Agreement Shortening Time Period to File Wage Claim Held Unenforceable
A recent opinion from the Fourth Appellate District Court of Appeal emphasized that employers cannot by agreement limit the time period in which an employee can file a lawsuit for wage and hour issues. The opinion also exemplifies the difficulty associated with satisfying the requirements of the administrative exemption.
In Pellegrino v. Robert Half International, Inc., six former employees of a temporary staffing company sued their employer under Business and Professions Code section 17200 as well as various Labor Code sections on the grounds that the employer failed to properly compensate them for overtime worked, pay proper commissions, provide meal periods, or provide itemized wage statements. The employer asserted two main defenses to the employees’ claims: (1) the employees were properly classified as exempt under the administrative exemption; and (2) the employees’ claims were barred by the “Limitation on Claims” provision in their employment agreement that shortened the statute of limitations for such claims to six months. The plaintiff filed a motion for summary judgment on the grounds that the shortened time frame to file these claims was unenforceable because it violated public policy, and that they were not properly classified as exempt under the administrative exemption. The court granted the motion with regard to the shortened time frame, but found there was a triable issue of fact as to whether the employees were properly classified as exempt.
At trial, the issue of the administrative exemption was tried first. After all evidence was presented, the Court granted the employees’ motion for judgment and ruled that the employees were not properly classified as exempt as a matter of law. The employer appealed the ruling on the motion for judgment at trial and the prior motion for summary judgment.
On appeal, the court affirmed both rulings. With regard to the ruling concerning the shortened time frame to file the claims, the Court agreed that statutory wage and hour rights cannot be waived. To support this conclusion, the Court cited to Labor Code section 219 that provides “Nothing in this article shall in any way limit or prohibit the payment of wages at more frequent intervals, or in greater amounts, or in full when or before due, but no provision of this article can in any way be contravened or set aside by a private agreement, whether written, oral, or implied.” The Court also relied on prior cases, such as Gentry v. Superior Court, 42 Cal.4th 443 (2007), Franco v. Athens Disposal Co,. Inc., 171 Cal.App.4th 1277 (2009), and Zavala v. Scott Brothers Dairy, Inc., 143 Cal.App.4th 585 (2006), that previously determined certain wage and hour issues under the Labor Code, including the right to minimum wage, overtime compensation, meal and rest breaks, and itemized wage statements, could not be waived. The Court additionally referenced Martinez v. Master Protection Corp., 118 Cal.App.4th 107 (2004), which determined an arbitration agreement that required an employee to file any employment related claims within six months of the date the claim arose was unenforceable. The Court agreed with Martinez’s holding that “the enforcement of a provision in an employment agreement, which serious truncates the time period in which an employee may assert any claim, unlawfully restricts the employee’s ability to vindicate his or her statutory rights.”
With regard to the issue of whether the employees were properly classified as exempt under the administrative exemption, the Court agreed they were not. The employees had presented evidence at trial that they did not perform work “directly related to the management policies or general business operations” of the company, as required to fall under the administrative exemption. Rather, the employees performed duties that constituted sales work such as placing a candidate with a client, selling the services of the company to clients, and soliciting potential clients for sales. The employees’ performance was evaluated on how well they met or exceeded their sales goals. They had no supervisory duties and did not form any company policy.
The Pellegrino decision is here.
California's DLSE Now Allows Pro-Rata Reduction of Exempt Salaries
Reversing one of its earlier opinion letters from 2002, California’s Department of Labor Standards Enforcement issued a new opinion letter on August 19 stating that employers may implement a pro-rata reduction of exempt employee salaries, in exchange for a shortened workweek. Specifically, the opinion letter addresses whether an employer may shorten the workweek from five days to four days and reduce salaries by a proportionate 20%. The DLSE opined that an employer could properly do this, without violating the salary basis test and without jeopardizing the exempt status of its employees under federal or California law. The DLSE relied on several federal Department of Labor opinion letters and related federal caselaw upholding the lawfulness of a pro rata salary reduction in circumstances where an employer shortens its employees’ workweek due to economic necessity.
As many California employers know, the DLSE’s new opinion letter flatly contradicts a prior opinion letter on the same subject, in which the DLSE concluded that employers could not reduce an exempt employee’s salary in exchange for a commensurate reduction in the hours of work, without violating the salary basis test and jeopardizing the employee’s exempt status. In the DLSE’s prior opinion letter, the DLSE reasoned that tying an employee’s compensation to the amount of hours or days the employee works is inconsistent with the notion of being a salaried employee and, therefore, violates the salary basis test.
