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Page 1: Spotting FLSA & California overtime exemption violations · Spotting FLSA & California overtime exemption violations Who is classified as exempt from overtime and how to spot misclassification

Copyright © 2016 by the author.For reprint permission, contact the publisher: www.plaintiffmagazine.com 1

www.plaintiffmagazine.com

JANUARY 2016

BY TANISHA SHAFER

AND JAHAN SAGAFI

Overtime misclassification claimshave been a growth area for social justicelawyers in the past 15 years or so. Inmore recent years, with conservativeSupreme Court decisions like Dukes v. Wal-Mart and AT&T Mobility v.Concepcion, interest has waned. But atroot, the federal Fair Labor Standards Act (FLSA) and California Labor Codeconstitute strong protections that everyworker can invoke.

The challenge is to know the claimwhen you see it. In this article, weprovide a basic overview of overtime paylaw, pointing out examples and principlesfor analyzing potential claims.

Overtime protection? Thank Democrats in the Great Depression

It is helpful to remember that theFLSA was Congress’s response to thehorrible conditions of unemploymentand worker exploitation during the GreatDepression. Employers with superiorbargaining power could require workersto toil for long hours in unsafeconditions. Given the economicinstability, workers challenging theseconditions could easily be replaced.

Congress determined that the bestsolution to the twin evils of highunemployment and poor workingconditions (long hours and low pay) wasto enshrine the minimum wage and theovertime premium in federal law. Byrequiring employers to pay a premium(time and a half) for all hours workedabove 40 per week, Congress created a

disincentive for companies concentratingheavy workloads on few people. Thus,where a company with 120 hours of tasks per week to accomplish might haveonce employed two employees working60 hours each, that company would haveto pay overtime for the 20 hours a week per employee above the 40-hourthreshold. That company could then savemoney by hiring a third employee, andrequiring all three employees to work 40hours each. Thanks to the FLSA, the sameamount of work would be performed, butmore people would be employed, andthose employed would have a morehumane schedule, with the freedom to restand spend time with their families.

Through this mechanism, Congressfought unemployment and promoted the health, safety, and happiness of theAmerican worker. Likewise, the CaliforniaLegislature has established similarprotections in the Labor Code, some of which mirror the FLSA and many ofwhich go beyond it.

But it’s not quite so simple: Exemptions

The difficulty in applying the FLSAand California law to exemptionclassification questions comes aboutbecause those laws provide for“exemptions” – carve-outs of certaintypes of jobs, so that workers in those jobs are not eligible for the relevantprotections. Exempt workers can be madeto work more than 40 hours per weekwithout getting overtime pay (such asyou, dear reader, most likely).

This article provides an overview ofthose exemptions under the FLSA andCalifornia law, so that you can spot

instances of “misclassification” – where an employer has classified workers asexempt from the FLSA and California law(i.e., salaried and not entitled to overtimepay and other protections) but it shouldhave classified the worker as nonexempt(i.e., covered by the FLSA1 and paid onan hourly basis, with overtime for hoursover 40 per week2 and other benefits).

Focusing on what matters:The primary job duties

Exemptions depend largely on thetype of work the employee is performing.The focus is usually on the employee’s“primary job duties,” meaning her corework responsibilities. Under the FLSA,this generally means the most importanttasks she performs. But California law is simpler – the primary duty is theactivities comprising a majority of theemployee’s time.3 So this is a fact-intensive inquiry, as we will discuss below.

Listening for the right facts, ignoring the wrong facts

Because the focus of the analysis ison actual work performed, potentialclients with misclassification claims oftenpresent with confusing explanations.Potential clients are often motivated bytreatment that is obviously unfair ordisrespectful, without much awareness of the contours of their legal rights.While this is true in all settings (e.g.,discrimination that may sound like apersonality conflict), it is particularlytricky in the misclassification setting,because the relevant inquiry into jobduties is completely divorced from theissues that drive workplace complaints(e.g., managerial abuse, wrongfultermination, scheduling frustrations).

