Overtime vs. Salary:  Know the law

California employers are facing a potential liability disaster for a
decision they have long considered routine: whether or not an employee
is exempt from state and federal overtime laws.
 
There is nothing new about the issue of whether an employee’s status is
exempt or non-exempt.  But a new series of class action lawsuits,
apparently fueled by disgruntled employees looking to cash in on their
employers’ mistakes, have been popping up in courtrooms across the State
of California involving the exempt versus non-exempt controversy.

For example, within the past several weeks, Pacific Telesis Group
reportedly paid $27.8 million to settle a class action suit on behalf of
more than 600 sales support managers.  According to reports of the
settlement, most employees claimed they initially were hired as
non-exempt hourly workers, and then misclassified as managers in 1992
and denied overtime.  Last year, the car rental company of National Auto
Center, Inc. paid $8 million to settle an overtime class action suit.

All California employers — and employees, too — know that with few
exceptions non-exempt employees must be paid a premium wage for hours
worked in excess of eight in a day or forty in a week.  As a result, the
classification of an employee has significant financial consequences to
both the employee and the employer.

The exempt or non-exempt status of a particular employee must be
determined by whether the employee’s duties, responsibilities, and
salary comport with state and federal requirements.  The hallmark of
exempt status is managerial or descretionary decision making authority,
not a mere title.

According to a leading employee rights advocate, most overtime cases
arise where employees have been given professional, administrative, or
managerial titles, but their duties do not meet the legal definition of
exempt status.  The root of the dilemma seems to be a fundamental
misunderstanding of the California exemption laws which are different —
and more restrictive — than the federal rules.

Under California law, managerial, administrative, and professional
employees are exempt, but the law provides specific definitions of all
three categories.  For “managers” to qualify they must spend more than
one-half of their time directing the work of two or more employees, play
a role in hiring and firing, and exercise judgment in matters of
importance to the employer.  “Administrative personnel” are exempt only
if they devote more than 50% of their working time to the exercise of
“discretion and independent judgment” in the performance of
“intellectual” work having significance to the employer.  And finally
“professionals” qualify for exempt status if licensed or certified by
the state to practice law, dentistry, pharmacy, optometry, architecture,
engineering, teaching, or accounting.  The guidelines provide that in a
rare exception an individual may qualify as exempt if certain
educational requirements are met, the employee has considerable control
over how to carry out a task, and over 50% of his/her time is devoted to
creative or intellectual work.

Due to the technical nature of these rules, it is easy for employers to
make mistakes in the classification of their employees.  One of these
mistakes is for employers to exempt office workers who hold managerial
sounding titles, even though they do not exercise independent discretion
in the performance of their job duties and are not technically
administrators.  Another mistake is to dock “exempt” employees for
partial day absences, which means the employer will not meet the salary
basis requirement for exempt status.  Still other problems occur when
classifying administrative or managerial “assistants,” or employees with
no actual or effective authority over others, as exempt.
 
As the Pacific Telesis Group settlement demonstrates, such mistakes can
result in mind-boggling liability.  At a time when many workers feel
overworked and underpaid and loyalties have been dampened by
restructuring and downsizing, employees appear to be more willing than
ever to come forward with overtime claims in an effort to make employers
pay for any perceived mistakes in classifying exempt employees.
 
This article is written by John E. Lattin, IV of the law firm of Karen
H. Henry, Inc.  The firm specializeds in labor and employment law
representation of employers throughout Northern California.
 
Article Reprinted with Permission From:
Karen H. Henry, Inc.           Attorneys at Law
“Specializing in employment and labor law representation”
1141 High Street        Auburn, CA 95603        916.441.6695

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Jan., 1998