Harris v. Superior Court, No. B195121 (Cal. App. July 23, 2012)

Is it “here we go again” for Harris? In the latest round of the donnybrook that is the administrative exemption in California, a California Court of Appeal in Harris v. Super. Ct., No. B195121 (Cal. App. July 23, 2012), held that the plaintiffs, insurance claims adjusters, were—as a matter of law—not exempt from California’s overtime laws under California’s administrative exemption. After a trial court certified a partial class of California claims adjusters, but denied plaintiffs’ motion for summary judgment, the parties appealed the decision all the way to the California Supreme Court. In December 2011, the California Supreme Court issued its long-awaited decision in Harris v. Super. Ct., No. S156555 (Cal. Dec. 29, 2011). The Supreme Court held that the “administrative/production dichotomy” should not be used as a dispositive test, but clarified that under the administrative exemption whether work is “directly related to management policies or general business operations” involves both a (1) qualitative and (2) quantitative analysis. The qualitative analysis involves determining whether the work is administrative in nature such as advising management, planning, negotiating, and representing the company. See Wage Order 4-2001 (incorporating 29 C.F.R. § 541.205(b) (2000)). On the other hand, the quantitative analysis involves determining whether the work is of substantial importance to management policy or general business operations. See Wage Order 4-2001 (incorporating 29 C.F.R. § 541.205(c) (2000)). Both the qualitative and the quantitative components must be satisfied before the work can be considered “directly related to management policies or general business operations” under the administrative exemption. The Supreme Court remanded the case back to the Court of Appeal for further analysis and stated that it “express[es] no opinion on the strength of the parties’ relative positions.”

On remand, the Court of Appeal only needed to address whether insurance claims adjusters met the qualitative component, i.e., whether the adjusters’ work was administrative in nature, such as advising management, planning, negotiating, and representing the company. Even if adjusters performed some or all of these tasks, however, the inquiry was not over. The court explained that many non-exempt employees (like legal secretaries) ostensibly satisfy the qualitative component because they advise management (e.g. advise partners at law firms about filings) and plan tasks (e.g. organize legal filings). The key difference, according to the court, was whether the employees perform these duties at the level of policy or general operations of the business.

The court concluded that the plaintiffs, insurance claims adjusters, did not satisfy the qualitative component of the administrative exemption because they did not perform duties at the level of policy or general operations of the business. Rather, the adjusters’ duties were the “day-to-day” tasks involved in adjusting individual claims. The court did admit that some adjusters performed duties at the level of policy and/or general operations including advising and consulting about whether the company should issue certain types of policies; serving on a special investigations unit to shape the policies and procedures of the company; and serving on a committee that determined how to better run the business. The employer, however, had not provided any evidence that any claims adjuster spent more than 50 percent of his or her time on these duties as opposed to the day-to-day tasks.

The court also made short work of the employers’ counterarguments. Even though insurance adjusters may not be production workers, it does not necessarily follow that their duties relate to administrative operations of the insurance business. In that vein, the court opined that not all office workers of a manufacturing business would necessarily meet the qualitative component of the administrative exemption. Furthermore, in a strict application of the Supreme Court’s holding, the Court of Appeal also dismissed 29 C.F.R. § 541.205(c) which lists “claim agents and adjusters” as persons who meet the test of “directly related to management policies or general business operations.” Because the Supreme Court made clear that subsection (c) relates only to the quantitative component of the administrative exemption and the only issue on remand was the qualitative component, the court summarily disregarded subsection (c) in its analysis. Finally, the court also dismissed both parties’ reliance on agency opinion letters, as well as numerous federal circuit and district cases finding that claims adjusters do work that is directly related to management policies or general business operations. With a minimum of analysis, the court held that those cases were not binding and were unpersuasive.

Given the still-unsettled nature of the scope and application of California’s administrative exemption as a whole, this would appear to be far from the final word on this issue, and the Supreme Court may yet again grapple with Harris in the future.

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