2, 2018, the United States Supreme Court issued Encino Motorcars LLC v. Navarro (2018) ___ U.S. ___ [138 S.Ct. 1134, 1142], in which it determined that exemptions under the Fair Labor Standards Act of 1938 (29 U.S.C.S. § 201 et seq.; FLSA) should be given a fair reading rather than be narrowly construed. However, California law still requires exemptions to be narrowly construed. (Nordquist v. McGraw-Hill Broadcasting Co. (1995) 32 Cal.App.4th 555, 562 [noting that certain overtime exemptions in California are different or construed more narrowly than the federal standards].)
Additionally, because "the assertion of an exemption from the overtime laws is considered to be an affirmative defense, ... the employer bears the burden of proving the employee's exemption." (Ramirez, supra, 20 Cal.4th at pp. 794-795.)
A. California's Wage Order No. 7-2001 and the Executive Exemption
California's Industrial Welfare Commission (IWC) promulgated Wage Order No. 7-2001, codified at California Code of Regulations, title 8, section 11070 (Wage Order 7), to regulate the wages, hours, and working conditions in the mercantile industry. Wage Order 7 generally requires employers to pay overtime compensation to employees (id., subd. 3(A)), but exempts from this requirement "persons employed in administrative, executive, or professional capacities" (id., subd. 1(A)). This case concerns only the executive exemption because pharmacists are statutorily excluded from the professional exemption (Lab. Code, § 1186), and Pharmacy has raised no issue regarding the administrative exemption.
"A person employed in an executive capacity means any employee: [¶] (a) Whose duties and responsibilities involve the management of the enterprise in which he/she is employed or of a customarily recognized department or subdivision thereof; and [¶] (b) Who customarily and regularly directs the work of two or more other employees therein; and [¶] (c) Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight; and [¶] (d) Who customarily and regularly exercises discretion and independent judgment; and [¶] (e) Who is primarily engaged in duties which meet the test of the exemption...." (Cal. Code Regs., tit. 8, § 11070, subd. 1(A)(1).)
There is no material dispute in this appeal that Davis performed some activities that meet the criteria of California Code of Regulations, title 8, section 11070, subdivision 1(A)(1)(a)-(d). We focus our analysis on the grounds of appeal arising from subdivision 1(A)(1)(e) of section 11070, which concerns whether the employee is "primarily engaged" in exempt activity. The term "[p]rimarily" is defined in Wage Order 7 as "more than one-half of the employee's work time." (Cal. Code Regs., tit. 8, § 11070, subd. 2(K).)
B. The Ramirez Factors and California's Quantitative Approach
In Ramirez, the California Supreme Court considered the appropriate method of analyzing the exemption from the state's overtime laws. The Court held that the governing IWC Wage Order "incorporate[d] a quantitative method for determining whether an employee is an outside salesperson that differs in some respect from the qualitative method employed under federal law." (Ramirez, supra, 20 Cal.4th at p. 798.) The Court noted that "[t]he IWC's distinct approach to defining categorical overtime exemptions can also be illustrated in its treatment of the exemption for administrative, executive, and professional employees." (Ibid., fn. 4.)
"Unlike the corresponding federal provision, California's wage order definition ... focuses exclusively on whether the employee spends more than half of the workday engaged in sales activities outside the office." (Duran v. U.S. Bank National Assn. (2014) 59 Cal.4th 1, 26, italics added (Duran).) "The exemption requires scrutiny of both the job description and an employee's own work habits." (Ibid.) The trial court must inquire "'first and foremost, how the employee actually spends his or her time.'" (Ibid.) Ancillary questions include "'whether the employee's practice diverges from the employer's realistic expectations, whether there was any concrete expression of employer displeasure over an employee's substandard performance, and whether these expressions were themselves realistic given the actual overall requirements of the job.'" (Ibid.)
"No bright-line rule can be established classifying everyone with a particular job title as per se exempt or nonexempt ...." (United Parcel Service Wage & Hour Cases (2010) 190 Cal.App.4th 1001, 1015 (United Parcel Service).) Thus, even though "[e]mployers often treat all workers within a job position as either exempt or nonexempt," in reality, "exemptions frequently depend on how individual employees perform their jobs." (Duran, supra, 59 Cal.4th at p. 25.)
In this case, the trial court expressly held that Pharmacy failed its burden to prove that Davis spent more than 50 percent of his time engaged in exempt activity.
C. The Applicable Federal Regulations and Nature of Exempt Work
Wage Order 7 states that the activities constituting exempt work and nonexempt work shall be construed in the same manner as such activities are construed in certain regulations in effect as of January 1, 2001, under the FLSA, specifically title 29 of the Code of Federal Regulations, part 541.102, and former parts 541.104-111 and 541.115-116. (Cal. Code Regs., tit. 8, § 11070, subd. 1(A)(1)(e).)
All further undesignated part (regulation) references are to title 29 of the Code of Federal Regulations.
The applicable federal regulations define exempt work performed by a bona fide executive employee as including "[i]nterviewing, selecting, and training of employees; setting and adjusting their rates of pay and hours of work; directing their work; maintaining their production or sales records for use in supervision or control; appraising their productivity and efficiency for the purpose of recommending promotions or other changes in their status; handling their complaints and grievances and disciplining them when necessary; planning the work; determining the techniques to be used; apportioning the work among the workers; determining the type of materials, supplies, machinery or tools to be used or merchandise to be bought, stocked and sold; controlling the flow and distribution of materials or merchandise and supplies; providing for the safety of the men and the property." (§ 541.102(b) (2000).)
As we shall explain post, while these federal regulations are incorporated in Wage Order 7 and provide guidance in evaluating the nature of the employee's activities, they do not supplant California's quantitative approach.
The federal regulations further provide that "exempt work [includes] not only the actual management of the department and the supervision of the employees therein, but also activities which are closely associated with the performance of the duties involved in such managerial and supervisory functions or responsibilities. The supervision of employees and the management of a department include a great many directly and closely related tasks which are different from the work performed by subordinates and are commonly performed by supervisors because they are helpful in supervising the employees or contribute to the smooth functioning of the department for which they are responsible...." (§ 541.108(a) (2000).)
These federal regulations caution, however, that in some cases it may be difficult to distinguish between "managerial type" functions and "production operation" functions and that, if production work "takes up a large part of the employee's time[,] it would be evidence that management of the department is not the primary duty of the employee, [and] that such work is a production operation rather than a function directly and closely related to the supervisory or managerial duties ...." (§ 541.108(g) (2000), italics added.)
"Several general principles emerge from these regulations. First, work of the same kind performed by a supervisor's nonexempt employees generally is 'nonexempt,' even when that work is performed by the supervisor. If such work takes up a large part of a supervisor's time, the supervisor likely is a 'nonexempt' employee. [Citations.] [¶] Second, the regulations do not recognize 'hybrid' activities—i.e., activities that have both 'exempt' and 'nonexempt' aspects. Rather, the regulations require that each discrete task be separately classified as either 'exempt' or 'nonexempt.' [Citations.] [¶] Third, identical tasks may be 'exempt' or 'nonexempt' based on the purpose they serve within the organization or department. Understanding the manager's purpose in engaging in such tasks, or a task's role in the work of the organization, is critical to the task's proper categorization. A task performed because it is 'helpful in supervising the employees or contribute[s] to the smooth functioning of the department' is exempt, even though the identical task performed for a different, nonmanagerial reason would be nonexempt. [Citation.] [¶] Finally, in a large retail establishment where the replenishing of stocks of merchandise on the sales floor 'is customarily assigned to a nonexempt employee, the performance of such work by the manager or buyer of the department is nonexempt.' [Citation.] Similarly, in such a large retail establishment, a manager's participation in making sales to customers is nonexempt, unless the sales are made for 'supervisory training or demonstration purposes.'" (Heyen, supra, 216 Cal.App.4th at pp. 822-823.)
