8 Litigating CA Wage & Hour and Labor Code Class Actions (22nd Edition) Seyfarth Shaw LLP | www.seyfarth.com (2) The employee customarily and regularly exercises discretion and independent judgment in carrying out job duties as to matters of significance to the business.36 (3) The employee performs his or her job only under general supervision and works along specialized or technical lines in work requiring special training, experience, or knowledge. (4) The employee is paid a salary37 equivalent to at least twice the state minimum wage.38 As with the executive exemption, the relevant provisions in the Wage Orders on the administrative exemption have, since 2001, incorporated several FLSA regulations by reference. As a result, decisions interpreting the federal administrative exemption often provide persuasive guidance to California courts interpreting the California administrative exemption.39 Nonetheless, as explained below, California’s interpretation of the administrative exemption departs in some ways from the way the administrative exemption has been interpreted in most other jurisdictions. 2. California Develops a Unique Interpretation of the Administrative/Production Dichotomy A commonly litigated issue under the administrative exemption is whether the employees at issue are working in an “administrative” capacity or in a “production“ capacity. Generally speaking, only employees in the former group are eligible for the exemption. This distinction between production and administrative workers is sometimes referred to as the “administrative/production dichotomy.” One of the few class actions that actually went to trial in California, Bell v. Farmers Insurance Exchange,40 challenged whether certain insurance adjusters qualified for the administrative exemption. The plaintiffs prevailed on the basis that the insurance adjusters failed, on a classwide basis, to qualify for the administrative exemption. The plaintiffs’ success in Bell inspired numerous other challenges to the exempt status of insurance adjusters. Bell addressed the “administrative/production dichotomy”41 and examined FLSA regulations and case law that distinguish between “administrative work“ (which can qualify as exempt work under the exemption) and “production work” (which cannot qualify).42 36 Some courts mistakenly hold that employees must exercise discretion and independent judgment more than 50 percent of the time. In fact, the term “customarily and regularly“ is defined in the FLSA regulations that are incorporated in the Wage Orders as “more than occasionally but less than constantly.” It is generally established by showing that a duty is carried out on a recurrent, non-sporadic basis. See Baca v. United States, 29 Fed.Cl. 354 (U.S. Fed. Cl. 1993) (doing exempt duties only one-third of the total work time, but on a regular recurring basis, qualified as performing the task “customarily and regularly”). 37 Recently, the Court of Appeal held that employees compensated solely on commissions do not satisfy the salary basis test for the administrative exemption. Semprini v. Wedbush, 57 Cal. App. 5th 246, 252-253 (2020). 38 Wage Order 7-2001 § 1(A)(2)(f). 39 Combs v. Skyriver Communications, LLC, 159 Cal. App. 4th 1242, 1254-55 (2007) (recognizing that the incorporation of FLSA regulations was intended to make the California exemption “closely parallel the federal regulatory definition of the same exemption”). 40 87 Cal. App. 4th 805 (2001). 41 Id. at 811-12. 42 See, e.g., Dalheim v. KDFW-TV, 918 F.2d 1220, 1230 (5th Cir. 1990) (“The distinction § 541.205(a) draws is between those employees whose primary duty is administering the business affairs of the enterprise from those whose primary
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