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
Posted by Kendra D. Miller
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.