The evidence here is that Davis spent considerable time engaged in tasks that would be considered nonexempt absent a showing of the managerial purposes for which they were utilized.
D. California Does Not Follow the Federal Primary Function Test to Determine Whether an Employee is Exempt
In Heyen, the court examined the federal regulations incorporated in Wage Order 7 and analyzed the "'outside salesperson'" exemption (former § 541.505(a) (1998)). Relevant here, the court found that under federal regulations, the exemption "'focuses on defining the employee's "primary function," not on how much work time is spent selling....'" (Heyen, supra, 216 Cal.App.4th at pp. 823-824.) The Heyen court explained, "'[i]n other words, so long as it can be shown that the individual's chief duty or primary function is making sales, then every activity in any way incidental to sales may be funneled into the exempt category.'" (Id. at p. 824.) Pharmacy urged at oral argument that the federal primary function test should be applied in this case, relying on Heyen. If the federal test applied and Davis's primary function was to manage, then his checking and other routine activities "'may be funneled into the exempt category.'" (Ibid.)
Pharmacy's contention at oral argument that this court should apply the federal primary function test varies from the proposition in its briefs that the trial court failed to classify each of Davis's activities as exempt or nonexempt based upon the purpose for which they were performed.
The Heyen court, however, relied on the California Supreme Court in Ramirez and rejected application of the "'primary function test.'" "Wage Order 7-80 'makes no mention of the primary function for which the person is employed. Rather, the state regulation takes a purely quantitative approach, focusing exclusively on whether the individual "works more than half the working time ... selling ... or obtaining orders or contracts." (Wage Order No. 7-80, 2(I).)' (Ramirez, supra, 20 Cal.4th at p. 797.) By choosing not to track the language of the federal exemption and instead adopting its own distinct definition of 'outside salespersons,' the court said, the IWC 'evidently intended to depart from federal law and to provide, at least in some cases, greater protection for employees.'" (Heyen, supra, 216 Cal.App.4th at p. 824, fn. omitted.) "Thus, the federal regulations incorporated into Wage Order 7 do not support the 'multi-tasking' standard proposed by [employer]. Instead, they suggest, as the trial court correctly instructed the jury, that the trier of fact must categorize tasks as either 'exempt' or 'nonexempt' based on the purpose for which Heyen undertook them." (Id. at p. 826.)
The Heyen court referred to the Ramirez case for further support: "Ramirez similarly does not support [employer's] analysis. It was undisputed that [employee] Ramirez performed a 'dual function'—i.e., 'a mixture of sales and nonsales duties.' (Ramirez, supra, 20 Cal.4th at pp. 793, 789.) [It was] proposed that, in light of Ramirez's dual responsibilities, he should be classified as an outside salesperson so long as he was performing sales at least in part. The Supreme Court disagreed, and—much like the trial court in the present case—adopted an approach that required the trier of fact to classify each of Ramirez's tasks as either 'exempt' (if the work 'directly involved ... "selling ... items or obtaining orders or contracts"') or 'nonexempt' (if the work did not). (Id. at p. 797.) The court did not recognize a hybrid category in which the employee was deemed simultaneously to be doing both." (Heyen, supra, 216 Cal.App.4th at p. 826.)
Pharmacy also contended at oral argument that later federal regulations issued by the Secretary of Labor in 2004 and an advisory bulletin issued by the Colorado Department of Labor and Employment supported a deviation from the quantitative approach by providing that an employee's concurrent performance of exempt and nonexempt work does not disqualify an employee from the executive exemption. In Heyen, that court considered and rejected the same argument, observing that "[I]n the nine years that have passed since the Secretary of Labor adopted these amended regulations, neither the California Legislature nor the IWC has elected to follow them. We therefore have no authority to do so." (Heyen, supra, 216 Cal.App.4th at p. 827.)
Pharmacy referred to footnote 8 in Heyen, supra, 216 Cal.App.4th at page 827, as authority for the application of the primary function test in California. Footnote 8 sets forth part 541.106 (2012) without comment. The text which references footnote 8, however, rejects application of the federal test.
Accordingly, California does not follow the federal primary function test. Rather, the federal standards incorporated in Wage Order 7 provide guidance in determining whether an activity is exempt or nonexempt in nature but, unlike federal law, an activity cannot be both under California law. Once an employee's activities are classified as either exempt or nonexempt, California law requires a determination that the employee spends more than 50 percent of his or her time on exempt activities to qualify for the executive exemption.
II. Standard of Review
We are first tasked with reviewing whether the trial court applied the correct law with regard to Davis's exempt status, which we review de novo. (Heyen, supra, 216 Cal.App.4th at p. 817 ["The appropriate manner of evaluating the employee's duties is a question of law that we review independently."].) Additionally, we must review the trial court's determination that Davis was not properly classified as exempt from statutory overtime requirements, a mixed question of law and fact reviewed for substantial evidence. (Ramirez, supra, 20 Cal.4th at p. 794; accord, Heyen, supra, at p. 817.)
III. Waiver of Defense
Davis contends that Pharmacy failed to raise the executive exemption as an affirmative defense in its answer, and therefore the court erred in allowing the defense. The 10th affirmative defense contained in Pharmacy's answer generally alleges that Davis was paid and received all wages entitled to him. The trial court held in its statement of decision that the answer was sufficient to put Davis's exempt status at issue by raising the lawful payment of wages. The trial court noted that "While not artfully or expressly pleaded, it is enough, and there is no surprise or prejudice."
Code of Civil Procedure section 431.30, subdivision (b), provides that an answer to the complaint "shall contain," in addition to a "general or specific denial" (id., subd. (b)(1)) of the complaint's allegations, "[a] statement of any new matter constituting a defense." (See Harris v. City of Santa Monica (2013) 56 Cal.4th 203, 239 (Harris).) Where an employer fails to specifically plead an affirmative defense in its answer, the trial court may nonetheless instruct the jury on the defense provided that other affirmative defenses placed the plaintiff on notice of its intent to defend the claims on such grounds. (Id. at pp. 239-240; Alamo v. Practice Management Information Corp. (2013) 219 Cal.App.4th 466, 482.) "The primary function of a pleading is to give the other party notice so that it may prepare its case [citation], and a defect in a pleading that otherwise properly notifies a party cannot be said to affect substantial rights." (Harris, supra, at p. 240.)
Pharmacy placed Davis on notice of its intent to present relevant affirmative defenses relating to overtime claims by putting at issue all wages to which Davis was entitled, which would necessarily include applicable exemptions. The unartful pleading of the affirmative defense did not affect Davis's substantial rights, and we find no error in the trial court addressing the defense on its merits.
IV. Alleged Errors of Law
Pharmacy argues that the trial court made errors of law, reflected in the statement of decision, that require reversal of the judgment. In particular, it contends that the trial court failed to perform the proper legal analysis under the relevant regulations and Ramirez because the court did not examine Davis's purpose in engaging in certain activities and the realistic expectations of Pharmacy with regard to Davis's job duties. We will therefore begin our analysis with a review of the trial court's statement of decision to determine whether it reflects these alleged errors.
A. Statement of Decision
The trial court's final written statement of decision omits any discussion regarding Davis's purpose for engaging in each of the tasks he performed, the reasonable expectations of Pharmacy, or the specifics of its finding that Pharmacy failed its burden of quantification. Therefore, we must determine whether we may imply from the court's ultimate holding that it applied the correct law.
In the statement of decision, the trial court correctly stated California law that "[a] task is either exempt or nonexempt" and that Pharmacy had the burden of quantifying the exemption. The trial court held that Pharmacy failed to meet its burden of showing that more than 50 percent of Davis's time was engaged in exempt duties, finding that certain duties that he performed, including filling and checking prescriptions, answering phones, and attending to ordinary customer care, were not exempt.
