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Alert: California Court Expands Administrative Overtime Exemption

2/8/2008 Articles

The California Court of Appeals has issued an opinion significantly expanding the scope of the administrative overtime exemption. In Combs v. Skyriver Communications, Inc., 08 CDOS 1715, filed on January 17, 2008 and published on February 7, 2008, the court affirmed summary judgment in favor of the employer by declining to apply recent decisions which had limited the administrative exemption to employees not directly involved in production of the employers' product. The court found that the "administrative/production worker dichotomy" articulated in the earlier cases did not apply to each factual situation and had been undermined by recent IWC wage order incorporation of federal regulations.

Skyriver was a "start-up" style wireless broadband Internet service provider. Combs had served as its Manager of Capacity Planning and then as Director of Network Operations. Throughout his employment, Combs was essentially responsible for assuring that Skyriver's network was properly operating. Skyriver had classified Combs as exempt from overtime obligations, pursuant to the administrative exemption. 

After Combs resigned, he brought an action for overtime, contending that his responsibilities could not be "administrative" because his duties primarily focused upon maintaining Skyriver's product - its network. He contended that his exempt status was controlled by two recent California Court of Appeals opinions which had rejected the administrative exemption for insurance adjusters and customer service representatives because their duties involved providing the product to customers, making them "production" workers rather than administrative workers.

The California Court of Appeal in Combs declined to apply what it referred to as this "administrative/production worker dichotomy." The court noted that the opinions relying upon the dichotomy had acknowledged that it might not fit into every factual situation. The court also noted that recent IWC wage orders had emphasized a reliance upon federal regulations in defining overtime exemptions. Those regulations suggest a broader, more nuanced administrative exemption, as did this court.

The court observed that both the IWC order and the federal regulations define administrative duties as exercising discretion and independent judgment in matters of significance directly relating to the management or general business operations of the employer or of the employer's customers. The court determined that Combs had exercised broad discretion in maintaining Skyriver's network, a function critical to its business survival. He was responsible, inter alia, for capacity and integration planning, procurement, budgeting, overseeing maintenance, and reporting the status of these functions to the board or directors. These tasks were identified in the federal regulations as examples of administrative duties. Accordingly, the court affirmed summary judgment for the employer.

The Combs decision provides employers with some assurance that California courts will not limit the administrative exemption solely to work that is independent of the employer's product. The decision also renews hope that the more expansive and detailed federal definitions of exempt duties are relevant to interpreting the exemptions under California law. The opinion also, however, creates less certainly as to what positions will in fact be held to fall within California's administrative exemption. Employers seeking to use the exemption should seek legal counsel before doing so.

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