Cal Supreme Court Reverses Horrific Decision On Administrative Exemption But Declines To Provide Much Guidance On How Exemption Should Be Applied

This morning, the California Supreme Court issued the long-awaited decision in Harris v. Superior Court, addressing how to interpret the administrative exemption under California law. The case reverses a decision of the court of appeal that effectively narrowed the exemption to employees who make company policy. At its narrowest, the Harris decision addresses the limited question of whether insurance adjusters can qualify as exempt under California's administrative exemption as it has existed at least since 2001 with the issuance of Wage Order 4-2001. Even on that limited question, the Cal Supremes declined to provide a definitive answer except to say that the court of appeal's analysis had been wrong.

The appellate decision below

The court of appeal had issued a sweeping decision that set forth principles as to how to interpret the administrative exemption that would limit the exemption to a very small group of employees, thus creating the potential for thousands of class actions attacking the exempt status of a wide variety of white collar employees. More specifically, the court of appeal held that under the so-called "administrative/production dichotomy" an employee qualified for the exemption only if he or she performed work at the level of making company policy. The death quote from that decision was as follows: "Only work performed at the level of policy or general operations can qualify as 'directly related to management policies or general business operations.' In contrast, work that merely carries out the particular day-to-day operations of the business is production, not administrative, work. That is the administrative/production worker dichotomy, properly understood."

The framework of the California Supreme Court's analysis

The Cal Supremes reversed the court of appeal and rejected that strict view of the dichotomy. So that's a definite win for employers. But, the Cal Supremes ruled on very limited grounds and declined to resolve many other key issues on which lower courts need guidance. As such, the opinion provides minimal guidance to lower courts as to how to determine whether a particular employee is exempt in any given case (including even insurance adjusters, although it looks good for their exempt status as a whole). The decision has the definite feel of a "consensus decision" that was drawn narrowly to generate a unanimous opinion. Here is the basic framework the Cal Supremes set up:

(1) First and foremost, the Cal...