A fundamental rule of appellate review is that an appealed judgment is presumed correct. (Denham v. Superior Court (1970) 2 Cal.3d 557, 564.) "'All intendments and presumptions are indulged to support it on matters as to which the record is silent, and error must be affirmatively shown.'" (Ibid.) Additionally, under the doctrine of implied findings, the appellate court must infer that the trial court made all factual findings necessary to support the judgment. (In re Marriage of Arceneaux (1990) 51 Cal.3d 1130, 1133-1134.)
To avoid application of the doctrine of implied findings, a party must request a statement of decision and, if one is issued, the party must timely bring any omissions or ambiguities in the statement of decision to the trial court's attention so that the trial court has an opportunity to correct them. (Code Civ. Proc., §§ 632, 634; In re Marriage of Arceneaux, supra, 51 Cal.3d at pp. 1133-1134; Fladeboe v. American Isuzu Motors Inc. (2007) 150 Cal.App.4th 42, 58-59.) "[I]f a party does not bring such deficiencies to the trial court's attention, that party waives the right to claim on appeal that the statement was deficient in these regards, and hence the appellate court will imply findings to support the judgment." (In re Marriage of Arceneaux, supra, at pp. 1133-1134.)
In this case, the parties submitted proposed, competing statements of decision and the trial court "issued what [it] would describe as a tentative ruling having reviewed the proposed statements of decision, the competing statements of decision, and proposed judgment, and counsel are aware of that tentative." A hearing was held on the court's tentative decision. However, once the final written statement of decision issued by the trial court, Pharmacy did not object in writing or otherwise despite the fact that there was no discussion in the court's statement of decision of the alleged errors regarding Davis's purpose in performing certain activities or Pharmacy's realistic expectations of him.
Code of Civil Procedure section 634 does not limit how objections must be presented to the court. It only requires that objections to omissions or ambiguities in the statement of decision need be "brought to the attention of the trial court ... prior to entry of judgment." (Code Civ. Proc., § 634.) Based on the broad language of the statute that the objections need only be brought to the attention of the court, we presume that oral pronouncements of the objections are permissible.
At the hearing on the tentative ruling, Pharmacy argued that the court should find Davis's checking of prescriptions to be an exempt activity. Although Pharmacy expressed its disagreement with the court's ultimate holding, it did not specify its objection that the court misapplied the law by not determining Davis's purpose for performing each task and not considering the realistic expectations of Pharmacy. On the contrary, Pharmacy's objection was based on the trial court's purported failure to find that Davis had a dual purpose in engaging in routine activities because, while performing them, he was also supervising more than two employees. This amounts to the federal primary function test where, if supervision or management is the employee's primary function, the routine activities may be deemed exempt. In sum, Pharmacy argued that the trial court erred by not applying the federal test, not that it erred by failing to determine the purpose for each of Davis's activities.
Code of Civil Procedure section 634 requires a party to "'state any objection [it may have] to the statement in order to avoid an implied finding on appeal in favor of the prevailing party.... [I]f a party does not bring such deficiencies to the trial court's attention, that party waives [its] right to claim on appeal that the statement was deficient in these regards, and hence the appellate court will imply findings to support the judgment.'" (In re Marriage of Furie (2017) 16 Cal.App.5th 816, 827, italics added, quoting In re Marriage of Arceneaux, supra, 51 Cal.3d at pp. 1133-1134, fn. omitted.) Pharmacy's objections to the tentative statement of decision at the hearing were not sufficient to meet the requirements of Code of Civil Procedure section 634 for the doctrine of implied findings to be disabled on appeal, both steps of the two-step procedure under Code of Civil Procedure sections 632 and 634 must be followed. (Thompson v. Asimos (2016) 6 Cal.App.5th 970, 983.)
Having not objected to the court's written decision, we must presume any implied findings in the court's decision in favor of the prevailing party. (In re Marriage of Arceneaux, supra, 51 Cal.3d at pp. 1133-1134.) The purpose of a statement of decision is to explain the factual and legal basis for the decision. (Code Civ. Proc., § 632; Muzquiz v. City of Emeryville (2000) 79 Cal.App.4th 1106, 1125-1126 (Muzquiz).) The statement of decision "need do no more than state the grounds upon which the judgment rests, without necessarily specifying the particular evidence considered by the trial court in reaching its decision." (Muzquiz, supra, at p. 1125; see McAdams v. McElroy (1976) 62 Cal.App.3d 985, 996 [courts are not required "'to make a specific determination on every conflict of evidence, much less, to diagram all the intermediate decisions on points of law'"].) The trial court is not required to make an express finding of fact on every factual matter controverted at trial, where the statement of decision sufficiently disposes of all the basic issues in the case. (Bauer v. Bauer (1996) 46 Cal.App.4th 1106, 1118.)
Here, the ultimate issue is whether Pharmacy met its burden to show that Davis was an exempt employee not subject to overtime wages. The court resolved that ultimate issue, which was controverted at trial. We turn to appellant's alleged errors of law, that the trial court did not consider Davis's purpose in checking prescriptions or Pharmacy's reasonable expectations of him, and find no error.
1. Purpose for Performing Tasks and Quantification of Exempt Activity
Pharmacy contends that the trial court erred in applying the relevant law because it did not set forth the purpose for which Davis performed certain tasks. In deciding whether Davis was exempt from California's overtime laws, the trial court was required to determine whether each of the tasks performed by Davis was either exempt or nonexempt, and whether Davis spent more than one-half of his working time on exempt tasks. (Ramirez, supra, 20 Cal.4th at pp. 797-798; Heyen, supra, 216 Cal.App.4th at pp. 808, 826.) One of the factors used to determine whether a task is exempt is determining the predominant purpose for which the employee undertook each activity, bearing in mind that California law does not permit findings that an activity has dual purposes. (Heyen, supra, at p. 826.)
The record on appeal does not support Pharmacy's claim that the trial court failed to comprehend or apply the proper legal framework to support its ruling. The trial court was presented with the proper legal standards in posttrial briefing, including that Davis set forth the appropriate legal standard several times in his posttrial brief: "'[Y]ou must consider that time to be either an exempt or a non-exempt activity depending on the primary purpose for which the employee undertook the activity at that time,'" and "that the trier of fact must categorize tasks as either 'exempt' or 'nonexempt' based on the purpose for which [the employee] undertook them." (Heyen, supra, 216 Cal.App.4th at p. 808; id. at p. 826, italics added.)
The statement of decision includes the trial court's express acknowledgment that "[Pharmacy] nevertheless bears the burden of proving exempt status. [Pharmacy] has failed to meet its burden that more than 50% of Davis's time was engaged in exempt duties. [Pharmacy's] witnesses conceded that Davis performed nonexempt duties such as filling and checking prescriptions, answering phones, attending to ordinary customer service, and the like. A task is either exempt or nonexempt. [Pharmacy] has the burden of quantifying the exemption, and has not done so here." The trial court makes express reference to Heyen, which discusses the applicable legal standards at length, in making these findings and conclusions.
Although the statement of decision does not provide detail why checking prescriptions, answering phones, attending to customer service, and like tasks were nonexempt, it is implicit in the trial court's finding that they were not performed for managerial purposes. The trial court expressed this view at the hearing on the proposed statement of decision ("The court finds that time spent by Davis in checking prescriptions billed by technicians is not managerial or executive and does not qualify as an exempt activity.") The trial court explained its reasoning at the hearing, including that it disagreed with the proposition advanced by Pharmacy that Davis's checking activities were exempt because he was "supervising two or more people while [he was] checking." The court explained that to the extent Davis performed the same work as a staff pharmacist, without more, it would be nonexempt activity.
The court also explained at the hearing "But what I really found is that there's no quantification of Mr. Davis'—and I also found that he clearly did perform some exempt functions but that there was insufficient quantification." The statement of decision includes the court's finding that the checking and other routine activities were nonexempt and that Pharmacy failed to prove Davis spent more than 50 percent of his time on exempt activities. It is implicit that, after excluding these activities the court found to be nonexempt, there was insufficient proof that Davis's remaining activities constituted more than 50 percent of his time, assuming all of those activities were exempt in nature. As discussed post, substantial evidence support this conclusion.
