On December 3, 2007, we reported that 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.  When considering the Liberty Mutual case, the California Supreme Court may address several significant legal issues relating to the interpretation of the California Wage Orders, in particular the "administrative exemption" to California’s overtime requirements.

In the interim, the California Court of Appeal issued a ruling in Combs v. Skyriver Communication, Inc. that provides some guidance on how to interpret the administrative exemption.  The good news for employers is that the Combs decision advises California trial courts to look beyond the "administrative/production worker dichotomy" if the employee engages in a wide variety functions.

In Combs, an employee of an internet service provider sued for unpaid overtime and related claims, alleging that he had been misclassified as exempt under the administrative exemption.  The employee did not perform the job functions typically associated with the administration of the company, such as tax, payroll, or human resources, but was responsible for "maintaining the well-being of the network."  While for some companies this type of informaton technology (IT) work may qualify as an administrative function, here, the company was in the business of selling connectivity through the network.  The employee argued that he was misclassified as exempt because he was working directly on the product that the company was selling, network connectivity, and that he was therefore a "production worker."

The trial court found that the employee was properly classified as exempt, analyzing the employee’s job function in light of the structure of the company as a whole.  On appeal, the employee argued that the trial court erred by not applying the "administrative/production worker dichotomy."  The appellate court disagreed, holding that a court can consider the totality of the circumstances when evaluating whether to apply the administrative exemption.

The Court explained that the dichotomy is a gross distinction between administrative employees and production employees "may not be dispositive in many cases," and warned that the dichotomy test should be applied with "great caution."  The Court recognized that some employees perform specialized functions within the business organization that cannot be readily categorized in terms of the dichotomy.  Some employees perform jobs involving a wide variety of functions that require a finer distinction than the dichotomy provides.

The Combs decision provides California employers with much-needed guidance on the correct scope of the administrative exemption under California law.  However, given that the California Supreme Court may be issuing further guidance in the near future, we recommend that employers seek the advice of counsel prior to making any adjustments to job classifications.