Spotting FLSA & Californiaovertime exemption violations Who is classified as exempt from overtime andhow to spot misclassification by employers

Page 2: Spotting FLSA & California overtime exemption violations · Spotting FLSA & California overtime exemption violations Who is classified as exempt from overtime and how to spot misclassification

Likewise, the misclassification claimwill not depend on superficial labels likethe employee’s job title or the lingo theemployee uses to describe her work. Inrecent decades, employers have showeredworkers with inflated, fancy-sounding jobtitles, like “assistant manager” (instead of stocker), “manager” (instead of lineworker), “associate” (instead of sales clerk),“senior technician” (instead of repairman),or “engineer” (instead of technician).These titles are irrelevant, though theymay convey a sense of importance to theemployee. A corollary benefit to theemployer may be that the worker is lulledinto thinking that she is too high-level tobe entitled to overtime pay.

Who is exempt from the FLSA?

The starting point for the FLSA and California law is that there is apresumption that all workers are covered,and none are exempt. The employerbears the burden of proving that everyrequirement of the applicable exemptionis satisfied. And exemptions are meant tobe narrowly construed, so that they applyonly when the worker falls unmistakablywithin their bounds.

So the next question is whichexemption might apply. Each specificexemption has its own test, which weexplore below.

Most exemptions have a simplecomponent that is independent of jobduties – the salary basis test. Under that test,the employee must be paid (a) above acertain threshold and (b) on a salary basis tobe exempt; if she is not, her duties areirrelevant, and the exemption is unavailableto the employer. You win. Currently, theminimum salary threshold is $455 per week($600 per week in California), or roughly$23,600 per year ($31,200 per year inCalifornia). 29 C.F.R. § 541.200.

The U.S. Department of Laborunder President Obama has promulgatedproposed regulations to update the salarythreshold, more than doubling it toaround $970 per week, or roughly$50,000 per year. This would sweep

millions of workers automatically into the protection of the FLSA. Of course,conservative business interests arefighting this proposal vehemently.

Specific exemptions

The Administrative Exemption4 focuseson whether the employee’s primary jobduty (a) is “the performance of office or non-manual work directly related tothe management or general businessoperations of the employer or theemployer’s customers” and (b) “includesthe exercise of discretion andindependent judgment with respect tomatters of significance.” These are fairlyabstract concepts, so analysis of thisexemption requires familiarity with thecase law.

In a nutshell, the administrativeexemption hinges on whether the workinvolves creativity, freedom to make therules, big picture decisions, and the like(in which case the worker is exempt), asopposed to routine, repetitive workfollowing the rules, implementing thedecisions of others, and so forth (in which case the worker is nonexempt).One test that has been applied in somejurisdictions (but rejected in the NinthCircuit) is the “administration-productiondichotomy.” Under that test, theexemption depends on whether theemployee is engaged in producing thebusiness’s product (e.g., widgets, food,loans, sales, reports, investigations) oradministering or running the business.

For example, underwriters will be foundnonexempt if they “produce” loans bymechanically following establishedprocedures, as opposed to advisingcustomers and consulting as to which loans the customer should use.5 Anotherexample is loan officers, who will be foundnonexempt if they are merely selling loans.

Investigators are nonexempt if they areconstrained by extensive guidelines used toevaluate their performance, and do nothave the opportunity to make independentdecisions. By contrast, investigators whohave the primary duty of analyzing data,

identifying possible investigations, andconducting the investigations may beproperly classified as exempt.

Next, the Executive Exemption focuseson whether the employee (a) has aprimary job duty of managing “theenterprise in which the employee isemployed or of a customarily recognizeddepartment or subdivision thereof,”(b) “customarily and regularly directs thework of two or more other employees,”and (c) has “the authority to hire or fireother employees” or has the ability tomake “suggestions and recommendationsas to the hiring, firing, advancement,promotion or any other change of statusof other employees [that] are givenparticular weight.” (29 U.S.C. § 213(a)(1);29 C.F.R. § 541.100.)

There has been significant litigationon behalf of assistant managers (e.g., inthe retail and food service settings) underthis exemption. In evaluating theseclaims, it is important to determinewhether the worker is better analogizedto those immediately below or above herin the chain of command – is she morelike the hourly clerk below her or morelike the manager above her. You shouldask that question with respect to jobduties as well as other variables such aspay. If the assistant manager is paidcloser to her supposed subordinates thanto her superior, she may have a strongclaim. Similarly, if she needs approvalfrom management (within the store orback at corporate headquarters) for even small decisions, she is probablynonexempt. However, even if a managerneeds to contact his own manager oftenand is unable to deviate from policies orprocedures, if the time spent on non-exempt tasks is a significant amount, and the character of the manager’sposition is that of a manager (and not ofa retail salesperson), then he may still beclassified as exempt.6 If the worker enjoyssignificant discretion, that can supportapplication of the exemption.7

Another popular exemption is theProfessional Exemption, which includes two

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subcategories: “learned” professionalsand “creative” professionals.

