Murphy v. Kenenth Cole Prod. 12/2/05 CA1/1

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State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: A107219

Case Date: 02/22/2006

Preview:Filed 12/2/05

CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FIRST APPELLATE DISTRICT DIVISION ONE

JOHN PAUL MURPHY, Plaintiff and Respondent, v. KENNETH COLE PRODUCTIONS, INC., Defendant and Appellant. (San Francisco County Super. Ct. No. CGC-03-423260) A107219; A108346

Kenneth Cole Productions, Inc., (KCP) owner of small, upscale retail clothing stores, appeals from a judgment and a subsequent order regarding attorney fees in its appeal de novo of a decision of the California Labor Commissioner (Labor Commissioner). On appeal, KCP raises issues regarding classification of plaintiff John Paul Murphy as a nonexempt employee, the court's jurisdiction to hear claims not raised before the Labor Commissioner, and the nature of the payments for meal and rest break violations as a penalty or a wage. KCP's other contention concerns whether KCP had a good faith dispute that precluded imposition of the waiting time penalty. We will affirm the finding that Murphy was not an exempt employee. We agree with KCP that the court should not have addressed the new claims and that the meal and rest break payments are penalties, and reverse that portion of the judgment and remand for reconsideration of the amount of attorney fees. In all other respects, we affirm. BACKGROUND We first examine Murphy's daily work duties as a store manager. Murphy was hired as store manager of the KCP retail clothing store in the San Francisco Centre on 1

Fifth and Market Streets in June of 2000 and worked for KCP until June 19, 2002. Murphy was paid a weekly salary of $836.50 and was not entitled to commissions on sales.1 In April of 2001, his pay was increased to $870 a week. When Murphy was hired, he was given a job description for the store manager position. The store managers were the sales leaders, who were responsible for making sure the store met its sales quotas. They accomplished this task by acting as a leader on the sales floor, making sure inventory was properly managed and handling minor human resources issues according to procedures set out in the corporate operations manual. Murphy was trained by the manager of the Union Street store, who spent two days with Murphy, telling him who the strong sellers among the employees were, explaining security concerns and referring him to the operations manual. The San Francisco Centre store primarily sold shoes. Murphy had no input into decisions about the shoes sold in the store, their pricing or whether they would be placed on sale. The corporate office and a visual manager directed all advertising. Sales goals were set by the corporate office. Murphy could make recommendations for the district manager's approval as to the needs of the store, but the district manager made the final decision. District managers were responsible for ensuring that the stores met their sales quotas, had proper management and staffs, approved human resources related issues for the stores, such as issuing warnings and approving applicants for jobs. The district manager in Murphy's area was in charge of seven stores. The position of general manager of a flagship store was similar to Murphy's position, but was a department manager position, which included supervising other managers in their store who were

Murphy testified to the organization of KCP as explained to him by his regional manager. The corporate office in New York handled human resources, merchandising, purchased all products for the stores, set the prices, shipped products to the stores and handled all marketing. District managers and general managers of the flagship stores reported to the two or three regional managers. The flagship store in Murphy's area was on Grant Avenue.

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similar to store managers. Their stores were considered separate districts, so they did not report to the regional manager. Murphy did not have the authority to hire or fire an employee without obtaining approval. There were times that his recommendations on hiring were ignored. If discipline issues were clearly covered by the policy manual, Murphy could issue a verbal or written warning, but it needed approval from the district manager. If the issue was not clear, Murphy was required to refer it to human resources or the district manager. Murphy testified that the operations manual was a guideline for running the store. In addition to general policy issues, it regulated such issues as how shoes were placed on racks, how to put tissue in a shoe, how to present the shoe to the customer, how many shoes to bring out at a time and how to handle merchandise. All employees had access to the operations manual. Murphy was told during his training to follow the procedures in the operations manual. The scheduling policy in the operations manual stated that store managers worked nine-hour shifts, 45 hours per week. The district managers approved all vacations, floating holidays, personal holidays and consecutive days off. Murphy's store was staffed with seven employees, including three part-time sales people, one full-time sales person, an assistant manager and two floor supervisors. The store was open from 9:30 a.m. to 8:00 p.m. Monday through Saturday and 11:00 a.m. to 6:00 p.m. on Sundays. Murphy often worked more than nine hours a day. Usually the extra hours were spent on the sales floor. On a typical day, Murphy and another employee arrived around 8:30 or 9:00 a.m. Together, they opened the safe, took the receipts to the bank, returned and opened the register, counted the money, checked faxes and e-mails and opened the store. Company policy required both people to be on the sales floor at all times, due to security problems related to the store's location in a high theft area. Murphy was not allowed to schedule more than two employees for a morning shift. In those morning hours, Murphy did the same tasks as the other employee. During a typical morning, between 9:30 a.m. and 1:00 p.m., Murphy and the other employee made sales, retrieved shoes from the stockroom, worked on processing the 3

