CALIFORNIA SUPREME COURT TO CONSIDER SCOPE OF "ADMINISTRATIVE" EXEMPTION TO OVERTIME REQUIREMENTS

The California Supreme Court has granted review in Harris v. Superior Court (2007) 154 Cal.App.4th 164, review granted Nov. 28, 2007, S156555, involving application of the "administrative" exemption to California's overtime requirements.

Harris arose from four coordinated class actions brought by plaintiff insurance claims adjusters against the insurance companies who employed them. These claims adjusters alleged that the defendant insurance companies improperly classified them as exempt from California's overtime requirements and sought to recover for such unpaid overtime. The defendants maintained that the adjusters were covered by the "administrative" exemption to the overtime requirements. The Court of Appeal explained that the "administrative" exemption applies only to employees who are "primarily engaged in work of a type that is 'directly related to management policies or general business operations'" and held that "only work performed at the level of policy or general operations can" satisfy this "directly related" standard. (Harris, supra, 154 Cal.App.4th at pp. 176-177.) According to the Court of Appeal, "work that merely carries out the particular, day-to-day operations of [a] business" is production work rather than administrative work and does not qualify for the "administrative" exemption. (Id. at pp. 177-178.)

The Harris court determined that the work primarily performed by the plaintiff claims adjusters—i.e., investigating and estimating claims, making coverage determinations, setting reserves, negotiating settlements, making settlement recommendations for claims beyond their settlement authority, and identifying potential fraud—was merely part of the day-to-day operations of the insurance companies' business and not "carried on at the level of management policy or general operations." (Harris, supra, 154 Cal.App.4th at p. 178.) Thus, the court held that the plaintiffs were not exempt "administrative" employees. (See id. at pp. 178-180.)

The defendants petitioned the California Supreme Court to consider whether the "administrative" exemption is limited to those employees who perform work at the level of setting management policy or general operations, or whether the exemption more broadly covers employees whose work affects policy or whose responsibility it is to execute or carry out policy.

For more information about this case, contact Horvitz & Levy partner Lisa Perrochet (818.995.0800; lperrochet@horvitzlevy.com).

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