The DLSE’s new guidance on the subject is consistent with federal law and provides employers more flexibility in making necessary reductions in exempt salaries during tough economic times, by allowing employers to provide affected employees with a reduced workload in exchange for the salary reduction. That being said, the DLSE’s shifting positions on the requirements of California’s wage and hour laws (shifts that are notable not only in this area, but also in many others, including the subject of meal period requirements) begs the question: if the agency charged with the responsibility of interpreting California’s wage and hour laws cannot seem to decide what the laws require, how is it fair to hold California employers strictly responsible for understanding the specific requirements on threat of having to defend costly class action litigation and potentially pay a judgment for getting it wrong based on the interpretation of the day?
Ninth Circuit Asks For California Supreme Court's Guidance on Outside Sales Exemption
Several class action lawsuits are pending before the Ninth Circuit and federal district courts in California challenging the exempt classification of pharmaceutical sales representatives under the outside salesperson exemption and administrative exemption. One of these cases, D’Este v. Bayer Corporation is currently before the Ninth Circuit. Earlier this week the Ninth Circuit certified questions of California law to the California Supreme Court regarding the scope of these exemptions, reasoning that it is unclear under California law whether these exemptions apply to pharmaceutical sales representatives and the outcome of several pending cases depends on clear guidance on these issues. The specific questions certified to the California Supreme Court are as follows:
1. The Industrial Welfare Commission’s Wage Orders 1-
2001 and 4-2001 define “outside salesperson” to mean
“any person, 18 years of age or over, who customarily
and regularly works more than half the working time
away from the employer’s place of business selling tangible
or intangible items or obtaining orders or contracts for
products, services or use of facilities.” 8 Cal. Code Regs.,
tit. 8, §§ 11010, subd. 2(J); 11040, subd. 2(M). Does a
pharmaceutical sales representative (PSR) qualify as an
“outside salesperson” under this definition, if the PSR
spends more than half the working time away from the
employer’s place of business and personally interacts
with doctors and hospitals on behalf of drug companies
for the purpose of increasing individual doctors’ prescriptions
of specific drugs?
2. In the alternative, Wage Order 4-2001 defines a person
employed in an administrative capacity as a person whose
duties and responsibilities involve (among other things)
“[t]he performance of office or non-manual work directly
related to management policies or general business opera-
tions of his/her employer or his employer’s customers”
and “[w]ho customarily and regularly exercises discretion
and independent judgment.” Cal. Code Regs., tit. 8
§ 11040, subd. 1(A)(2)(a)(I), 1(A)(2)(b). Is a PSR, as
described above, involved in duties and responsibilities
that meet these requirements?
The California Supreme Court has discretion whether to accept the Ninth Circuit's request for certification. We will continue to monitor and post any developments.
Appellate Court Rejects Application of Administrative/Production Worker Dichotomy
By Connor Moyle
A recent decision by California's Fourth District Court of Appeal analyzed the administrative exemption from overtime compensation and found that an employer was entitled to summary judgment because its network operations director qualified for the administrative exemption. Significantly, in reaching its conclusion in Combs v. Skyriver Communications, Inc., 159 Cal.App.4th 1242 (2008), the court held that it was not necessary to apply the administrative/production worker dichotomy and that the employee qualified for the exemption without regard to that test.
Background
Plaintiff Mark Combs sued his former employer Skyriver Communications seeking recovery of unpaid overtime. Skyriver is a high-speed wireless broadband internet service provider. Combs worked for Skyriver starting in 2001, first as manager of capacity planning, and then as director of network operations. Combs’ duties were largely undisputed. A resume Combs prepared after leaving Skyriver indicated that he was responsible for project management, budgeting, vendor management, purchasing, forecasting, employee management, management of overseas deployment of wireless data network, management of the integration and standardization of three networks into the Skyriver architecture, and the overseeing of day to day network operations. At trial, Combs testified that he spent 60-70% of his time on his “core” responsibility of maintaining the well-being of Skyriver’s network. This responsibility included high-level problem solving and “troubleshooting,” as well as planning to integrate acquired networks into Skyriver’s network. Combs also prepared reports for Skyriver’s board of directors and conducted lease negotiations and equipment sourcing and purchasing. The trial court granted Skyriver’s motion for judgment on the ground that Combs was exempt from overtime under the administrative exemption.
On appeal, Combs claimed that the court should have applied the “administrative/production worker dichotomy” as set forth in Bell v. Farmers Insurance Exchange, 87 Cal.App.4th 805 (2001) (“Bell”), and that application of the dichotomy would have led to a determination that he was a nonexempt production worker. Combs also claimed that, apart from the administrative/production worker dichotomy, application of the proper test for the administrative exemption under IWC Wage Order No. 4-2001 would have resulted in summary judgment in his favor because his job duties did not meet the requirements of the exemption.