Even if the court erred in failing to state all of the applicable legal standards, the error was harmless because, in light of the court's ultimate holding, the finding necessarily would have been adverse to Pharmacy. (McCullough v. Jones (1970) 11 Cal.App.3d 270, 275; accord, McAdams v. McElroy, supra, 62 Cal.App.3d at p. 996 ["'Omission to find, if the judgment is otherwise supported, is harmless error unless the evidence is sufficient to sustain a finding in favor of the complaining party which would have the effect of countervailing or destroying other findings [citations].'"].) Upon independent review, we find no error in the court's application of the governing legal standards, even if not fully described in the statement of decision. (Ramirez, supra, 20 Cal.4th at p. 794; Heyen, supra, 216 Cal.App.4th at p. 817.)
2. Realistic Expectation of the Employer
Pharmacy next contends that the trial court erred and did not consider the employer's realistic expectations and the realistic requirements of the job when determining whether Davis should be classified as exempt. In determining whether an employee is exempt, the trial court must inquire "'first and foremost, how the employee actually spends his or her time.'" (Duran, supra, 59 Cal.4th at p. 26.) However, "[a]ncillary questions include 'whether the employee's practice diverges from the employer's realistic expectations, whether there was any concrete expression of employer displeasure over an employee's substandard performance, and whether these expressions were themselves realistic given the actual overall requirements of the job.'" (Ibid.) The realistic expectations of the employer, and the degree to which they are satisfied or transgressed by the employee, are probative of whether the employer is actually considered and treated as an exempt manager.
In Batze v. Safeway, Inc. (2017) 10 Cal.App.5th 440 (Batze), the court considered, among other things, employer Safeway's realistic expectations of several managerial employees as evidenced in their performance evaluations. For example, one of the employees was faulted when one of his stores failed to pass a safety audit and was specifically admonished that his "'willingness to roll up [his] sleeves'" was interfering with his managerial duties. (Id. at p. 453.) The employee was expressly criticized for "jumping into the checkstand too often," and given specific, concrete instructions on how to develop and apply his managerial skills. (Id. at p. 470.) This evidence was added to that of the employer's investment in and comprehensive training of its managerial employees, as well as evidence of how some stores suffered due to inadequate management and others succeeded in certain areas as a direct result of good management. In light of the evidence of the employer's job description, comprehensive management program, investments in managerial employees and detailed performance evaluations geared to developing managers, the Batze court concluded that the employee's classification as exempt was consistent with the employer's realistic expectations notwithstanding that, during the evaluation period, he "jump[ed] into the checkstand too often." (Ibid.) In other words, it is realistic for an employer to expect managerial employees to "'roll up [their] sleeves'" (ibid.) and pitch in with routine tasks when necessary. An employee's status as exempt should not be defeated if an employee temporarily strays from managerial duties and engages in nonexempt activity, so long as the employer returns the employee to his or her managerial duties.
The trial court's written statement of decision is silent regarding Pharmacy's realistic expectations of Davis. However, for the same reasons as stated above, the implied findings must be presumed correct. Pharmacy presented no argument based on realistic expectations or other ancillary questions. In his posttrial briefing, Davis set forth the appropriate legal standard, but explained that Pharmacy did not meet its legal burden of showing that Davis's actual work diverged from Pharmacy's reasonable expectations. Given the trial court's ultimate holding that Pharmacy did not show Davis spent more than 50 percent of his time on exempt activity, it is implicit that it found Davis's checking and other activities to be consistent with Pharmacy's realistic expectations of him. As discussed below, substantial evidence supports that implicit finding.
Although silent regarding this ancillary question, the implied holding of the trial court's decision is that Pharmacy did not meet its burden in showing that Davis's practices substantially diverged from Pharmacy's realistic expectations. Upon independent review, we find that the trial court did not err in the proper application of the law.
Here, rather than apply the well-established doctrine of implied findings (see In re Marriage of Arceneaux, supra, 51 Cal.3d at pp. 1133-1134), the dissent finds it appropriate to assume that the trial court did not consider the reasonable expectations of the employer and reverse. According to the dissent, the doctrine of implied findings would prevent appellate review of error in the application of the reasonable expectation test under Ramirez, supra, 20 Cal.4th at pages 801-802. The contention is devoid of merit. First, the doctrine would not have applied had Pharmacy properly objected to the statement of decision under Code of Civil Procedure section 634, but it did not. Second, the implied finding is still subject to review and may be reversed upon a showing that it is not supported by substantial evidence. As described post, substantial evidence supports the implied finding that Davis's work did not deviate from Pharmacy's realistic expectations.
V. Substantial Evidence Supported the Court's Exempt Holding
Despite acknowledging that Davis had considerable management duties and was responsible for the day-to-day operations of Pharmacy, the trial court determined that Pharmacy did not meet its burden of proving the overtime exemption. The court noted that Pharmacy had a good faith belief that Davis was an exempt employee, and that the affirmative defense may, in fact, be true. However, the court held that Pharmacy failed to meet its burden to quantitatively show that the majority of Davis's time was spent performing executive tasks. Upon review, there is substantial evidence to support the court's finding that Davis's time spent checking prescriptions was not an exempt activity and that Pharmacy did not show that Davis spent the majority of his time performing exempt tasks.
A. Purpose in Checking/Filling Prescriptions and Customer Service
At trial, Pharmacy argued that the "reason Davis was engaged in reviewing prescriptions was to ensure the pharmacy was functioning smoothly, to check and supervise the technicians['] work, and to increase workflow." In response, Davis argued that his purpose in checking prescriptions was not as a tool to manage the business as asserted by Pharmacy. First, he noted that Pharmacy did not meet its burden of showing a managerial purpose for checking prescriptions because it did not present any evidence regarding the underlying purpose for which Davis performed that activity. Instead, Davis testified that he checked prescriptions to ensure accuracy because that was the job of the pharmacist and it must be undertaken to safely deliver pharmaceutical merchandise to patients. Davis related the role of a pharmacist to other employees that worked on a production or manufacturing line, explaining that the pharmacist worked at the end of the production line and, until the pharmacist checked the prescriptions, the medications could not be dispensed and the pharmacy could not function.
On appeal, Pharmacy admits that checking prescriptions is a task that nonexempt employees may regularly perform, but that the purpose for which Davis performed the task transformed it into a managerial task and was the chief method he used to supervise the pharmacy technicians. However, scant evidence was presented by Pharmacy as to how Davis utilized checking prescriptions as a management tool, notwithstanding that Pharmacy employed him for nearly 10 years. In support of its argument, Pharmacy refers to an e-mail in which Davis describes how, on one occasion, due to errors by the pharmacy technicians, he had to stop what he was doing and hold a meeting to provide them further training on pharmacy law. Pharmacy also relied on Davis's general statements that he was responsible to make sure inventory was not missing and that prescriptions were filled out correctly.
During the hearing on the tentative statement of decision, the trial court explained that it could not differentiate Davis's actions in checking prescriptions from that of the staff pharmacist in checking prescriptions. Consistent with applicable regulations, the court concluded that, to the extent Davis performed the same action as the staff pharmacist, it would indicate that it was a nonexempt activity. Pharmacy failed to present evidence that Davis's checking of prescriptions was for anything other than reviewing the accuracy of the prescriptions filled by pharmacy technicians as mandated by statute to ensure accuracy and protect the public. For example, there was no evidence that Davis maintained records from his checking activities that would, over time, indicate areas of concern, suggest systemic improvements or even track issues with individual employees and that he actually used them for those purposes. There was no evidence that Davis's checking activities allowed him to monitor the time or efficiency in filling prescriptions. There was no evidence that Davis checked the checking activities of the staff pharmacist or worked with the staff pharmacist on a regular basis to address management issues. The sparsity of evidence underscores that Pharmacy necessarily relies on the proposition that Davis's checking activities were managerial in nature because he performed them as a pharmacist-in-charge. But "work of the same kind performed by a supervisor's nonexempt employees generally is 'nonexempt,' even when that work is performed by the supervisor." (Heyen, supra, 216 Cal.App.4th at p. 822.) And, "[i]f such work takes up a large part of a supervisor's time, the supervisor likely is a 'nonexempt' employee." (Ibid.)