Learned professionals perform workrequiring “advanced knowledge” in a“field of science or learning.”8 The testinquires whether (a) the employeeperforms “work requiring advancedknowledge,” (b) the knowledge is “in a field of science or learning,” and (c) the knowledge is “customarilyacquired by a prolonged course ofspecialized intellectual instruction.”9Doctors, lawyers, registered nurses, CPAs, andothers in professions requiring particulardegrees or specialized courseworkgenerally qualify as learned professionals.

This test limits the exemption to workthat is “predominantly intellectual incharacter,” involves “the consistent exerciseof discretion and independent judgment,”involves analysis, interpretation, ordeduction. The field must requirespecialized academic training, as opposedto on-the-job training, an apprenticeship,or mere experience.

The employer must generally showthat a particular academic degree or aparticular course of study is required toperform the job.10 Eligible fields include“law, medicine, theology, accounting,actuarial computation, engineering,architecture, teaching, various types ofphysical, chemical and biologicalsciences, pharmacy and other similaroccupations that have a recognizedprofessional status.”

Creative professionals perform work“requiring invention, imagination,originality or talent in a recognized field of artistic or creative endeavor.”11Recognized fields include music, writing,acting and the graphic arts. Theemployer cannot win merely because the job requires intelligence, diligenceand accuracy; more is required for theexemption to apply. Much of therelatively little litigation has involved thestatus of journalists and others whoseprimary duties involve writing.Journalists, reporters, and otheremployees of newspapers, magazines,

television and other media are notexempt creative professionals “if theyonly collect, organize and recordinformation that is routine or alreadypublic, or if they do not contribute aunique interpretation or analysis to anews product.”12 Simply writing pressreleases or advertisements is not creativeenough for the exemption to apply.

Another important exemption is the Computer Professional Exemption. Thetest is whether the employee’s primaryduty consists of systems analysis,programming, and software engineeringat a highly specialized level. Computerprogrammers, software developers, and networkarchitects generally qualify for thisexemption. But systems administrators,helpdesk technicians, and IT supportspecialists generally fall outside theexemption because they install, configure,test, and troubleshoot computerapplications, networks, and hardware –none of which constitute the type of high-level activity required for this exemption.13

As a general rule, indicators ofnonexempt status include followinginstructions, standardized approaches, andexperience to install, integrate, maintain,troubleshoot, and support the systems andapplications (which others have researched,analyzed, programmed, designed,developed, and constructed). One usefulrule of thumb is that workers who doroutine, repetitive support work (sometimescalled “break fix” or “run and maintain”) orinstallations (e.g., of patches and upgrades)are generally nonexempt. By contrast, thosewho design the systems or write theprograms are generally exempt.

Conclusion

As you can see, exemptions from theFLSA and California law are quite variedand complex. Violations can be hard toidentify, both because of the ambiguity inthe law and the non-intuitive nature ofthe applicable tests, which mean thatpotential clients rarely approach lawyerswith tidily packaged stories tracking thelegal elements.

But bearing in mind the purpose ofthe FLSA and the presumptions thatwork to the employee’s advantage, it ispossible to invoke these worker-protection laws successfully.

Tanisha Shafer, a formerSFTLA Trial AdvocacyFellow, received her J.D.from Santa Clara Law inMay 2011. She served as asenior editor on the SantaClara Law Review and asan associate editor on the

Santa Clara Computer & HighTechnology Journal. She is a member of theSFTLA, the Black Law Students Association,and the John M. Langston Bar Association.She graduated from UC Berkeley with a majorin Linguistics and emphasis on Sociology.