Appellate Court Analysis
1. Administrative/Production Worker Dichotomy Did Not Apply
The court first addressed the issue of whether the trial court should have applied the administrative/production worker dichotomy to determine whether Combs was an exempt or nonexempt worker. The court explained that in some cases, such as Bell, a distinction was drawn between 1) administrative employees, who are usually described as employees performing work directly related to management polices or general business operations and 2) production employees, whose primary duty is producing the commodity or commodities that the enterprise exists to produce. Employees falling into the first category are more likely exempt from overtime compensation requirements while employees in the second category are more likely nonexempt. Combs claimed that he fell into the second category because Skyriver’s product for purposes of the administrative/production worker dichotomy was its network because the network provided the internet connectivity that Skyriver marketed. Combs accordingly claimed he was a production worker who provided the network that provided the connectivity.
Continue ReadingCourt Orders Production of Attorney-Client Communication in Misclassification Case
In Costco Wholesale Corp. v. Superior Court, a putative class action alleging misclassification of certain Costco managers,
On review, the Second Appellate District affirmed the trial court’s order, based on its determination that Costco has not proven the need for “extraordinary” writ relief. According to the court, Costco had not demonstrated that it would be “irreparably harmed” by disclosure of portions of the memorandum describing managers’ job duties because, according to the court, this information “came from job descriptions and interviews with two managers,” was “inconsequential,” and did not “infringe on the attorney-client relationship.” The court rejected Costco’s argument that the factual portions of the memorandum were work product in that they necessarily reflected counsel’s legal impression of the facts. The court also concluded that Costco would not be harmed by the disclosure because the information was readily available through other sources anyway, i.e. depositions, interrogatories, requests for production of job descriptions.
Assuming the Costco decision withstands further appeal, it should be expected that plaintiffs’ attorneys will heavily rely on this decision going forward as a means of trying to obtain in camera review and possible production of legal memoranda and other communications between counsel and their clients, analyzing the propriety of exempt classification.
California Supreme Court to Analyze Administrative Exemption
Posted by Jennifer Barrera
On November 28, 2007, the Supreme Court granted review of Harris v. Superior Court, 154 Cal.App.4th 164 (2007). The issue in Harris that the Supreme Court will review is whether insurance claims adjusters were properly classified by their employer as exempt under the administrative exemption. Specifically, the Court will analyze whether the claims adjusters were engaged in work that was “directly related to management policies or general business operations,” commonly referred to as the administrative/production dichotomy, and whether this analysis is dispositive of the issue regarding whether an employee is properly classified under the administrative exemption.
This case originated in Los Angeles Superior Court. The plaintiffs filed a motion for summary adjudication regarding the defendants’ affirmative defense that the claims adjusters were properly classified under the administrative exemption. The plaintiffs also filed a motion for class certification. The trial court denied the motion for summary adjudication on the grounds that the administrative/production dichotomy was not dispositive of the issue for claims arising after October 2000, because of federal regulations that indicated claims adjusters and the work they perform qualifies as exempt work under the administrative exemption. Based upon the regulations, the court determined the administrative/production dichotomy was essentially irrelevant. The trial court initially granted the plaintiffs’ motion for class certification, but later partially decertified the class for claims arising after 2000 on the same grounds.
Continue ReadingAppellate Court Emphasizes Narrow Nature of Administrative Exemption
Posted by Brent Giddens
On August 16, 2007, the California Court of Appeal issued Harris v. Superior Court, another in a series of California cases emphasizing the narrow scope of the administrative exemption under California law. In Harris, a class of insurance claims adjusters alleged that they were improperly classified as exempt from California's overtime compensation requirements. The defendant insurance companies contended the adjusters were properly classified as exempt pursuant to the administrative exemption. The Court explored the "administrative/production worker dichotomy." The administrative/production worker dichotomy is a concept which explores the extent to which the employees' performed work generally related to the ongoing operation of the business (administrative), or the day-to-day tasks necessary to operate the employers' business (production work).
While acknowledging the line between exempt administrative and non-exempt production work is not clear, the Harris decision is yet another that narrowly interprets the exemption. In particular, the Court found that exempt administrative work must be carried out at the general operational or policy making level, and that producing the employer's product is not necessarily a condition for doing production work. That is, day-to-day systematic activities necessary for the employer's business operations may well be non-exempt work even if such activities are not producing the employers' product. Employers are advised to carefully evaluate those classified as exempt administrators, as the availability of this exemption continues to narrow. To read a copy of Harris v. Superior Court, click here.
Court Issues Ruling Narrowly Interpreting Administrative Exemption.