The dissent, in determining that the trial court should have held that checking prescriptions was an exempt activity, fails to mention the sparsity of evidence presented by Pharmacy to show the purpose of checking of prescriptions was to direct the work of two or more employees, especially in light of Pharmacy's burden to prove the affirmative defense. The dissent argues that checking prescriptions necessarily entails directing the work of two or more employees and is, therefore, a managerial, exempt task by nature, regardless of the evidence presented. This proposition conflicts with the standard set forth in Heyen, supra, 216 Cal.App.4th at pages 822-823, requiring the court to examine the underlying purpose a given task was performed to see if was managerial. The dissent appears to advocate that California law should be revised to hold that the activity of checking prescriptions shall always be managerial in nature. However, if checking prescriptions is always considered a managerial task, it would in effect make all pharmacists exempt employees, which conflicts with the provisions of the Labor Code. (See Lab. Code § 1186.5 [permitting pharmacists to adopt alternative workweek schedules, which would be unnecessary if they were deemed exempt employees].)
Based on the evidence presented, Pharmacy failed its burden of proof to demonstrate that the nature of Davis's checking prescriptions was qualitatively different in purpose and effect from the statutorily mandated checking required of pharmacists in general. Accordingly, substantial evidence supported the trial court's finding that Davis's actions in checking prescriptions, as well as ordinary customer service activities, were not exempt activities.
B. Pharmacy's Realistic Expectations
In Batze, the court looked to whether "'there was enough exempt, i.e., managerial, work for [the managerial employees] to fill their day.' If not, or 'if there was plenty of managerial work but [the employer] constantly diverted [the managers] to non-exempt physical or clerical tasks, that constitute[d] evidence that [the employer] did not realistically expect [the managers] to manage.'" (Batze, supra, 10 Cal.App.5th at pp. 468-469.)
In this case, there is little, if any, evidence as to how much managerial work was necessary to run Pharmacy effectively and efficiently. There is no meaningful evidence concerning Pharmacy's investment in or comprehensive training of Davis to manage Pharmacy. Davis's job description, which designates the job as exempt, makes no mention of routine activities such as checking and filling prescriptions or engaging in routine customer service activities, giving rise to a reasonable inference that Pharmacy did not consider those activities to be exempt in nature. There is no evidence of how much time Davis was reasonably expected to, or did, spend on the managerial responsibilities and tasks delineated in the job description. There is no meaningful evidence in the performance evaluations or elsewhere in the record showing that Davis was specifically admonished for spending too much time on checking or filling prescriptions or engaging in customer service activities. Neither is there evidence of how Davis's performance or nonperformance as a manager affected Pharmacy's operations in any concrete way.
In this vacuum, and although time estimates vary, the evidence shows that Davis spent considerable time checking and filling prescriptions and performing various customer service activities. After employing Davis for nearly 10 years, it is only reasonable that Pharmacy would have articulated that Davis was deviating from its expectations by spending too much time on nonexempt tasks, specifically given him instructions to remedy the situation, and monitored him to ensure his compliance. But the only pertinent criticism identified in the record is that Davis needed to do better at training, delegating and following up, as reflected in some of his performance evaluations. Without more, there is little to glean from the very cursory entries in Davis's evaluations, especially considering that, in these same evaluations, Davis was praised for his "customer service focus." One evaluation notes that one of Davis's "CORE COMPETENCY STRENGTHS" was that "[m]any customers appreciate [Davis's] attention/expertise and ask for him specifically."
Further, even though evidence was presented that Pharmacy was disappointed with the quality of Davis's ability to supervise and interact with employees, there was no evidence that Pharmacy reasonably expected Davis to spend more time on those or other managerial tasks or that Pharmacy took any meaningful steps to curtail his nonexempt activity. Davis explained that Pharmacy's job description of the pharmacist-in-charge did not include answering phones, consulting with patients and checking prescriptions, even though Pharmacy's records indicated that Davis spent a significant amount of time on those tasks. Davis contended that several other executives and other pharmacists were aware that he spent considerable time on what he considered to be production tasks and, despite this knowledge, there was never an indication from Pharmacy that he should not have been performing those tasks.
Under these circumstances, the evidence simply does not support that Pharmacy was unaware or materially disapproving of Davis's routine pharmacy activities or that it realistically expected him to significantly alter his practices in this regard.
C. Quantification
Despite presenting evidence that Davis did perform exempt tasks, Pharmacy presented little evidence to quantify the amount of time he spent on such tasks. There is no evidence of how much time Davis spent on the duties and tasks delineated in his job description or otherwise reasonably required of him as a manager. Pharmacy appears to rely on a theory that either Davis's checking activities were managerial or they deviated from his employer's realistic expectations and that, in either event, those activities were exempt and constituted more than 50 percent of his time. Although probative, Pharmacy's theory is nonetheless unsupported by any quantification of how Davis actually spent his time. Pharmacy failed its burden to show the requisite managerial purpose or a deviation from Pharmacy's reasonable expectations so the theory simply is not viable in any event.
Pharmacy stated at the hearing on the parties' proposed statements of decision "I think the court would agree that if the checking of the prescriptions was ... exempt work, clearly we didn't show that he did 89 percent of his time but we showed it was way over the 50 percent mark, and I think that's the—kind of the linchpin on the court's ruling."
The record in this case shows a prescription tracking log indicating that Davis reviewed roughly half as many prescriptions in a given year as the assigned staff pharmacist. While Davis reviewed fewer prescriptions, it is reasonable to infer from the evidence that Davis spent significant time reviewing more than 17,000 prescriptions that year. Multiple witnesses testified that Davis spent substantial time performing nonexempt tasks including checking, but also filling prescriptions, answering phones, and attending to ordinary customer service.
The record supports the court's finding that Pharmacy did not meet its burden of quantifying that Davis spent the majority of his time performing exempt tasks, or that Davis's actions deviated significantly from Pharmacy's realistic expectations.
VI. Excluding Testimony of Davis's Replacement
Pharmacy sought to introduce testimony of Mike Urmston, the employee who replaced Davis as the pharmacist-in-charge. Pharmacy intended to call Urmston to testify regarding the amount of time Urmston spent on his job duties as the new pharmacist-in-charge. Davis objected on the basis that how Urmston currently performs his duties has no relation to the amount of time that Davis may have spent on a given task. The trial court acknowledged that, while possibly relevant, the probative value of Urmston's testimony would be remote. Specifically, the court was concerned by Urmston's inability to know if the conditions and situation he confronts as the current pharmacist-in-charge were the same as Davis. The court ultimately rejected the testimony pursuant to Evidence Code section 352.
Evidence Code section 352 provides that a court, in its discretion, may "'exclude evidence if its probative value is substantially outweighed by the probability that its admission will (a) necessitate undue consumption of time or (b) create substantial danger of undue prejudice, of confusing the issues, or of misleading the jury.'" (Phillips v. Honeywell Internat. Inc. (2017) 9 Cal.App.5th 1061, 1081.) "This exception to admissibility has not been interpreted to create hard and fast rules, but requires the trial court to complete a weighing process (i.e., probative value versus undue prejudice) that considers the unique facts and issues of the case." (Ibid.)
