Articles Posted in Wages and Compensation

To qualify for the administrative exemption from overtime compensation requirement an employee must be primarily engaged in a work of a type that is “directly related to management polices or general business operations.” This requirement of course must be interpreted as it is inherently vague. In one sense, every type of work directly relates to management policy because every employee does work that carries out, or is governed by, management policy. But for obvious reasons, such an interpretation wouldn’t make sense, as it would make virtually all employee exempt from overtime.

In Harris v. Liberty Mutual Insurance Co. (2007), the court clarified that the work is “directly related to management policies or general business operations” for the purposes of determining whether administrative exemption applies only if it “relates to the administrative operations of a business as distinguished from ‘production’ or in a retail or service establishment ‘sales” work.” This means, the court continued, that only work performed at the level of policy or general operations can qualify as “directly related to management policies or general business operations.” On the other hand, work that merely carries out the particular, day-to-day operations of the business is production and not administrative work, and thus doesn’t qualify for administrative overtime exemption.

The Harris court, applying this analysis, found that insurance adjusters, who sued the defendant for unpaid overtime, were primarily engaged in “production” – adjusting individual claims for their employer. They investigate claims, make coverage determination, set reserves, negotiate settlements, make settlement recommendations for claims beyond their settlement authority, identify potential fraud, and so forth. Noe of that work was found to be carried out at the level of management policy or general operations. Rather, it is all part of the day-to-day operation of defendants’ business.

In it recent decision, filed in November 6, 2008, the 9th Circuit clarified an important point of California Overtime Law. In that case, the issue was whether Oracle employees, who are not residents of California, are entitled to the protections and privileges of California overtime compensation laws, if they work in California. In its well reasoned decision, the court summarized California Labor Code section 510(a). The court reminded that this law requires overtime pay of one and one-half regular pay beyond 8 hours worked in any single day, 40 hours in one week, and the first 8 hours of work on the seventh day worked of any one workweek. Additionally it requires double pay for hours worked beyond 12 in a day or 8 hours on the seventh day of any one workweek.

California Supreme Court has concluded that California’s employment laws govern all work performed within the state, regardless of the residence or domicile of the worker, citing Tidewater Marine Western Inc. v. Bradshaw 927 P.2d 296. That case held that California employment laws implicitly extend to employment occurring within California state law boundaries. Please feel free to read the full decision on California Overtime Law as it applies to non-residents of California.

Thus, this recent decision suggests that all employees who would otherwise qualify for overtime compensation, regardless of the state of their residence, are entitled to overtime compensation under California law, if they perform the work at issue within the territory of state of California.

One exemption from overtime compensation under Fair Labor Standards Act is known as the “Outside Salesperson Exemption.” This exemption permits an employer to not pay overtime as otherwise required under California law, but only if a particular worker (a) has the primary duty of (a) making “sales” or (b) obtaining orders or contracts for services or facilities usage, and

(b) is customarily and regularly engaged away from the employer’s place of business in performing such primary duty.

The information above can be found at 29 USC § 213(a)(1) and 29 C.F.R. § 541.500. In order to qualify for this exemption under California law, however, the employee must spend more than 50% of his/her working time performing truly-exempt sales functions away from the employer’s business establishment (or away from the employee’s home, if that is where the employee is normally based).

Under FLSA an employee will be considered to be paid on a “salary basis” and thus exempt for the purposes of overtime compensation, if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all of part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. 29 C.F.R. section 541.602(b)(1)(2004). Employees must also be paid a specified minimum salary in order to qualify as exempt.

The effect and the reason behind those provisions is to prevent employers from docking the pay of an employee for an absence of less than a day (partial day absence). In other words, the employer should only deduct pay for one day absences or longer. Thus, if an exempt employee takes a few hours off, that should not be deducted from pay. If an employee takes one day and a half off, the employer, with a small number of exceptions, can only deduct one day from that pay period. If the employer makes partial day deductions, then the employees subject to those deductions do not meet the salary basis test, and are non-exempt for the purposes of overtime pay.

Thus, an employer should be very careful with partial day deductions against exempt employees’ pay, as classifying employees as “salaried exempt” while docking their pay for partial day absences will likely subject an employer to liability for failure to pay overtime compensation for at least the entire time that the policy of partial day deductions has been in place.

The Supreme Court has held that time spent waiting for work is compensable if the waiting time is spent “primarily for the benefit of the employer and his business.” Armour & Co. v. Wantock (1944). Whether the time spent predominantly for the employer’s benefit depends on the specific circumstances of each situation. Although there is no hard and fast rule, the cases dealing with the question of compensation and overtime for on-call duty consider two major factors: (1) the degree to which the employee is free to engage in personal activities; and (2) the agreement between the parties.

While the second factor – the existence or non existence of the agreement to waive on-call duty compensation – is usually easy to determine, the first factor includes sub-elements that determine whether the employee is free to engage in personal activities while on call: (a)whether there was an on-premises living requirement; (b) whether there were restrictions on employee’s travel during on-call duty; (c) whether the frequency of calls was so high that it prevented employee from engaging in typical off-duty activities of a person; (d) whether a fixed time limit for response was unduly restrictive; (e) whether the employee could easily trade on-call responsibilities; (f) whether employee actually engaged in personal activities during call-in time.

The above list is not exhaustive but merely illustrative.

Under Federal Law

Federal law exempts certain employees from both minimum wage and overtime pay requirements. These exemptions include:

* Workers employed in a bona fide executive, administrative or professional capacity;