In 2004, the U.S. Department of Labor (“DOL”) issued new regulations regarding the federal overtime exemptions applicable to “white collar employees,” such as executive, administrative and professional employees (29 C.F.R. Part 541). Many observers questioned the significance of the updated federal regulations in California because of the differences between federal and California regulations. In an August 2, 2005 opinion to Attorney Richard J. Simmons of Sheppard, Mullin, Richter & Hampton LLP, the DOL confirmed that several critical provisions of the 2004 regulations were clarifications and not substantive changes, thereby making them pertinent to an analysis of California’s white collar overtime exemptions.

1. The Relevance Of The Federal Regulations

Despite the differences, there are also many similarities between the state and federal rules. Significantly, California’s Wage Orders expressly incorporate features of the federal regulations as they existed and were interpreted as of October 1, 2000, the date the California Wage Orders were promulgated. The question thus existed whether features of the updated DOL regulations that took effect on August 23, 2004 represented clarifications of the prior regulations incorporated within California law or substantive changes to those rules. Where they merely clarify the prior regulations adopted by the IWC, they are extremely important in California.

2. The New DOL Opinion

Earlier this year, Richard J. Simmons Esq. sought confirmation from the DOL regarding three critical features of the 2004 regulations. He asked for confirmation with respect to the following statements:

(a) The addition of the two items (“planning and controlling the budget” and “monitoring or implementing legal compliance measures”) to the examples of exempt managerial duties represented a mere clarification that is consistent with the DOL’s prior regulations and cases that had construed those regulations;

(b) The inclusion of the “concurrent duties” language in the new regulations clarified the prior regulations regarding this issue and reaffirmed that time spent simultaneously performing exempt and nonexempt work qualifies as exempt time under the federal regulations that were in effect on October 1, 2000; and

(c) The “directly and closely related” standards that appeared in the prior regulations have been republished in the new regulations without altering the prior regulatory standard, which states that time spent on any work that is “directly and closely related to” the performance of exempt work is considered time spent on exempt work.

The DOL responded to this request in an opinion dated August 2, 2005. It confirmed the accuracy of each of these three statements.

3. Examples of Management Activities

Although California and federal law differ regarding the amount of time that must be spent on exempt management activities, they both regard the same types of management activities as exempt. In fact, the California Wage Orders expressly incorporate the list of examples of exempt management activities that appeared in the federal regulations as of October 1, 2000. The new DOL regulations recited the same list, but added two additional examples of management activities that illustrate types of exempt duties that do not involve supervisory duties. The two new examples are “planning and controlling the budget” and “monitoring or implementing legal compliance measures.”

The DOL explained its intention “to include activities that are not supervisory, but still within the purview of management duties.” It agreed that “management activities are not limited to supervisory activities.” Indeed, it confirmed that it never viewed the executive exemption or the definition of management to be limited to “supervisory” functions before it updated the regulations. It opined that the executive exemption “included all activities that could be properly described as management, including budgeting and implementing legal compliance measures.”

The DOL thus confirmed that the language listing the two new examples of management activities “was a clarification and not a change from the old regulations” that are part of the California law. In short, because California law adopted the prior federal standard defining management duties, the clarification is directly relevant to California law.

4. The “Concurrent Duties” Language

The updated DOL regulations include language regarding “concurrent duties” that explain the DOL’s “previous position that exempt executive employees can concurrently spend time performing exempt duties at the same time they are performing nonexempt duties.” The DOL reaffirmed its belief that the “concurrent duties” standards are consistent with current case law under the previously-existing regulations that the IWC adopted in 2000. The DOL therefore opined that the language in 29 C.F.R. § 541.106 regarding concurrent duties “was a clarification and not a change.” Indeed, some of the examples used in the updated regulations were derived from the prior regulations. The DOL reaffirmed that time spent simultaneously performing exempt and nonexempt work qualified as exempt time under the regulations in effect in 2000.

The actual regulations review the standards while distinguishing between exempt executives who perform nonexempt duties and employees who are nonexempt. They state: “Generally, exempt executives make the decision regarding when to perform nonexempt duties and remain responsible for the success or failure of business operations under their management while performing the nonexempt work. In contrast, the nonexempt employee generally is directed by a supervisor to perform the exempt work or performs the exempt work for defined time periods.”

The updated regulations provide an example of an assistant manager in a retail establishment. They recognize that such an individual “may perform work such as serving customers, cooking food, stocking shelves and cleaning the establishment, but performance of such nonexempt work does not preclude the exemption if the assistant manager’s primary duty is management. The assistant manager can supervise employees and serve customers at the same time without losing the exemption. An exempt employee can also simultaneously direct the work of other employees and stock shelves.”

5. The “Directly and Closely Related To” Standard

The California Wage Orders specifically adopt the federal standards that existed on October 1, 2000 that regarded exempt work as including work that is exempt and work that is “directly and closely related” to exempt work. The DOL confirmed that the updated description of the phrase “directly and closely related” was taken from the prior regulations and that the DOL “did not intend any substantive change to the meaning of the phrase ‘directly and closely related.'” It stated unequivocally that “the new standard has not changed from the meaning under the prior rule.” Because California expressly adopted the prior rule, the clarifications in the updated regulations should again be helpful when construing California law.

The standards appear in Section 541.703 of the new regulations. They explain that “directly and closely related” work may include physical tasks and menial tasks that arise out of exempt duties, and the routine work without which the exempt employee’s exempt work cannot be performed properly.” The regulations include the following example:

“(b) A department manager in a retail or service establishment who walks about the sales floor observing the work of sales personnel under the employee’s supervision to determine the effectiveness of their sales techniques, checks on the quality of customer service being given, or observes customer preferences is performing work which is directly and closely related to managerial and supervisory functions.”

Other examples are also provided in the regulations. One example describes as exempt work menial tasks performed by a chemist, such as cleaning a test tube in the middle of an original experiment, even though such menial tasks can be assigned to laboratory assistants. In another example, the DOL explained that a teacher performs exempt work while driving a school van or monitoring students’ behavior in a restaurant. During such periods, the teacher is performing work “directly and closely related to exempt duties.”

The DOL opinion confirms that the updated federal regulations are often valuable in construing the federal and California exemptions. Readers should consider this fact when construing features of California law that are based on federal standards explained or clarified in the updated federal regulations. This includes, among other standards, the provisions explaining management activities, multi-tasking, and activities that are “directly and closely related” to exempt duties.