                                                                             FILED
                                                                             MAR 25 2015
                             NOT FOR PUBLICATION                          MOLLY C. DWYER, CLERK
                                                                           U.S. COURT OF APPEALS

                      UNITED STATES COURT OF APPEALS

                              FOR THE NINTH CIRCUIT


VIRGINIA VELAZQUEZ, individually                 Nos. 13-55241 and
and on behalf of all others similarly                 13-55822
situated; STEVEN BERRY, individually
and on behalf of all others similarly            D.C. No. 8:11-cv-00508-JVS
situated; ED WHITAKER, individually              (RNBx)
and on behalf of all others similarly
situated,                                        MEMORANDUM*

                Plaintiffs - Appellees,

  v.

COSTCO WHOLESALE
CORPORATION,


                Defendant - Appellant.


                     Appeal from the United States District Court
                        for the Central District of California
                      James V. Selna, District Judge, Presiding




            *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
            The Honorable David Bryan Sentelle, Senior Circuit Judge for the U.S.
Court of Appeals for the District of Columbia Circuit, sitting by designation.
                     Argued and Submitted February 11, 2015
                              Pasadena, California


Before: SENTELLE,** CHRISTEN, and HURWITZ, Circuit Judges.


      Costco appeals the district court’s judgment (1) awarding plaintiffs Virginia

Velazquez and Steven Berry unpaid overtime wages as well as interest, costs, and fees

under Sections 510 and 1194 of the California Labor Code and Sections 17200

through 17210 of the California Business and Professions Code, and (2) ordering

Costco to pay a continuing-wages penalty under Sections 202 and 203 of the

California Labor Code. Because the district court applied the correct legal standard

and did not clearly err when it concluded Costco failed to prove Velazquez and Berry

spent more than half of their time on managerial duties, we affirm the portion of the

judgment awarding plaintiffs unpaid overtime. We reverse the portion of the district

court’s judgment ordering Costco to pay Berry $14,520 in continuing wages because

there is no evidence suggesting Costco willfully failed to pay Berry’s unpaid overtime

upon his termination.

      1. The application of California overtime exemptions presents “a mixed

question of law and fact.” Sav-on Drug Stores, Inc. v. Super. Court, 96 P.3d 194, 202




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(Cal. 2004). “How [an employee] spent his [or her] working time is a question of fact

reviewed under the clearly erroneous standard.” Bothell v. Phase Metrics, Inc., 299

F.3d 1120, 1124 (9th Cir. 2002). Whether those activities precluded the employee

from overtime benefits “is a question of law and the court reviews the district court’s

decision de novo.” Id.

      2. The parties agreed that plaintiffs established a prima facie case for failure

to pay overtime under Section 1194 of the California Labor Code. As an affirmative

defense, Costco argued that it properly designated plaintiffs exempt from overtime.

See Ramirez v. Yosemite Water Co., Inc., 978 P.2d 2, 8 (Cal. 1999). In order to

establish the propriety of exempting Velazquez and Berry, Costco was required to

prove that they were “primarily engaged in duties which meet the test of the

[executive or administrative] exemption.” Cal. Code Regs. tit. 8, § 11070 subd.

1(A)(1)(e), (1)(A)(2)(f). The district court therefore had to determine, on a factual

basis, how plaintiffs spent their time.

      3. To determine whether an employee is primarily engaged in managerial

duties (and is therefore exempt from overtime), a court should look “not only to the

‘work actually performed by the employee during the workweek,’ but also to the

‘employer’s realistic expectations and the realistic requirements of the job.’” Heyen

v. Safeway Inc., 157 Cal. Rptr. 280, 304 (Cal. Ct. App. 2013) (quoting Cal. Code


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Regs. tit. 8, § 11070 subd. 1(A)(1)(e)). Costco contends the district court erroneously

rejected its realistic expectations as a basis for exempting plaintiffs from overtime.

We disagree.

      4. A court cannot determine whether an employee primarily engaged in exempt

managerial duties based solely on “the number of hours that the employer, according

to its job description or its estimate, claims the employee should be working.”

