The Supreme Court ruled that amendments to California’s wage orders in 1999 provided clarification on the scope of the administrative exemption, and therefore, it was no longer appropriate to rely solely on the administrative/production work dichotomy. The new wage orders provide, in part, that employees are exempt from overtime under the administrative exemption if their duties and responsibilities involve office or nonmanual work “directly related to management policies or general business operations of [their] employer or [the] employer’s customers.” Wage Order 4-2001, subd. 1(A)(2)(a)(i). The wage orders incorporated former part 541.205 of the federal regulations, which stated that administrative employees include employees engaged in servicing a business. Such servicing may include advising management, planning, negotiating, and representing the company. Thus, the wage orders and incorporated federal regulations provide a framework for analyzing the administrative exemption and it is not necessary to rely solely on the administrative/production dichotomy. The Supreme Court noted that while the administrative/production dichotomy may sometimes be used as an analytical tool, it should not be used as a dispositive test. The Court refused to express an opinion on the strength of either party’s position on whether the employees in question are exempt and remanded the case back to the court of appeal to apply the proper standard.
The decision reflects a common sense approach more closely aligned with federal law on the issue of whether claims adjusters are exempt from overtime. Employers should monitor the case for further rulings from the court of appeal. In the meantime, employers should perform exempt status evaluations of all claims adjuster positions to evaluate whether the adjusters are properly classified under both California and current federal law.
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