(December 7, 2007) The California Supreme Court has agreed to review a case that could substantially disrupt California businesses and invite massive litigation if the lower court ruling is allowed to stand.

The California Chamber of Commerce filed a “friend of the court letter brief” in the case of Harris v. Superior Court (Liberty Mutual). In that case, the appeals court ruled that the exemption from wage and hour regulations for “administrative” employees applies only to employees at a “level” of the organizational chart that places them above and apart from the generation of revenue or the reduction of expenses, even if their tasks are administrative and discretionary.

The CalChamber believes that the court of appeal ruling disregards the express intent of a federal wage order and, if uncorrected, will have deep repercussions throughout California’s economy.

The court’s decision departs from the federal regulations incorporated in Wage Order 4-2001, which exempts from wage-and-hour regulations employees who are employed in an “administrative capacity,” and the federal judicial decisions constructing those regulations.
 
The lower court’s ruling could lead to the reclassification as hourly wage earners of hundreds of thousands, if not millions, of salaried administrative employees who currently are and historically were considered exempt from most California wage-and-hour requirements.

The decision of the court of appeal thwarts the Industrial Welfare Commission’s effort to bring California law on the exempt status of administrative employees into accord with federal law.  In straining to do so, the court injected ambiguity into an otherwise-clear regulatory provision by reaching beyond the provisions’ terms to a separate body of law, the CalChamber argued.

The CalChamber also expressed concern that this issue is unlikely to produce any additional appellate decisions quickly enough to stop further decisions by dozens of other trial courts that are constrained to apply an erroneous analysis because the Harris decision is the only pertinent published authority.

The CalChamber believes that the court of appeal decision, unless it is reviewed and reversed by the Supreme Court, could prompt an entire new series of cases addressing purported wage claims of whole categories of employees long believed (and held) exempt from the overtime pay and meal-and-rest period obligations.

Staff Contact: Erika Frank