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California Supreme Court Punts on Whether Claims Adjusters Might be Exempt

  • January 4, 2012

Sidestepping its first opportunity to address California’s overtime exemption for administrative employees, the state Supreme Court has ruled that although the court of appeal misapplied the “administrative/production worker dichotomy,” the case should be remanded for analysis under the applicable Industrial Welfare Commission wage order.  In Harris v. Superior Court (Liberty Mutual), No. S156555 (Dec. 29, 2011), the unanimous Court reversed a determination that insurance adjusters were non-exempt production workers because “the Court of Appeal misapplied the substantive law.”

The plaintiff claims adjusters, employed by Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation, filed class action lawsuits alleging their employers erroneously classified them as exempt “administrative” employees.  They sought damages for allegedly unpaid overtime work.  They argued that based on the California court of appeal decisions in Bell v. Farmer’s Ins. Exchange, (2001) 87 Cal.App.4th 805 (Bell II), and Bell v. Farmers Ins. Exchange, (2004) 115 Cal.App.4th 715 (Bell III), insurance adjusters were production workers who provided the service for which the company existed, rather than administrative employees operating the business, and, as such, were not exempt.

The Supreme Court observed in Harris that the Bell cases interpreted, on a record where the employer conceded plaintiffs did work that was “routine and unimportant,” the 1998 version of Industrial Welfare Commission (“IWC”) Order 4 that contained scant definition of an exempt administrative employee.  As directed by Labor Code section 515(a), enacted in 2000, however, the IWC issued revised Orders 4 in 2000 and 2001 to provide more specific definition.  The later Orders also incorporated federal regulations existing at the time.  The Supreme Court found the Labor Code, the amended wage orders and the incorporated federal regulations “now provide an extensive and explicit framework for analyzing the administrative exemption.” 

The Supreme Court also found the court of appeal’s application of the so-called administrative/production worker dichotomy as an analytical tool to be misplaced.  “The majority below provided its own gloss to the administrative/production worker dichotomy and used it, rather than applying the language of the relevant wage order and regulations,” the Court wrote.  “Such an approach,” the Court continued, “fails to recognize that the dichotomy is a judicially created creature of the common law which has been effectively superseded in this context by the more specific and detailed statutory and regulatory enactments.”
The Supreme Court remanded the case to the court of appeal, observing that “in resolving whether work qualifies as administrative, courts must consider the particular facts before them and apply the language of the statutes and wage orders at issue.” 

What does it mean?  The Supreme Court questioned the court of appeal’s uncritical application of the Bell cases to find, categorically, that claims adjusters are not exempt.  Some employers and management attorneys had hoped the Supreme Court simply would reverse that finding and hold the workers to be exempt.  The Supreme Court did not do so; instead, it ruled only that such adjusters are not categorically non-exempt under California law and sent the case back to the court of appeal, emphasizing that a careful qualitative and quantitative analysis must be done to render a decision.

Determining whether the administrative exemption may apply to California workers requires a fact-intensive analysis of the role of the worker in the organization and of the worker’s particular job duties.  Further, the analysis must also examine how much time the worker spends performing exempt versus non-exempt duties.  Jackson Lewis attorneys in our five California offices experienced in these analyses are available to assist employers. 

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