12 Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) Seyfarth Shaw LLP | www.seyfarth.com 3. The Administrative/Production Dichotomy Test Survives—Harris v. Superior Court In 2011, the California Supreme Court issued Harris v. Superior Court,55 holding that the Court of Appeal mistakenly concluded that claims adjusters, as a matter of law, do not qualify for the administrative exemption. Harris did not provide definitive guidance on this topic in its opinion. Rather, Harris simply held that the Court of Appeal had improperly applied the “administrative/production worker dichotomy” as a dispositive test. Liberty Mutual claims adjusters had filed a class action alleging that Liberty Mutual misclassified them as exempt administrative employees. The trial court denied plaintiffs’ motion for summary adjudication on Liberty Mutual’s administrative exemption affirmative defense, but the Court of Appeal reversed the trial court and held that as a matter of law, the administrative exemption did not apply to the claims adjusters. The Court of Appeal had strictly applied the “administrative/production worker dichotomy” test set forth in the Bell v. Farmers Insurance Exchange cases and held that adjusting claims was part of the “product” that their employer sold and therefore not an administrative duty. While the administrative exemption analysis depends on multiple factors, Harris focused on only one—whether the employees’ work qualified as administrative. Harris broke this analysis down into two components, one “qualitative” (i.e., whether the work is administrative in nature) and the other “quantitative” (i.e. whether it is of “substantial importance” to the employer’s management policies or general business operations). In reversing the Court of Appeal, Harris distinguished Bell. First, Harris noted that the Bell opinions limited their holding to the specific facts of that case (including defendants’ stipulation that the work performed by all plaintiffs was ‘routine and unimportant’). Second, Harris noted that the analysis in Bell relied on the then-applicable version of the relevant Wage Order (Wage Order 4-1998). That order did not provide a sufficient definition of the administrative exemption, thereby requiring the Bell court to look beyond the Wage Order’s language. In contrast, Wage Order 4-2001 (the current Wage Order, applied in Harris) incorporates specific federal regulations and contains “detailed guidance” concerning the administrative exemption. The Court of Appeal in Harris had erred by focusing too heavily on the administrative/production dichotomy rather than applying the language of the relevant Wage Order and regulations. Harris ultimately declined to adopt a rule precluding the use of the dichotomy as an analytical tool. Instead, Harris held that courts, in determining whether work is administrative, must consider the particular facts and apply the language of the statutes and Wage Orders at issue.56 If the statutes and Wage Orders fail to provide adequate guidance, Harris held, then it would be appropriate to consider other sources, including, presumably, the administrative/production dichotomy. The only concrete guidance from Harris is that the administrative/production dichotomy is not a dispositive test for applying the administrative exemption. Harris left open the possibility that the dichotomy may still matter in future 55 53 Cal. 4th 170 (2011). 56 The Supreme Court specifically noted that to properly interpret California’s administrative exemption, courts should only consider the FLSA regulations effective as of 2001. See also Heffelfinger v. Elec. Data Sys. Corp., 492 Fed. App’x 710 (9th Cir. 2012) (applying Harris rule in determining administrative exemption for computer professionals).
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