California employees are exempt from the overtime requirements if they satisfy the executive, professional, or administrative exemptions. Of these, the administrative exemption is the least well-defined.

Much of this uncertainty stems from the requirement that the employee’s duties involve “performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his/her employer’s customers.” This requirement comes straight from the Wage Orders (pdf). 

To illustrate what the requirement means, let’s use an example like, oh I don’t know, insurance claims adjusters. Do they qualify for the administrative exemption? According to California court of appeal decisions in Bell v. Farmers Insurance Exchange in 2001 and 2004, claims adjusters are not exempt.

In deciding class action claims brought by claims adjusters at Liberty Mutual Insurance and Golden Eagle Insurance, a California court of appeal decided again in 2007 that claims adjusters are nonexempt. The case (Harris v. Liberty Mutual) went up to the California Supreme Court late last year. The state supreme court sent it back to the court of appeal saying that the appellate court had relied incorrectly on the Bell cases and the law had changed. It told the court of appeal to look at it again.

Yesterday, the court of appeal issued its decision (pdf). By two votes to one, the court of appeal said it had looked at the issue again and still concluded that claims adjusters are nonexempt. It acknowledged that there were agency opinion letters and federal cases that concluded otherwise. But in the words of the court, “we do not rely upon the agency opinion letters, and we conclude that the federal cases involving claims adjusters are not persuasive.”

Can employers ignore laws articulated in federal agency opinion letters and federal court decisions and seek to justify doing so by saying that they found those authorities “not persuasive”? I don’t recommend it.

Is the case heading back to the state supreme court? Count on it.

In the meantime, does the law on who does or doesn’t qualify for the administrative exemption remain unclear? Absolutely.

As the law currently stands, employees qualify for the exemption if, among other things, their duties relate to the administrative operations of a business as distinguished from production or, in a retail or service establishment, sales work. If you're unclear how that applies to particular positions in your business, get advice from someone who follows this area. It's much cheaper to spend the time to get it right than to fight claims by multiple employees for unpaid overtime going back years.