On June 12, 2007, the Third District Court of Appeal further narrowed the administrative exemption that employers may use to exempt certain employees from California overtime requirements. In Eicher v. Advanced Business Integrators, Inc., (2007) ____ Cal. App. 4th ______, the plaintiff provided customer service and training concerning the defendant employer’s software. The defendant classified the plaintiff as exempt under the administrative exemption. The Court of Appeal sustained the superior court’s ruling that the plaintiff did not meet the requirements of the administrative exemption.
To qualify for the administrative exemption, an employee must, among other things, perform “office or non-manual work directly related to management policies or general business operations” of the employer or its customers. In Eicher, the court narrowly interpreted this requirement to insist that the employee have “personal effect on the policy or general business operations” of the employer. In Eicher, the plaintiff's primary responsibilities consisted of implementing and troubleshooting his employer's software at customer venues, as well as providing on-site and off-site customer support. The court opined that the plaintiff was more akin to a production worker previously found not to qualify for the administrative exemption because he was simply “engaged in the core day-to-day business” of the defendant. Because the plaintiff had no personal effect on policy or general business operations, the court found that the requirement was not satisfied and, therefore, the administrative exemption did not apply. For more information concerning Eicher v. Advanced Business Integrators, Inc., click here.
Denial Of Class Certification In Executive Exemption Case Upheld
Dunbar v. Albertson’s, Inc., _ Cal. Rptr. 3d _, 2006 WL 2025013 (Cal. App. 1st Dist. July 20, 2006)
The Court of Appeal (First Appellate District, Division One) affirmed the trial court’s order denying class certification in an exemption case involving grocery managers (second in command at each store) at Albertson’s. The appellate court “read the court’s decision . . . to conclude[] that 900 individual inquiries – one for each grocery manager – would be required, because findings as to one manager could not ‘reasonably [be] extrapolate[d]’ to others given the significant variation in the work performed by grocery managers from store to store and week to week, as shown by defendant’s evidence,” which included 79 declarations of grocery managers, deposition excerpts, a chart outlining how the deposition testimony and Defendant’s counter-declarations differed from Plaintiff’s declarations, and statistics on varying amounts of time that grocery managers spent working cash registers over a year-long period.
Notably, Plaintiff urged on appeal that the trial court ignored its evidence and argument that individual issues could be effectively managed with the use of exemplar plaintiffs, survey results, subclassing, mini-trials, or special masters. The appellate court found that the record did not show that the trial court failed to consider these proposed methods but rather that the trial court rejected them in concluding that findings as to one grocery manager could not be extrapolated to others given the variations in their work. Although the trial court has an obligation to consider the use of “innovative procedural tools proposed by a party to certify a manageable class,” the party seeking class certification “must explain how the procedure will effectively manage the issues in question,” which the Plaintiff failed to do.
California Follows Federal Law On Partial-Day Absences
Posted by: Mark S. Spring
California employers may now deduct partial-day absences from an exempt employee's accrued vacation without fear of rendering the employee non-exempt. Although partial-day deductions have been permitted under federal law for a number of years, California law had been in limbo since a 2002 opinion letter from the Division of Labor Standards Enforcement (DLSE) suggested that such deductions may jeopardize exemptions under the "salary basis" test and expose employers to significant risks of having to pay overtime to exempt workers. Conley v. Pacific Gas & Electric, decided in July 2005, confirms that employers can now make partial-day deductions from vacation or PTO banks and also suggests employers may have more control over when employees can use vacation time than previously thought.
In Conley, a group of exempt PG & E employees filed a class action, disputing PG & E's classification of all exempt PG & E employees. Arguing that PG & E's express and documented policy of deducting partial-day absences from the banked vacation of exempt employees rendered them non-exempt as a matter of law, the employees claimed years of unpaid overtime. The trial court disagreed and refused to certify the class. The Court of Appeal affirmed and found for the employer.
Although the Court agreed that a reduction in actual compensation for partial-day absences would defeat exempt classification, they found no such reduction in Conley. The Court of Appeal distinguished the Conley situation in stating that by deducting from banked vacation, the employer was not reducing compensation, only requiring that employees use accrued vacation when they were actually on vacation.
For employers ready to implement policies related to this new ruling, a bit of advice:
(1) The ruling applies only to accrued vacation or PTO; employers still may not deduct from an exempt employee's pay for partial-day absences. If the employee has exhausted his or her accrued vacation leave, the employer may be required to give an exempt employee additional time off for partial-day absences.
(2) The Conley court defined "partial-day" as "four hours or more in a single day." Making deductions in smaller increments have yet to be tested in the courts.
(3) Finally, employers should probably wait until September 2005 to make sure that the Conley decision is not further appealed to the California Supreme Court before finalizing and implementing any new policies related to partial day deductions.