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For Whom No Bell Tolls

OK, maybe this case is only interesting to those of us Wage and Hour nerds, but Harris v. Superior Court could be hailed as the final nail in the Bell case trilogy.  Although this post may include more information about how sausage is made than you ever wanted to know, the Court’s decision could curtail a fairly significant number of overtime lawsuits.

The Bell cases are  three  decisions that the Supreme Court issued regarding whether claims adjusters working for Farmers Insurance Exchange were exempt from California’s overtime requirements.  The cases were important because the court used the production/administration dichotomy to find the adjusters did not meet the administrative exemption test.

The production/administration dichotomy distinguishes between administrative employees primarily engaged in “administering the business affairs of the enterprise” and production employees primarily engaged in “producing the commodity or commodities, whether goods or services,” that were the focus of the enterprise.  Despite the fact that Bell specifically held that the production/administration dichotomy is not useful in every case, a lot of attorneys try to rely on the distinction as a simple way of determining whether an employee is exempt.

In Harris, claims adjusters employed by Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation filed a class action seeking unpaid overtime.  The employer alleged the employees were exempt under the administrative exemption, and the plaintiffs filed a motion for summary judgment seeking a determination that “as a matter of law,” the claims adjusters could not be exempt.  The appellate court used the production/administration dichotomy and held the employees could not be exempt from California’s overtime laws.  The California Supreme Court disagreed and put a huge damper on further attempts to use the production/administration dichotomy as the sole basis for defeating a claimed exemption.

Harris pointed out that Bell was decided based on pre-2000 regulations which did not clearly define the administrative exemption.  In 2000, the IWC amended the wage orders providing more details as to what activities qualify as exempt duties and specifically incorporated specific federal regulations.  Bell did not have the advantage of those regulations and therefore relied on the production/administration dichotomy absence clear direction from the legislature or the IWC.  Now that we have specific regulatory guidance, the production/administration dichotomy is even less useful.

Perhaps the biggest death toll for Bell is the Supreme Court’s focus on the fact that Bell is really only applicable to pre-2000 cases.  While there may be a few pre-2000 cases still winding their way through the court system, I suspect there aren’t many of them left.

It is also important to note that the Supreme Court did not say the claims adjusters were or were not exempt from overtime.  The court merely pointed out that the appellate court used the wrong test in determining whether the employees are entitled to overtime.  Correctly classifying employees is not easy, and you should seek the assistance of competent professionals before making a costly mistake.

The Law Office of Phillip J. Griego
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San Jose, CA 95113
Tel. 408-293-6341
Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.
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