• California Supreme Court Ruling Expands Employers’ Ability to Classify Employees As Exempt Under Wage and Hour Laws.
  • January 17, 2012 | Author: Keith Dobyns
  • Law Firm: Lynberg & Watkins A Professional Corporation - Los Angeles Office
  • Under California law, all employees in California are entitled to overtime unless they qualify for one of the "white collar" exemptions: the "executive," the "administrative," or the "professional" exemption. In a highly technical decision the California Supreme Court clarified the scope of the administrative exemption under the California Labor Code, potentially opening the door for more employees to be classified as exempt. The court focused its decision on the determination whether an employee’s work is "administrative."

    The Plaintiffs were claims adjusters who worked for Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation. They claimed they were misclassified as administrative (therefore exempt) employees and denied overtime compensation. In the past, employees seeking to be classified as non-exempt would argue that they did not satisfy the "administrative/production" test to qualify as administrative employees. The "administrative/production" test looks at whether the employee carried out the daily operations of the business (non-administrative) or set company policy (administrative). Plaintiffs claimed they should not have been considered exempt as administrative personnel because they merely carried out the daily operations of the business and did not set company policy.

    The Supreme Court ruled that the "administrative/production" test is not a hard and fast rule to determine whether an employee is exempt or non-exempt. Rather, such a test is only one of a number of factors to be considered in determining whether an employee can be deemed "administrative" and thus exempt from overtime laws.

    The Court pointed out that other factors to be considered are whether: (1) the employee exercises discretion and independent judgment; (2) the employee directly assists an employee in an executive or administrative capacity; and (3) the employee performs specialized or technical work under only general supervision.

    Practical Tip: The Supreme Court’s decision in Harris v. Superior Court may be good news for California employers.  It means more employees could potentially be classified exempt from overtime and other wage-and-hour requirements

    Unfortunately, since the Court did not establish a clear test for the administrative exemption it will take future court cases to allow for further clarification and definition. Accordingly, employers should continue to exercise caution when classifying employees as exempt and, if there is any question, seek advice before making a final decision.