Exemptions and Misclassification

The California Labor Code guarantees paid overtime, paid rest breaks, and uninterrupted meal breaks for many California employees. You may take these rights for granted. However, certain employees are exempt from these protections due to the nature of their work. The law presumes that you are non-exempt – that is, you enjoy all of these protections – unless your employer can prove you meet the strict exemption requirements.

Some employers will simply include the word “exempt” in an offer letter or a job description to avoid paying an employee overtime or providing meal and rest breaks. Just because your employer labels you “exempt” does not mean you meet the exemption requirements. If you are improperly classified as “exempt,” your employer may owe you considerable back wages and penalties. Call Spencer Young, Oakland employment lawyer, if you have questions on your rights.

The most common exemptions are the executive, administrative, and professional exemptions. There is a unique test to determine whether you meet each exemption. However, the tests all share three general components:

1. Duties – your work must entail certain activities and responsibilities.
2. Allocation of Time – you must spend more than 50% of your working time on duties that qualify for the exemption.

3. Compensation – you must receive a salary that does not vary with the number of hours you work but which, when averaged over 40 hours a week, equals at least twice the state minimum wage.

   Example 1: Emilio works in Emeryville as an executive assistant. His employer labels this position as “exempt.” Emilio is paid $40.00 per hour, so his paychecks vary based on the hours he works each pay period. Although he is paid more than twice the minimum wage, he is not paid by salary, so he does not meet the test for any exemption.

   Example 2: Sandy works in San Leandro as a sanitation supervisor. Her employer labels this position as “exempt.” Sandy is paid a salary of $45,000 per year, regardless of the number of hours she works. Although she is paid by salary, her average hourly pay is $21.63, which is less than twice the state minimum wage of $12 per hour. Sandy does not meet the test for any exemption.

   Example 3: Bertha works in Berkeley as a benefits administrator. The minimum wage in Berkeley is $15.59 per hour. Bertha is paid a salary of $56,000 per year, regardless of the number of hours she works. Her average hourly pay is $26.92. Although this is less than twice the Berkeley minimum wage, it is more than twice the state minimum wage, which is all that matters for the purpose of an exemption. Bertha might meet the test for an exemption, depending on her duties and the amount of time she spends on them.

If you meet the compensation requirement, you must spend more than 50% of your working time on the following duties for the executive exemption to be proper:

• Managing the enterprise that employs you, or managing some “customarily recognized” department or sub-unit of it, AND
• Regularly directing the work of 2 or more employees, AND
• Using discretion and independent judgment to consider and compare different solutions to a problem and then selecting a solution, AND

• Having the authority to hire and fire employees, OR your recommendations on hiring, firing, and promoting are given “particular weight.”

  Example 1: Otis is a retail associate at a store in Oakland. His primary duties are to assist customers on the floor and at the cash register. Every Friday, at closing time, the staff spends three hours conducting a “deep clean.” Otis is designated as the Deep Clean Team Leader and directs his five coworkers on his shift to perform certain tasks until the deep clean is complete. Although Otis directs the work of more than 2 employees, he does not do so “regularly,” and the Deep Clean Team is not a “customarily recognized” department or sub-unit of the store. Otis does not meet the test for the executive exemption.

  Example 2: Mary is the Marketing Manager at a hotel in Marin. The Marketing Department consists of Mary and one part-time employee, who places ads in magazines and updates the hotel website at Mary’s direction. They share an office behind the front desk, labeled “Marketing Department.” Although Mary manages a “customarily recognized” department of the hotel, she does not regularly direct the work of 2 or more employees. Mary does not meet the test for the executive exemption.

  Example 3: Valeri is the night shift supervisor at a restaurant in Vallejo. She directs the work of 15 employees on her shift by assigning tables to the servers and stations to the kitchen staff. There is no one on her shift that she reports to, but she checks in every day with the General Manager, who makes all hiring decisions. A cook showed up late on her shift, causing the kitchen to fall behind and making many customers angry. The General Manager has given Valeri strict instructions that she is to write down customer complaints and let the General Manager deal with them the next day. Valeri has no authority to issue refunds to unhappy customers. The next day, Valeri meets with the General Manager and presents a list of complaints. She also recommends that the cook be fired. The General Manager says that he likes the cook and isn’t going to fire him. Although Valeri manages the entire restaurant at night, and regularly directs the work of more than 2 employees, she does not have the discretion to apply her independent judgment toward resolving customer complaints. Nor was her recommendation to fire the cook given “particular weight.” Valeri does not meet the test for the executive exemption.