Jahan C. Sagafi is thepartner in charge of theOutten & Golden SanFrancisco office, where herepresents employees andconsumers in class actions,in addition to assistingfellow plaintiffs’ attorneyswith appeals in state and

federal courts. Prior to joining Outten &Golden, he was a partner at Lieff, Cabraser,Heimann & Bernstein, clerked for JudgeSchwarzer of the Northern District, andattended Harvard College and Harvard LawSchool. Mr. Sagafi serves on the boards ofPublic Advocates, Alliance for Justice, and theSan Francisco American Constitution Society(ACS) chapter.

Endnotes1 For clarity’s sake, we will refer to the FLSA. Most of theconcepts in this article apply to California law as well. Wherethere are important differences, we try to highlight them.2 Under California law, overtime (at 1.5x the regular hourlyrate) is paid for hours over 8 per day, hours over 40 per week,and all hours worked on the seventh consecutive day in aweek. In addition, double time is paid for hours over 12 perday and hours over 8 on the seventh consecutive day in aweek. 3 This distinction leads to interesting California/non-Californiadifferences, such as for assistant managers in retailenvironments who spend, say, 80 percent of their timeworking as cashiers and stockers and 20 percent of their time

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Shafer

Sagafi

Page 4: Spotting FLSA & California overtime exemption violations · Spotting FLSA & California overtime exemption violations Who is classified as exempt from overtime and how to spot misclassification

managing the nonexempt employees. In California, theseassistant managers are nonexempt, because their primaryduty (what they spend over 50 percent of their time on) is todo nonexempt cashier/stocking work; outside California, theyare exempt, because their primary duty (what is mostimportant in their job) is to do exempt management work.4 The administrative exemption was established in the text ofthe FLSA at 29 U.S.C. § 213(a)(1) (“any employee employedin a bona fide . . . administrative . . . capacity”) but isdescribed in greater detail in the U.S. Department of Labor(“DOL”) regulations. See 29 C.F.R. §§ 541.200-204. 5 See Davis v. J.P. Morgan Chase & Co., 587 F.3d 529 (2d Cir.2009) (reversing district court decision and finding thatmortgage underwriters were not administratively exemptbecause their work constituted the “production” of loans, theymechanically “followed procedures specified in the CreditGuide in order to produce a yes or no decision,” and did not “advise customers as to what loan products best met their needs and abilities.”). [Sagafi, I.B.1. Underwriters.];Bollinger v. Residential Capital, LLC, 863 F. Supp. 2d 1041

(W.D. Wash. 2012): rejecting the administrative/productiondichotomy analysis utilized in Davis but still holding thatmortgage underwriters did not qualify for the administrativeexemption because they “did not perform the sort of high-levelanalysis and counseling that constitutes exempt administrativework in the financial services industry. . . . [They] did notdetermine which products best met clients’ needs, adviseclients on the merits of particular products, or market differentproducts to clients. Their duties − validating information andensuring compliance − were merely the final step inDefendants’ day-to-day business of selling mortgages.”Maddox v. Cont’l Cas. Co., 2011 WL 6825483 (C.D. Cal. Dec.22, 2011): distinguishing Davis, holding that an insuranceunderwriter qualified for the administrative exemption because,unlike the Davis mortgage underwriters, he performed“substantial and independent analysis of risks” “with respectto matters of great significance and with potentially significantconsequences to [the employer].”).6 But see Taylor v. AutoZone Inc., 2012 WL 254238 (D. Ariz.Jan. 27, 2012) (store managers for retail auto parts stores

qualified for the executive exemption: “despite the [storemanager’s] frequent contact with their [district managers],their lack of authority to deviate from corporate policy, and thesignificant time they spend performing nonexempt tasks, theoverall character of the [store manager] position is that ofmanager, not simply a retail salesperson”).7 See In re Family Dollar FLSA Litigation, 637 F.3d 508 (4th Cir.2011) (store manager qualified for the executive exemptionbecause, among other things, she “she exercised discretionvirtually every day and all day long”).8 29 C.F.R. § 541.301(a).9 29 C.F.R. § 541.301; Solis v. Washington, 656 F.3d 1079,1084 (9th Cir. 2011).10 See Solis, 656 F.3d at 1085 (discussing cases).11 29 C.F.R. § 541.302(a).12 29 C.F.R. § 541.302(d). 13 69 Fed. Reg. 22122, 22159-60 (April 23, 2004); U.S. DOLWage & Hour Op. Ltr., 2006 WL 3406603 (Oct. 26, 2006).

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