Ramirez, 978 P.2d at 13. If it did, “then the employer could make an employee

exempt from overtime laws solely by fashioning an idealized job description that had

little basis in reality.” Id. Similarly, a court cannot solely rely on an employee’s

reported hours because the employee could then “evade a valid exemption” through

“his own substandard performance.” Id. To “steer clear of these two pitfalls,” the

court should consider “the realistic requirements of the job.” Id. Nonetheless, “first

and foremost,” the court should consider “how the employee actually spends his or her

time.” Id. The district court did that here, and it did not err.

      5. Costco offered expert testimony to support its realistic-expectations position

and to rebut plaintiffs’ claim that there was only one way to perform their job. The

district court did not abuse its discretion when it excluded that testimony under

Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993).




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      6. Costco suggests the district court misread Ramirez as requiring it to prove

there was a “concrete expression of employer displeasure over [plaintiffs’]

substandard performance.” 978 P.2d at 13. We disagree. The district court neither

misread Ramirez nor “invented” any requirement for Costco to prove that it

affirmatively complained to plaintiffs about the nature of the work they performed as

warehouse receiving managers. Appellant’s Br. at 24. On the contrary, the district

court correctly applied Ramirez and considered any expression of displeasure (or lack

thereof) as one factor weighing against Costo’s executive-exemption defense.

      7.   In addition to the back pay award to plaintiff Berry, the district court

ordered Costco to pay continuing wages after his termination as a penalty under

Section 203 of the California Labor Code. Costco argues that the district court erred

in making that penalty award, and we agree. Section 203(a) provides:

         If an employer willfully fails to pay, without abatement or reduction,
      in accordance with Sections 201, 201.3, 201.5, 201.9, 202, and 205.5,
      any wages of an employee who is discharged or who quits, the wages of
      the employee shall continue as a penalty from the due date thereof at the
      same rate until paid or until an action therefor is commenced; but the
      wages shall not continue for more than 30 days.

There is no evidence in this case to support a “willful” failure to pay by Costco. See

Amaral v. Cintas Corp. No. 2, 78 Cal. Rptr. 572, 609 (Cal. Ct. App. 2008) (“So long

as no other evidence suggests the employer acted in bad faith, presentation of a good



                                          5
faith defense, based in law or fact, will negate a finding of willfulness.”). It is not

enough that the company knew that it was not paying the overtime, or the language

of § 203(a) would be superfluous. “The settled meaning of ‘willful,’ as used in

section 203, is that an employer has intentionally failed or refused to perform an act

which was required to be done.” Id. at 607. There was no showing here of bad faith

or deliberate intent to violate the requirements of the statute. We therefore vacate the

portion of the district court’s judgment ordering Costco to pay Berry $14,520 in

continuing wages.

      8. Costco further argues that its damages should be mitigated on the basis of

the “avoidable consequences doctrine.” See State Dep’t of Health Servs. v. Super.

Court, 79 P.3d 556, 564 (Cal. 2003). Costco contends that under this doctrine, even

if the plaintiffs were misclassified, a recovery should be barred to the extent that they

failed to take reasonable steps to avoid their damages. Costco contends that these

employees, realizing that their tasks were more often characteristic of hourly paid

personnel than of managers, should have made an effort to correct that

mischaracterization. We are not convinced. Under the applicable doctrine, the

employer’s invocation of the employees’ duty to mitigate is effective only where the

employer has taken “reasonable steps to prevent and correct” the wrong leading to the

employees’ damages. Id. at 565. Here the district court found no such steps on


                                           6
Costco’s part. Costco’s assertion that it had an HR department to whom the

employees could have made their situation known means little. As the district court

observed: “Every business has an HR department.” We therefore affirm the district

court’s decision not to reduce plaintiffs’ damages for failure to mitigate.

      9. Although Costco makes further arguments, none warrants relief nor compels

further discussion.

      10. We affirm the district court’s award of fees and costs. Each party shall bear

its own costs on appeal.

      AFFIRMED IN PART; REVERSED IN PART.




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