Negri v. Koning & Associates, No. H037804 (May 16, 2013): In a recent decision, a California Court of Appeal held that an insurance claims adjuster was not an exempt employee under the administrative exemption of Industrial Welfare Commission (IWC) Wage Order 4 because he was not paid a guaranteed salary. The court held that the administrative exemption requires payment of a predetermined amount to the employee that is not subject to reduction based on the amount of work performed.

Mark Negri worked as an insurance claims adjuster for Koning & Associates from May 2004 to October 2005. He was paid $29 per hour and was not paid a guaranteed minimum. According to Negri, he worked an “average of 20 hours a week of overtime” but was paid $29 per hour for all hours worked, including those over 40 in one workweek.

The facts of the case were not disputed. Negri and Koning & Associates stipulated to 30 separate facts, including that Koning & Associates never paid Negri a “guaranteed salary, rather he was paid on an hourly rate of $29.00 per hour per claim basis. That is to say if he worked less claims . . . in a pay period he made less money than if he worked more claims.” They also agreed that Wage Order 4 is the applicable regulation in this case.

The trial judge held that Negri was an exempt employee and rejected his claim for overtime pay. The Court of Appeal, however, focused on whether “the manner in which [Negri] was paid qualifies as a salary within the meaning of Wage Order 4.” The court held that under Wage Order 4 and federal law, in order to qualify for the administrative exemption, Negri should have been paid a predetermined amount that was not subject to reduction based on the quality or quantity of the work he performed. The court rejected the company’s argument that Negri was paid on a “salary basis” since his workload was not subject to reduction or variation and “there was always enough work to occupy him for 60 hours per week.” The court noted that “the problem here is that [the company] stipulated to the fact that it ‘never paid [Negri] a guaranteed salary’” so the administrative exemption of Wage Order 4 does not apply.

According to Spencer Skeen, the managing shareholder of Ogletree Deakins’ San Diego office: “Traditional exemptions (executive, administrative, and professional) involve a two part analysis: (1) does the method and amount of payment meet the test of the exemption; and (2) do the job duties satisfy the test for the exemption? This case emphasizes the importance of the first part of the analysis. To be exempt, administrative employees must be paid a fixed "salary" of no less than two times the minimum wage. Negri was always paid more than two times minimum ($29 per hour) for every workweek. So, the amount of payment was not the issue; rather, the method of payment was the problem. The Court of Appeal found that Negri did not receive a fixed "salary" because his pay could have been reduced depending on the quantity of work performed.”

Skeen added: “This case proves the amount of pay an employee receives is irrelevant to the issue of exemption unless the method of payment also meets the test for the exemption. The salary must be fixed, predetermined, and incapable of reduction based on employee productivity—or the employee will not be considered exempt.”