"We review a trial court's ruling under [Evidence Code] section 352 for abuse of discretion" and will reverse a trial court's exercise of discretion to admit evidence "only if 'the probative value of the [evidence] clearly is outweighed by [its] prejudicial effect.'" (People v. Carey (2007) 41 Cal.4th 109, 128.) When weighing probative value against the danger of prejudice, a trial court is deemed to have abused its discretion if its decision was arbitrary, capricious, or patently absurd and resulted in a manifest miscarriage of justice. (Donlen v. Ford Motor Co. (2013) 217 Cal.App.4th 138, 150.)
Here, the court did not abuse its discretion in excluding Urmston's testimony. The key inquiry at issue in this case was to "first and foremost" examine "[t]he work actually performed by the employee." (Cal. Code Regs., tit. 8, § 11070, subd. 1(A)(1)(e); see Ramirez, supra, 20 Cal.4th 785 at p. 802.) While acknowledging that how Urmston spends his time could be relevant to the extent that it may be similar to how Davis spent his time, the probative value was speculative and outweighed by the cumulative nature of the testimony.
We find no abuse in the trial court's decision to exclude Urmston from testifying. Pharmacy did not establish how much time Davis was spending on the various tasks he performed and, consequently, failed to show "'first and foremost, how the employee actually spends his or her time.'" (Duran, supra, 59 Cal.4th at p. 26.) Neither did Pharmacy show that Davis actually had a managerial purpose in conducting routine pharmacy activities. Urmston's testimony cannot serve as a substitute for the evidence presented in this case or a curative for the failure of proof as to Davis.
As case law counsels, "[n]o bright-line rule can be established classifying everyone with a particular job title as per se exempt or nonexempt ...." (United Parcel Service, supra, 190 Cal.App.4th at p. 1015.) And even though "[e]mployers often treat all workers within a job position as either exempt or nonexempt," in reality "exemptions frequently depend on how individual employees perform their jobs." (Duran, supra, 59 Cal.4th at p. 25.) Urmston's testimony would not prove how Davis actually spent his time or prove a managerial purpose for Davis's performance of routine activities.
While Urmston's testimony of how he performs the job of pharmacist-in-charge may generally be relevant, its probative value is limited and does not outweigh the cumulative nature of this testimony or the consumption of time to detour from the central inquiry into Davis's actual job performance. "'[T]he exclusion of evidence which has only a cumulative effect will not justify reversal on appeal....'" (Horn v. General Motors Corp. (1976) 17 Cal.3d 359, 371.) As Urmston's testimony was only tangentially related to the main issues and cumulative, the court's denial was based on legitimate concerns and not arbitrary, capricious, or patently absurd.
Accordingly, we determine that the court did not abuse its discretion and Pharmacy failed to establish error warranting reversal based on the trial court's refusal to allow Urmston to testify.
VII. UCL Claim
Despite finding that Pharmacy owed Davis unpaid overtime, the trial court found that Davis was not entitled to relief with respect to his UCL claim. The court held that Pharmacy's "good faith failure to pay overtime to [Davis] under the potentially correct assumption that he was exempt is not a 'practice' envisioned by the [UCL]." Davis contends that the trial court erred in failing to find a violation of the UCL because the failure to pay wages under the Labor Code is "by definition" a claim under the UCL that cannot be defeated by an equitable defense of good faith. Pharmacy responds by admitting that equitable defenses may not wholly defeat UCL claims, but that the court has broad discretion to consider such defenses in fashioning a remedy, if any, under the UCL.
In Cortez v. Purolator Air Filtration Products Co. (2000) 23 Cal.4th 163 (Cortez), the California Supreme Court confirmed prior authority that the failure to pay overtime wages is prohibited under the Labor Code and constitutes an unlawful practice under the UCL. (See Cortez, supra, at pp. 177-178 [under UCL, employer's failure to pay earned wages was an unlawful business practice]; Sullivan v. Oracle Corp. (2011) 51 Cal.4th 1191, 1206 [under UCL, California employer's failure to pay overtime wages to out-of-state employees was an unlawful business practice].)
In Cortez, the plaintiff sued her employer for failure to pay overtime wages and sought restitution under the UCL and its four-year statute of limitations. The defendant employer asserted the equitable defenses of laches, good faith, waiver, and estoppel, and argued that the court was required to consider them in determining liability. (Cortez, supra, 23 Cal.4th at p. 179.) The high court held that an employee may recover unlawfully withheld wages as a restitutionary remedy in a UCL action and the UCL's four-year limitations period governs a UCL action based on failure to pay wages. (Cortez, supra, at pp. 178-179; see Janik v. Rudy, Exelrod & Zieff (2004) 119 Cal.App.4th 930, 936.)
In the instant matter, as the trial court observed in its statement of decision, Davis's UCL "cause of action is intended to 'borrow' the allegations of Labor Code violations under the 'unlawfulness' prong of the [UCL] in order to seek restitution which would 'extend' the statute of limitations from three to four years." As described, Davis successfully presented claims that he was not compensated for his overtime wages that were authorized by law. We agree with Davis that the failure to pay overtime wages is a proscribed practice under the UCL and the trial court's finding to the contrary is error. As the trial court here noted, the award of restitution under the UCL would effectively extend the statute of limitations from three to four years, potentially providing Davis an additional year of unpaid overtime wages.
While "[t]he UCL imposes strict liability when property or monetary losses are occasioned by conduct that constitutes an unfair business practice" (Cortez, supra, 23 Cal.4th at p. 181), however, the Supreme Court went on to explain that while "equitable defenses may not be asserted to wholly defeat a UCL claim since such claims arise out of unlawful conduct" that "equitable considerations may enter into the court's disposition of a UCL action." (Cortez, supra, at p. 179.) UCL remedies are cumulative to other remedies available and "have an independent purpose—deterrence of and restitution for unfair business practices." (Cortez, supra, at p. 179.) Based on that rationale, it is appropriate that equitable defenses be considered by the court when exercising discretion over which, if any, remedies should be awarded. (Ibid.) "[C]onsideration of the equities between the parties is necessary to ensure an equitable result." (Cortez, supra, at p. 181.)
The Supreme Court noted that it could not "foresee how any equitable consideration could defeat a claim for unpaid wages"; however, it also could not "foreclose the possibility that defendant has evidence that the trial court might consider relevant when, on remand, it fashions a remedy for [the] plaintiff's unfair business practice" and the court must permit the defendant an opportunity to present equitable considerations. (Cortez, supra, 23 Cal.4th at p. 181.)
The court's discretion to order restitutionary or injunctive relief when an unfair business practice has been shown is very broad. (Cortez, supra, 23 Cal.4th at p. 180; Bus. & Prof. Code, § 17203 ["The court may make such orders or judgments ... as may be necessary to prevent the use or employment by any person of any practice which constitutes unfair competition, as defined in this chapter, or as may be necessary to restore to any person in interest any money or property, real or personal, which may have been acquired by means of such unfair competition." (Italics added)].) "A court cannot properly exercise an equitable power without consideration of the equities on both sides of a dispute. This principle of equity jurisprudence has been applied in a variety of contexts in which the court is called upon to exercise equitable power." (Cortez, supra, at p. 180; see Tustin Community Hospital, Inc. v. Santa Ana Community Hospital Assn. (1979) 89 Cal.App.3d 889, 903.)
As the trial court here denied the UCL claim, the court did not consider an appropriate remedy. "[W]hat would otherwise be equitable defenses may be considered by the court when the court exercises its discretion over which, if any, remedies authorized by [Business and Professions Code] section 17203 should be awarded." (Cortez, supra, 23 Cal.4th at pp. 179-180.) The trial court found that Pharmacy's failure to pay Davis overtime wages was not intentional or willful, based on Pharmacy's good faith belief that Davis was exempt. "Normally, however, the plaintiff need not show that a UCL defendant intended to injure anyone through its unfair or unlawful conduct. The UCL imposes strict liability when property or monetary losses are occasioned by conduct that constitutes an unfair business practice." (Id. at p. 181.) But, while a good faith defense cannot defeat the UCL claim, it may be considered by the trial court in fashioning a remedy.
