CA Supreme Court Issues Insightful Ruling on Application of Administrative Exemption

Today the California Supreme Court issued its ruling in Harris v. Superior Court. This case dealt with whether or not insurance adjusters were properly classified as exempt employees, or whether they should have been entitled to overtime compensation under the California Industrial Welfare Commission’s Wage Orders and the California Labor Code.

This case involved four coordinated class actions filed by insurance adjusters who claimed that they were erroneously classified as exempt administrative employees. The trial court certified a class of non-management employees classified as exempt who worked as claims handlers or performing claims-handling activities. Plaintiffs then moved for summary adjudication on the exemption, and sought decertification of the class. The trial court granted the motion in part, based upon timing issues relating to prior decisions (Bell v. Farmers Insurance) made during the class period as to the determination and application of the exemption.

The Plaintiffs sought review of the partial decertification order, as well as the denial of their motion for summary adjudication, whereas the Defendants sought review of the partial denial of the decertification motion.

The Court of Appeal, upon review, directed the trial court to enter an order granting Plaintiffs’ motion for summary adjudication and denying Defendants’ motion to decertify, and in doing so, determined that the adjusters were not exempt employees as a matter of law.

The California Supreme Court disagreed, finding the Court of Appeal failed to properly interpret the Wage Order, and found their overemphasis on the Bell v. Farmers Exchange cases to be improper. In specifically declining to opine on the strength of the parties’ relative positions, the Court simply determined that the Court of Appeal wrongly applied the administrative / production worker dichotomy as a dispositive test of whether an employee should be considered exempt or not, though it was careful to add that it was not going so far as to say that the dichotomy can never be used as an analytical tool.

Ultimately, in reversing the Court of Appeal, the Supreme Court stated:

“The essence of our holding is 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. Only if those sources fail to provide adequate guidance…is it appropriate to reach out to other sources.”