On November 28, 2007, the California Supreme Court granted Sheppard Mullin Richter & Hampton’s Petition for Review on behalf of Defendants Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation in one of the biggest employment class action cases pending in California today.   In Harris v. Superior Court, the California Supreme Court may address several significant legal issues relating to the interpretation of the California Wage Orders that would be important to all California employers.  This could be one of the most significant employment cases addressed by the California Supreme Court in some time.

In Harris, the plaintiff claims adjusters allege that the insurance companies improperly classified them as exempt from the overtime compensation requirements under California law.  Liberty Mutual and Golden Eagle classified the claim handlers as exempt from overtime pursuant to the “administrative exemption.”  Plaintiffs seek to recover the unpaid overtime to which they are allegedly entitled.

The trial court initially certified a class defined as “all non-management California employees classified as exempt by Liberty Mutual and Golden Eagle who were employed as claims handlers and/or performed claims-handling activities.”  Plaintiffs and defendants subsequently filed cross-motions for summary adjudication on defendants’ affirmative defense that plaintiffs are exempt.  The class certification and summary adjudication proceedings all focused on the administrative/production worker dichotomy and on the relationship between that dichotomy and the administrative exemption.  Those requirements are set forth in two regulations promulgated by the Industrial Welfare Commission (IWC):  Wage Order 4, in effect at all relevant times before October 1, 2000, and Wage Order 4-2001, which succeeded Wage Order 4.   Both wage orders provide that persons employed in administrative capacities are exempt from the overtime compensation requirements.  (Cal. Code Regs., tit. 8, § 11040, subd. (1)(A); Wage Order 4, subd. (1)(A).)  On October 18, 2006, the trial court denied plaintiffs’ motion for summary adjudication and partially granted defendants’ decertification motion, decertifying the class with respect to all claims arising after October 1, 2000.

On a writ of mandate, the California Court of Appeal held that all of the adjusters were not exempt under the administrative exemption.  In doing so, the Court of Appeal held that under California law, the administrative exemption only applied to those employees who perform work at the "policy" or "general operations" level.  That holding could have affected not only insurance companies, but all California employers.  The Court of Appeal’s decision, had it been allowed to stand, could have potentially impacted California employees, in a wide variety of industries, who are now correctly classified as administrative employees.

Should it choose to do so, the California Supreme Court now has a vehicle to provide the lower courts, employees, California employers, and nationwide employers who happen to be doing business in California, with much-needed guidance on the correct scope of the administrative exemption under California law.