"'[I]t is axiomatic that one who seeks equity must be willing to do equity. (Farmers Ins. Exchange v. Zerin (1997) 53 Cal.App.4th 445, 453.) ... This maxim stems from the paramount principle that equity is, peculiarly, a forum of conscience. (Couts v. Cornell (1905) 147 Cal. 560, 563.)'" (Cortez, supra, 23 Cal.4th at p. 180, quoting In re Marriage of Plescia (1997) 59 Cal.App.4th 252, 257-258.).) However, at least one Supreme Court Justice noted that it would be unjust to apply a good faith defense in such circumstances. "I would note that equitable considerations normally should not lead a trial court to reduce or eliminate a UCL restorative order when it is established that the defendant committed an unlawful practice, but the defendant claims that its violation was unintentional or committed in a good faith belief the action was lawful. Rather, in general, as between a person who is enriched as the result of his or her violation of the law, and a person intended to be protected by the law who is harmed by its violation, for the violator to retain the benefit would be unjust." (Cortez, supra, at p. 182, conc. opn. of Werdegar, J.)
Pharmacy asserted a good faith affirmative defense as well as affirmative defenses that appear to be predicated on alleged bad faith conduct by Davis. We take no position as to the scope or merits of any such defenses, matters that we leave to the trial court on remand. To the extent Pharmacy's equitable defenses are applicable and meritorious, the trial court may consider them in determining whether and on what terms to afford further relief to Davis under the UCL.
VIII. Conclusion
On appeal, Pharmacy correctly contends that, in determining whether an employee is exempt or nonexempt, the court must consider the purpose for which an activity is performed and also take into consideration the employer's realistic expectations. While claiming that the trial court "failed" to categorize Davis's activities as exempt or nonexempt, Pharmacy did not provide a factual basis upon which the trial court could distinguish the purpose of Davis's checking and other routine activities as managerial from the purpose with which nonexempt employees performed the same or similar tasks. Neither did Pharmacy establish by evidence that its realistic expectations of Davis were inconsistent with or materially frustrated by his checking and other routine activities. The theory advanced by Pharmacy at oral argument as well as the hearing on the tentative statement of decision, that the federal primary function test should be applied, finds no support under California law.
The ultimate question is whether Davis spent more than 50 percent of his time engaged in exempt activity. Although bearing the burden of proof, Pharmacy presented little, if any, meaningful evidence as to the amount of time Davis spent on any given activity. There was no evidence of how much time Davis spent on the managerial duties outlined in his job description or of the more routine tasks he performed such as filling and checking prescriptions and providing customer service. Instead, Pharmacy relies on Davis's job description and reference to its ill-defined expectations of Davis regarding how his time was to be spent. In the face of evidence from multiple witnesses that Davis actually spent substantial time engaged in routine production and customer service tasks over a decade, a job title and description are insufficient to satisfy Pharmacy's burden of proving that Davis actually spent more than half of his time on exempt activities.
We, therefore, leave it to the trial court on remand to consider an appropriate remedy for Pharmacy's violation of the UCL and to permit proceedings regarding whether and how equitable defenses may bear on the court's consideration.
DISPOSITION
The judgment is affirmed in part and reversed in part. The court's determination that Davis is entitled to overtime wages is affirmed. However, the denial of the UCL claim is reversed. The matter is remanded to allow the trial court to exercise its discretion regarding what remedies, if any, should be awarded for the UCL claim. Davis is entitled to his costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1).)
/s/_________
MEEHAN, J. I CONCUR: /s/_________
HILL, P.J. Poochigian, J., dissenting,
Generally, employees who work "more than eight (8) hours in any workday or more than 40 hours in any workweek" must be paid overtime. (Cal. Code Regs., tit. 8, § 11070, subd. 3(A)(1).) However, that requirement does not apply to "persons employed in ... executive ... capacities." (Cal. Code Regs., tit 8, § 11070, subd. 1(A).) This is called the executive exemption, and it is found in the California Industrial Welfare Commission's (IWC) Wage Order No. 7-2001 (hereafter, "the wage order").
The executive exemption contains several requirements. (Cal. Code Regs., tit 8, § 11070, subd. 1(A)(1).) The one at issue here is the requirement an employee be "primarily engaged" in exempt work, or in work that is "directly and closely related to exempt work," or "is properly viewed as a means for carrying out exempt functions." (Cal. Code Regs., tit 8, § 11070, subd. 1(A)(1)(e).) Exempt functions include: (1) "management of" the business or one of its departments; (2) directing the work of two or more other employees; (3) hiring and firing other employees or giving recommendations concerning such decisions if those recommendations "will be given particular weight"; and (4) otherwise exercising discretion and independent judgment. (Cal. Code Regs., tit 8, § 11070, subd. 1(A)(1)(a)-(d).)
"Primarily ... means more than one-half the employee's work time." (Cal. Code Regs., tit 8, § 11070 subd. 2(K).)
I. Checking Prescriptions is Exempt Work Under the Wage Order
At Komoto Pharmacy, the task of filling prescriptions - i.e., placing medication in the bottles - was usually done by pharmacy technicians. However, the job of checking prescriptions - i.e., reviewing the prescriptions filled by technicians - was done by the pharmacists (including the Pharmacist-in-Charge). The trial court concluded checking prescriptions was a nonexempt activity. Komoto contends "checking prescriptions is actually exempt supervisory work."
It was also rarely done by pharmacists, including Davis.
The fact that pharmacists other than the Pharmacist-in-Charge may also check prescriptions does not undermine a finding of exempt status.
Komoto is correct. Checking prescriptions filled by subordinate employees is clearly exempt work because it is "directly and closely related to" (Cal. Code Regs., tit 8, § 11070, subd. 1(A)(1)(e)) the task of "direct[ing] the work of two or more other employees." (Cal. Code Regs., tit 8, § 11070, subd. 1(A)(1)(b).) That is, when the Pharmacist-in-Charge reviews prescriptions filled by pharmacy technicians, he or she is clearly engaged in a task "closely related to" directing the technicians' work.
A pharmacy exists to fill prescriptions, so that is what most of its employees spend their time doing. It should be unsurprising, then, that exempt employees at a pharmacy spend much of their time checking to ensure prescriptions are properly filled by other employees. It is hard to imagine any pharmacy task that would fit more neatly in the category of "work that is directly and closely related to" the task of "direct[ing] the work" of other pharmacy employees. The majority concludes otherwise.
Davis engaged in other supervisorial activities as well. In a November 17, 2011, e-mail, Davis described a meeting he called with the pharmacy technicians to remind them that it was his prerogative under the law to request quantity changes to a prescription. In a July 12, 2011, e-mail, Davis raised the "issue" of "staff overtime" with Scott Preston, saying that "some staff have nickled and dimed the company to death on overtime." In a September 15, 2011, e-mail, Davis noted that an employee would "clock[] in" but would not go to their work station for another 10 to 15 minutes.
Cal. Code Regs., tit 8, § 11070, subd. 1(A)(1)(e).
Cal. Code Regs., tit 8, § 11070, subd.1 (A)(1)(b).
The majority points out that Komoto did not present evidence Davis "utilized checking prescriptions as a management tool." (Maj. opn., ante, at p. 25.) But while "management" is one executive function (Cal. Code Regs., tit 8, § 11070, subd. 1(A)(1)(a)), it is not the only one. Directing the work of two or more employees is a separate, categorically executive function. (Cal. Code Regs., tit 8, § 11070, subd. 1(A)(1)(b).) Even if Komoto failed to argue or prove checking prescriptions is a "management" activity under subdivision 1(A)(1)(a), it is nonetheless clearly an activity "directly and closely related to" the task of "direct[ing] the work of two or more other employees" under subdivision 1(A)(1)(b).
