California Supreme Court clarifies the exempt "administrative" employee definition

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SAN DIEGO. On December 29, 2011, the California Supreme Court decided Harris v The Superior Court of Los Angeles County, No. S156555, Supreme Court of California (December 29, 2011). The case gives guidance on how to decide whether an employee is under the administrative employee exemption from overtime under the California Wage Orders.

Facts
Insurance abjusters from Liberty Mutual Insurance Company and Golden Eagle Insurance Company fuled a class action lawsuit claiming that they should not have been classified as exempt administrative employees.

Law

California Labor Code provides that “administrative” employees are exempt from overtime requirements. Wage Orders incorporate by reference Federal Regulations which define administrative employee as an
employee who exercises independent judgment and discretion in discharging primarily “administrative” duties, including work by white collar employees in negotiating and representing the company, as opposed to “production” or “sales” work. 29 C.F.R. 541.205.

The Supreme Court of California determined that the proper test in deciding whether the duties are administrative is to see whether the work is directly related to management policies or general business operations. The test is whether the work is:

(1) “qualitatively administrative,” and
(2) “quantitatively… of substantial importance to the management or operations of the business.”

Applying this test, the California Supreme Court decided that the Court of Appeals erred in deciding that the insurance claims adjusters were administrative employees exempt from overtime.

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