If you meet the compensation requirement, you must spend more than 50% of your working time on the following duties for the administrative exemption to be proper:

• Performing non-manual work that is directly related to your employer’s management policies or general business operations, AND
• Using discretion and independent judgment to consider and compare different solutions to a problem and then selecting a solution, AND
• Either:
  • Regularly and directly assisting the business owner or a high ranking executive, OR
  • Performing specialized technical work requiring specialized training, knowledge, or experienced, under only general supervision, OR
  • Executing special assignments and tasks, under only general supervision.

Example 1: Mohammed works in Modesto as the personal assistant to a mortuary owner named Mort. Mohammed spends 40% of his time setting up chairs and decorations for the funerals, 20% of his time running personal errands for Mort (such as dropping off dry-cleaning), and 40% of his time interacting with external vendors, such as caterers and florists, to ensure the clients’ needs are met. There is no question that Mohammed regularly and directly assists the business owner, Mort, and that some of Mohammed’s work is directly related to Mort’s business operations. However, more than 50% of this work is either manual, or involves little or no discretion and independent judgment. Mohammed does not meet the test for the administrative exemption.

Example 2: Richelle works in Richmond as the secretary to Sari, who is the CEO of a cereal factory. Richelle spends 90% of her time sitting at a desk next to Sari. She answers Sari’s direct phone line, opens mail addressed to Sari, and screens Sari’s e-mail. Sari does not have time to do these things herself. Richelle has full discretion to forward calls, letters, or e-mails to other executives, to respond to them herself, or to summarize them for Sari to deal with. Sari fully trusts Richelle to properly prioritize and direct these communications. Richelle likely meets the test for the administrative exemption. She regularly and directly assists a high ranking executive by using her discretion and independent judgment in non-manual work that directly relates to general business operations.

If you meet the compensation requirement, you must spend more than 50% of your working time on the following duties for the professional exemption to be proper:

• Using discretion and independent judgment to consider and compare different solutions to a problem and then selecting a solution, AND
• Either:
  • Practicing law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting, with a proper license or certification in California, OR
  • Engaging in a “learned or artistic profession.”

A “learned or artistic profession” must involve:

Work that is intellectual and varied in nature, rather than routine, such that output cannot be standardized according to a period of time, AND

• Either:
  • Advanced knowledge in a field that customarily requires specialized academic study, OR
  • Work involving invention, imagination, talent, or creativity that exceeds general manual or intellectual ability or training.

Whether you engage in a “learned or artistic profession” is extremely fact-specific. Generally, the fewer people who are qualified do your work, and the more education necessary to do it, the more likely you are to fall into this category.

Example 1: Liv works in Livermore as a legal assistant. She has not attended law school or passed the Bar Exam, but she is highly skilled at legal research and writing motions. She does much of the same work that licensed attorneys do. However, because she is not licensed, she does not meet the test for the professional exemption.

Example 2: Santiago is a talented artist. He is hired to work in Santa Cruz as a caricature artist at an amusement park. During training, he receives strict instructions: finish within five minutes, always draw people on roller skates, and try to “upsell” them on other souvenirs when they pay at the end. This work is routine, and output can be standardized as taking 5 minutes. It doesn’t make real use of Santiago’s imagination and creativity, and Santiago doesn’t exercise much discretion or independent judgment. Santiago does not meet the test as an “artistic professional.”

Example 3: Farrah works in Fairfield as a forensic accountant for a bank. Her job is to investigate bank accounts that are flagged in audits for possible money laundering activity. She required a master’s degree in her field to qualify for this position, as well as three years of on-the-job training. She has the discretion to question witnesses, draw conclusions from evidence, and write reports that are shared with law enforcement agencies. Farrah may meet the test as a “learned professional” if she spends more than half of her time on such activities.

If you think you have been misclassified as an exempt employee, call Spencer Young Law today for your free consultation with an experienced employment attorney.