The majority observes that Komoto did not present evidence "Davis's checking of prescriptions was for anything other than reviewing the accuracy of the prescriptions filled by pharmacy technicians as mandated by statute to ensure accuracy and protect the public." (Maj. opn., ante, at p. 25.) But reviewing prescriptions filled by subordinate pharmacy technicians - even for the purpose of ensuring accuracy - is directly and closely related to the direction of the technicians' work.
Finally, the majority holds that Komoto failed to prove Davis's checking of prescriptions "was qualitatively different in purpose and effect from the statutorily mandated checking required of pharmacists in general." (Maj. opn., ante, at p. 26.) However, the fact that a duty is required by statute, or is qualitatively indistinguishable from a statutory duty, does not affect whether it is executive in nature.
In sum, reviewing the work of subordinate employees is an exempt activity because it is closely related to the direction of those employees' work. Because checking prescriptions satisfies this definition, it is an exempt activity.
II. The Trial Court Erred in Failing to Consider Komoto's Reasonable Expectations
The trial court's statement of decision in Davis's favor focused exclusively on the issue of Davis's actual work activities while remaining "silent" on the issue of Komoto's realistic expectations of Davis. (Maj. opn., ante, at p. 23.) The majority finds no error. However, the Supreme Court has been clear that a trial court errs when it focuses solely on an employee's actual activities to the exclusion of the employer's realistic expectations (or vice-versa).
In Ramirez v. Yosemite Water Company, Inc. (1999) 20 Cal.4th 785 (Ramirez), the Supreme Court dealt with the overtime exemption for outside salespeople. In a wage order, the IWC defined "outside salesperson" as "someone who 'regularly works more than half the working time' engaged in sales activities outside the workplace. (Cal. Code Regs., tit 8, § 11070, subd. (2)(I) ....)" (Ramirez, supra, 20 Cal.4th at p. 789, fn. omitted.) The Ramirez court addressed "an issue ... that caused some confusion in the trial court and the Court of Appeal: Is the number of hours worked in sales-related activities to be determined by the number of hours that the employer, according to its job description or its estimate, claims the employee should be working in sales, or should it be determined by the actual average hours the employee spent on sales activity?" (Id. at pp. 801-802.) The Supreme Court held:
While Ramirez dealt with a different exemption than the executive exemption at issue here, its holding - that trial courts must consider both the employee's actual activities and the employer's realistic expectations - would seem to apply here as well. (See, e.g., Heyen v. Safeway Inc. (2013) 216 Cal.App.4th 795, 828.) The parties and the majority also rely on Ramirez.
"The logic inherent in the IWC's quantitative definition of outside salesperson dictates that neither alternative would be wholly satisfactory. On the one hand, if hours worked on sales were determined through an employer's job description, then the employer could make an employee exempt from overtime laws solely by fashioning an idealized job description that had little basis in reality. On the other hand, an employee who is supposed to be engaged in sales activities during most of his working hours and falls below the 50 percent mark due to his own substandard performance should not thereby be able to evade a valid exemption. A trial court, in determining whether the employee is an outside salesperson, must steer clear of these two pitfalls by inquiring into the realistic requirements of the job. In so doing, the court should consider, first and foremost, how the employee actually spends his or her time. But the trial court should also consider whether the employee's practice diverges from the employer's realistic expectations, whether there was any concrete expression of employer displeasure over an employee's substandard performance, and whether these expressions were themselves
realistic given the actual overall requirements of the job." (Id. at p. 802, original italics.)
The Supreme Court subsequently described its decision in Ramirez as counseling trial courts "to avoid sole reliance either on 'an employer's job description' or on 'the actual average hours the employee spent on sales activity' [citation]." (Sav-on Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 336.)
Finally, the wage order itself mandates that "the employer's realistic expectations and the realistic requirements of the job, shall be considered in determining whether the employee satisfies" the executive exemption. (Cal. Code Regs., tit. 8, § 11070, subd. 1(A)(1)(e), italics added.)
Here, the trial court's statement of decision indicates it erred under Ramirez by relying solely on the issue of whether Komoto proved " 'the actual average hours the employee spent' " on exempt activities. (Sav-on Drug Stores, Inc. v. Superior Court, supra, 34 Cal.4th at p. 336.) This approach elides Ramirez's "concern that under a pure 'actual activity' test, an employee assigned to [exempt activities] might "evade a valid ... exemption" by "his own substandard performance." (Sav-on Drug Stores, Inc. v. Superior Court, supra, at p. 336, italics added.)
The majority concludes that because the trial court ultimately rendered judgment in Davis's favor, it impliedly considered the issue of Komoto's expectations and found for Davis. (Maj. opn., ante, at p. 23.) This cannot be the standard for determining whether Ramirez error has occurred. If the mere presence of a judgment forces the conclusion the trial court actually considered and resolved unmentioned Ramirez factors in favor of the prevailing party, then Ramirez error can never be established because appeals always involve a judgment in favor of one party or the other. Instead, I would follow the Supreme Court's standard and hold that while reviewing courts normally defer to a trial court's resolution of conflicting evidence, reversal and remand is warranted if the trial court's review of the evidence was tainted by the error described in Ramirez. (Ramirez, supra, 20 Cal.4th at p. 802, citing Gray v. Don Miller & Associates Inc. (1984) 35 Cal.3d 498, 503.)
III. The Trial Court Erred in Excluding Urmston's Testimony on the Grounds that it Would Have Been Cumulative
The trial court also erred in excluding the testimony of Davis's replacement as Pharmacist-in-Charge, Mike Urmston.
Komoto's counsel proferred that Urmston would testify as to the job duties of the Pharmacist-in-Charge, work hours, the time it takes to complete tasks assigned to the Pharmacist-in-Charge with "essentially" the same staff that worked for Davis, and the percentage of time that staff pharmacists check prescriptions versus the Pharmacist-in-Charge. Davis's counsel objected on discovery and relevance grounds. The trial court disagreed with Davis's relevance objection and did not address the discovery objection. However, the court excluded the evidence, sua sponte, under Evidence Code section 352 because it would have been "cumulative."
The majority holds: "While acknowledging that how Urmston spends his time could be relevant to the extent that it may be similar to how Davis spent his time, the probative value was speculative and outweighed by the cumulative nature of the testimony." (Maj. opn., ante, at p. 30.) This reasoning cannot be reconciled with the trial court's decision that Komoto did not carry its evidentiary burden at trial. It is paradoxical to conclude that Komoto did not produce enough evidence to carry its burden of establishing how Davis spent his time, while at the same time upholding exclusion of additional evidence on that issue because it would have been "cumulative."
The majority observes that the "key inquiry" was the work actually performed by the employee. (Maj. opn., ante, at p. 30.) In actuality, that is but one factor (albeit the "foremost" factor) to be considered in evaluating the ultimate issue: "the realistic requirements of the job." (Duran v. U.S. Bank Nat. Assn. (2014) 59 Cal.4th 1, 32, italics removed; see also id. at p. 52 (conc. opn of Liu, J.).)
Moreover, there were significant weaknesses in Davis's own testimony. The trial court found that "Davis is not a credible witness. He dissembles from the witness stand. He evades direct answers. He calculates his testimony to his own advantage, rather than offering the straightforward truth. He has a grudge, and his testimony exhibits the bias of that grudge and desire to obtain a judgment from the company." --------
Moreover, the fact that Urmston's work activities may be similar to Davis's work activities is not the only way Urmston's testimony would have been relevant. How other employees in the same position as plaintiff actually spend the majority of their time is relevant to the issue of whether the employer's expectations for that position were reasonable. (Duran v. U.S. Bank National Assn., supra, 59 Cal.4th at p. 27.)
IV. Conclusion
Because the trial court erred in its consideration of Davis's work activities; its failure to consider Komoto's realistic expectations of Davis; and its exclusion of Urmston's testimony, I would reverse the judgment and respectfully dissent.
/s/_________
POOCHIGIAN, J.