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.
The Second District Court of Appeal, however, determined that the administrative/production dichotomy is dispositive of the analysis, even for claims arising after 2000. The administrative exemption requires employees to spend the majority of their time engaged in administrative work. The federal regulations which the defendants’ relied upon reference claims adjusters as performing work of “substantial importance” to the business. The Court of Appeal found that these regulations are not controlling and do not address the administrative/production dichotomy. The claims adjusters at issue primarily spent their time engaged in the day-to-day tasks of the business, as opposed to running the business or determining the overall course of policies for the business, which is required to qualify under the administrative exemption. As such, the Court of Appeal directed the trial court to (1) vacate its order denying the plaintiffs’ motion for summary adjudication and enter a new order granting the motion; and (2) vacate its order partially granting the defendants’ motion to decertify the class and deny defendants’ motion in its entirety.
By granting review in Harris, the California Supreme Court appears to be signaling a desire to revisit the administrative exemption, which has been narrowly construed by several California courts. Whether the Court chooses to further narrow the exemption or reverse course and more liberally construe the exemption could have significant consequences for California employers.