morning shipment, worked on markdowns or transfers, and if nothing else was happening, they cleaned. In that morning period, Murphy did nothing other than making sales, receiving or transferring product, processing markdowns and cleaning. On weekends, they usually did not receive merchandise and the district manager instructed Murphy to spend his time on the sales floor. Processing the shipment of products involved scanning the boxes, opening them, matching the contents to the packing slip, pricing the boxes, pulling a sample shoe, labeling it, and preparing the merchandise for the stockroom. Processing transfers involved receiving a faxed list from the corporate office of products to be transferred to other stores. Murphy pulled the product from the stockroom, brought it to the sales floor, checked to make sure the shoes matched, scanned the box and wrote in the shipping information. Similarly, the processing of markdowns involved checking the list from the corporate office and changing the prices on the bottom of each shoe. Cleaning involved dusting the displays and polishing the shoes. At all times, he was doing the same tasks as the other employee and no managerial tasks. They worked on the tasks together during this 9 a.m. to 1 p.m. time period. During a typical weekday afternoon, the second shift of either one or two people arrived at 1:00 p.m. The morning employee would go to lunch, and Murphy and another employee would begin carrying the merchandise into the stockroom while covering the sales floor. Directives from the corporate office determined the precise details of how the stockroom was organized and where each item was to be stored. Murphy did not work on commission and was efficient in the stockroom, so he often was the employee working in the stockroom while the commissioned employees worked on the sales floor. At some point, Murphy would go to the office to eat while he checked company e-mails and voice mails. By 2:00 p.m. he was either on the sales floor or back in the stockroom working. At 6:00 p.m., Murphy was scheduled to leave, but he often would have customers on the sales floor, or would do some human resources paperwork. Murphy's duties when he worked the closing shift from noon until 8:00 p.m., were essentially the same as when 4

he worked the opening shift. Typically, he was on the sales floor or in the stockroom from 12:30 to 4:30 p.m. At 4:30 p.m. he would try to eat lunch while he checked KCP company voice mail and e-mail in the office, and then worked on the sales floor until closing time. After the store was closed, Murphy and a sales associate would verify the bank deposit, clean up the store, put shoes away, vacuum and empty the garbage. Typically, they would finish cleaning around 8:45 or 9:00 p.m. Murphy performed tasks that he considered to be management duties, including preparing quarterly employee reviews, interviewing job prospects, preparing payroll worksheets, and preparing the sales report to submit to the district manager. He occasionally called the district manager to try to get different merchandise for the store. Completing the payroll and sales reports took about 30 minutes each week. Murphy spent about an hour a week on communications with the district manager. Although he was not always the one to prepare the weekly work schedule, when Murphy did it, he spent another 30 minutes each week on that task. After receiving a payroll dollar goal and number of hours report from the corporate office, Murphy prepared a schedule to cover the store hours and submitted it for approval to the district manager. The district manager would then instruct Murphy to cut hours, use different employees, or to make other changes. His human resources duties, which consumed about four hours a month, included writing quarterly and annual employee performance evaluations for the assistant manager and the floor supervisor. The assistant manager and floor supervisor did the evaluations of the other employees. Murphy added up the time he spent doing tasks that the other employees also performed and his managerial tasks, and calculated that approximately 90 percent of his time was spent doing the same tasks as the sales associates and only 10 or 11 percent was spent on management tasks. No one ever criticized him for spending too much time on nonexempt activities such as assisting customers, making sales, processing merchandise, handling markdowns and cleaning. He squeezed the performance of his management tasks into the afternoons on days when they had less stock or shipments. 5

Murphy resigned on June 19, 2002. A friend told him that KCP had not been paying him correctly. On October 29, 2002, Murphy filed a complaint with the Labor Commissioner. Murphy was not represented by counsel and he testified that no one informed him that he could raise claims for meal and rest period or pay stub violations. His claim did include a demand for unpaid overtime of $28,742.93, "[i]nterest pursuant to Labor Code Section 98.1 and/or 2802" and "additional wages accrued pursuant to Labor Code Sec. 203 as a penalty of $174.00 per day." On July 14, 2003, after a hearing, the Labor Commissioner issued a decision finding that KCP failed to establish the conditions necessary to qualify Murphy as an exempt employee. The order awarded $26,667.22 in unpaid overtime, $2,863.99 in interest and a waiting time penalty at the rate of $239.25 a day for 30 days. On August 6, 2003, KCP filed a notice of appeal de novo from the decision of the Labor Commissioner. (Lab. Code,

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