California Supreme Court Clarifies The Administrative Exemption An Analysis Of Harris v. Superior Court Of Los Angeles County

Author:Mr Kirby Wilcox and Jeff P. Michalowski
Profession:Paul Hastings LLP
 
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On December 29, 2011, the California Supreme Court issued its long-awaited opinion in Harris v. Superior Court, the first case in which it has addressed the administrative exemption under California law. The Court reversed the court of appeal's decision upholding summary judgment for a class of claims adjusters. In so holding, the Court clarified the test for the administrative exemption: lower courts may not use the so-called administrative/production worker dichotomy as a dispositive tool for finding employees non-exempt. Instead, they must consider the particular facts before them and apply the language of the statutes and wage orders at issue.

Background on the Administrative Exemption

Under the California Wage Orders, "persons employed in administrative, executive, or professional capacities" are exempt from the overtime requirements. Persons are employed in an administrative capacity if their duties and responsibilities involve office or nonmanual work "directly related to management policies or general business operations of [their] employer or [the] employer's customers."

Federal regulations (which are incorporated into the Wage Orders by reference) define the phrase quoted above as describing activities related to the administrative operations of a business, sometimes referred to as "the running or servicing" of the business, as distinguished from ''production'' or, in a retail or service establishment, ''sales'' work. See 29 C.F.R. 541.205(a)(former).1 The regulations further explain that administrative operations include work done by "white collar" employees engaged in servicing a business, by, for example, advising management, planning, negotiating, and representing the company. See 29 C.F.R. 541.205(b)(former).

Overview of the Case

In the trial court, plaintiffs – claims adjusters employed by Liberty Mutual Insurance Company brought a motion for summary judgment on defendant's affirmative defense that plaintiffs were exempt from the overtime requirements under the administrative exemption. The plaintiffs attacked a single component of the employer's affirmative defense – that the employees' work, qualitatively, was "administrative" in character.

The trial court granted plaintiffs' motion for summary judgment, and the court of appeal affirmed, relying heavily on the so-called administrative/production worker dichotomy. The dichotomy, articulated by the California appellate court in Bell v. Farmers Insurance Exchange, a 2001...

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