HR Management & Compliance

Administrative Exemption: Exemption for High-Level IT Employee Upheld; Simple Tips for Staying Out of Court






With news of million-dollar wage and hour verdicts and settlements
in the headlines almost daily, a new case in which a California company
sidestepped potentially big damages provides a nice respite for beleaguered employers
here in the Golden State. The ruling broadly interprets the administrative
overtime exemption, which is typically the most confusing exemption for
employers to grasp and apply.

 

IT Director Classified as Exempt

Mark Combs was director of network operations for Skyriver
Communications, Inc., a San Diego-based wireless broadband Internet service
provider. He spent 60 to 70 percent of his time on his core responsibility, which
was ensuring that the company’s network operated properly at all times.
Skyriver classified Combs as an exempt administrator.

 

Back Overtime Sought

Combs resigned after about three years, and he brought a wage and
hour lawsuit against Skyriver for unpaid overtime and missed meal and rest
breaks. He contended he didn’t qualify for the administrative exemption because
he was essentially a “production worker.”

 

Combs’s argument was based on prior court cases that relied on the
“administrative/production worker dichotomy” to determine who qualifies as
exempt. The theory goes that employees who perform administrative work (such as
payroll, taxes, human resources, and information technology (IT)) are eligible
for exemption, while employees involved in producing the employer’s product
aren’t. Combs contended that his work revolved around Skyriver’s product, which
is network connectivity. Thus, he claimed, although many high-level IT workers
at other types of companies are exempt, he was not.

 

Skyriver contended that the administrative/production distinction
wasn’t a useful way to analyze Combs’s job duties because he otherwise met all
of the exemption requirements set out in the applicable Wage Order— here, Wage
Order 4. (Note that both Combs and Skyriver agreed that Combs met the salary
test for exemption, and only the duties test was at issue.)

 

Totality of Circumstances Counts

A California appeals court has now ruled in Skyriver’s favor,
agreeing that the administrative/production distinction is not the only way to
analyze whether an employee performs exempt work.
1 According to the court, the
theory provides an easy distinction between administrative and production
employees, but it isn’t a mandatory test and should be applied with caution
because “it may not be dispositive in many cases.” Some employees perform specialized
work that simply can’t be properly categorized using the dichotomy analysis. In
such cases, a finer analysis of duties must be made, said the court, with
reference to the duties elements set out in the applicable Wage Order.

 

The court found that Combs qualified as an exempt administrator
according to the Wage Order provisions. There was substantial evidence that his
work involved high-level problem-solving, planning, negotiating, and purchasing.
Thus, as required by the Wage Order, his duties “directly related to the
management or general business operations” of Skyriver. The court also pointed out
that the Wage Orders incorporate by reference federal exemption regulations.
Those regulations state that administrative work includes “computer network, Internet,
and database administration.”

 

In addition, Skyriver presented evidence that Combs’s work was “office
or nonmanual” and performed “under only general supervision” and “along specialized
or technical lines requiring special training, experience, or knowledge,” all
elements of an administrative exemption. Further, Combs regularly exercised discretion
and independent judgment as to significant matters, such as being responsible
for identifying, selecting, and integrating new equipment into Skyriver’s
network whenever the company acquired other networks. In fact, another
high-level Skyriver employee described Combs as the company’s “quarterback” with
respect to solving network operation problems. Finally, Combs himself confirmed
that he spent 60 to 70 percent of his time on his core job of maintaining the
network, another indicator for the administrative exemption.

 

Three Tips for Staying Out of Court

This new decision provides welcome clarification that an employee’s
eligibility for the administrative exemption isn’t solely linked to whether he
or she performs work that is independent of the company’s product.  Rather, courts can take a more expansive look
at all of the elements required for the administrative exemption, as set out in
the Wage Orders, to determine whether an employee is properly classified as
exempt.

 

To avoid classification problems, here are three simple tips:

 

1. Tighten up job descriptions. Job descriptions can provide a good roadmap to the duties a
position requires. Take the time to review job descriptions to ensure that they
reflect the actual work an employee performs and that the work fits the
exemption requirements. For more on job descriptions, see
CWHA March
2008.

 

2. Monitor exemptions. Don’t
view exemptions as static, as jobs can change over time. The best practice is
to periodically review exempt positions to ensure that employees are correctly
classified.


3. Err on the side of caution. Whether an employee should be exempt may be unclear. In close
cases, consider seeking legal help in making the determination— or take the
cautious approach and treat the employee as nonexempt.

 


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1 Combs v. Skyriver Communications, Inc., Calif. Court of Appeals (Dist. 4) No. D049884, 2008