May 18, 2008 California Supreme Court Denies Review in Administrative Exemption Case

Summary

Last week the Supreme Court of California denied review in Combs v. Skyriver Communications, Inc., letting stand a decision by the Court of Appeal holding that trial courts need not apply the so-called "administrative/production worker dichotomy" in administrative exemption cases. Our firm represented the employer in this case, which received a fair amount of attention earlier this year after the Court of Appeal's decision affirming judgment in favor of the employer (Click here to view decision).

Details

Mark Combs was the Director of Network Operations for Skyriver Communications, a wireless broadband service provider.  Combs voluntary resigned his position and shortly thereafter sued Skyriver for unpaid overtime, claiming that Skyriver had misclassified him as an exempt employee.  Skyriver denied liability, contending that it had properly classified Combs as an exempt employee under the administrative exemption set forth in Industrial Welfare Commission Wage Order No. 4-2001.

At trial, Combs urged the court to analyze his job duties under the so-called "administrative/production worker dichotomy," a test previously articulated in numerous federal court decisions, and more recently in a few California cases.  The "dichotomy" analyzes the job duties of an employee to determine whether they are "administrative" in nature, or are more geared toward "production."  If the job duties fall on the "administrative" side of the line, the administrative exemption might apply, as long as the other criteria in the exemption are satisfied.  However, if the employee's job duties fall on the "production" side of the line, the administrative exemption cannot apply.

In analyzing the evidence presented at trial, the trial court declined to apply the "dichotomy," and instead analyzed Combs' job duties by applying the criteria listed in Wage Order No. 4-2001.  The trial court concluded that Combs was properly classified as exempt under the administrative exemption, and entered judgment in favor of Skyriver.

Combs' appealed, arguing that prior case law made application of the dichotomy mandatory in administrative exemption cases, and that the trial court's refusal to apply the dichotomy was reversible error.  In affirming the trial court's decision, the Court of Appeal noted that the California cases applying the dichotomy had arisen under former Wage Order No. 4, which contained "no useful definition of the scope of the administrative exemption."   The Court explained that the dichotomy test was not required in cases arising under the newer Wage Order No. 4-2001, which expressly incorporates detailed criteria delineating the scope of the administrative exemption.

What This Means

This case is good news for employers.  The administrative exemption was developed in the 1930s, in an era when it was much clearer whether an employee's duties were "administrative" in nature or were more geared toward "production."  In today's high-tech economy, employees often wear multiple hats, which can make an administrative/production determination much more difficult.  This case gives employers more flexibility to prove that an employee classified as exempt under the administrative exemption has been properly classified.

However, a word of caution is in order.  Despite the sharp increase in overtime lawsuits in recent years, many employees are still misclassified, especially in technology-related fields.  Although many of these employees work under little supervision, they often do not exercise the level of discretion and independent judgment required to qualify as exempt employees.  Employers should make sure that employees classified as exempt from overtime satisfy all the criteria for an exemption.

In addition, it should be noted that another administrative exemption case, Harris v. Superior Court, remains pending before the California Supreme Court.  The administrative/production worker dichotomy is also an issue in the Harris case, so Combs may not be the last word on that issue.

This E-Update was authored by Aaron Buckley.  For more information, please contact Mr. Buckley or any Paul Plevin attorney at (619) 237-5200.