CACI 2721 Affirmative Defense—Nonpayment of Overtime—Administrative Exemption

New December 2012; Revised June 2014

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This instruction is an affirmative defense to an employee’s claim for statutory overtime earnings. (See CACI No. 2702, Nonpayment of Overtime Compensation—Essential Factual Elements.) The employer claims that the employee is an exempt administrator. (See Lab. Code, § 515(a).) The employer must prove all of the elements. (Eicher v. Advanced Business Integrators, Inc. (2007) 151 Cal.App.4th 1363 1372 [61 Cal.Rptr.3d 114].) For an instruction for the affirmative defense of executive exemption, see CACI No. 2720, Affirmative Defense—Nonpayment of Overtime—Executive Exemption.

This instruction is based on Industrial Welfare Commission Wage Order 9, which is applicable to the transportation industry. (See 8 Cal. Code Regs., § 11090.) Different wage orders are applicable to different industries. (See Lab. Code, § 515.) The requirements of the administrative exemptions under the various wage orders are essentially the same. (Cf., e.g., 8 Cal. Code Regs., § 11040, Wage Order 4, applicable to persons employed in professional, technical, clerical, mechanical, and similar occupations.).

The exemption requires that the employee be “primarily engaged in duties that meet the test of the exemption.” (See 8 Cal. Code Regs., § 11090 sec. 1(A)(2)(f), sec. 2(J) (“primarily” means more than one-half the employee’s work time).) This requirement is expressed in element 4. However, the contours of administrative duties are quite detailed in the wage orders, which incorporate federal regulations under the Fair Labor Standards Act and also provide some specific examples. (See also Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 802 [85 Cal.Rptr.2d 844, 978 P.2d 2].) In many cases, it will be advisable to instruct further with details from the applicable wage order and regulations as to what constitutes “administrative duties” (element 4) and the meaning of “directly related” (element 1).

Include the optional last paragraph if a particular work activity arguably involves more than one purpose and could be characterized as exempt or nonexempt, depending on its primary purpose.

This instruction may be expanded to provide examples of the specific exempt and nonexempt activities relevant to the work at issue. (See, e.g., Heyen v. Safeway, Inc. (2013) 216 Cal.App.4th 795, 808–809 [157 Cal.Rptr.3d 280].)

•Exemptions to Overtime Requirements. Labor Code section 515(a).

•“[T]he assertion of an exemption from the overtime laws is considered to be an affirmative defense, and therefore the employer bears the burden of proving the employee’s exemption.” (Ramirez, supra, 20 Cal.4th at pp. 794–795.)

•“In order to establish that [plaintiff] was exempt as an administrative employee, [defendant] was required to show all of the following: (1) his duties and responsibilities involve the performance of office or nonmanual work directly related to management policies or general business operations of [defendant]; (2) he customarily and regularly exercises discretion and independent judgment; (3) he performs work requiring special training, experience, or knowledge under general supervision only (the two alternative prongs of the general supervision element are not pertinent to our discussion); (4) he is primarily engaged in duties that meet the test of exemption; and (5) his monthly salary is equivalent to no less than two times the state minimum wage for full-time employment.” (United Parcel Service Wage & Hour Cases, supra, 190 Cal.App.4th at p. 1028 [relying on 8 Cal. Code Regs., § 11090, subd. 1(A)(2)].)

•“Read together, the applicable Labor Code statutes, wage orders, and incorporated federal regulations now provide an explicit and extensive framework for analyzing the administrative exemption.” (Harris v. Superior Court (2011) 53 Cal.4th 170, 182 [135 Cal.Rptr.3d 247, 266 P.3d 953].)

•“Determining whether or not all of the elements of the exemption have been established is a fact-intensive inquiry.” (United Parcel Service Wage & Hour Cases (2010) 190 Cal.App.4th 1001, 1014 [118 Cal.Rptr.3d 834].)

•“Review of the determination that [plaintiff] was not an exempt employee is a mixed question of law and fact. Whether an employee satisfies the elements of the exemption is a question of fact reviewed for substantial evidence. The appropriate manner of evaluating the employee’s duties is a question of law that we review independently.” (Heyen, supra, 216 Cal.App.4th at p. 817, internal citations omitted.)

•“The appropriateness of any employee’s classification as exempt must be based on a review of the actual job duties performed by that employee. Wage Order 9 expressly provides that ‘[t]he work actually performed by the employee during the course of the workweek must, first and foremost, be examined and the amount of time the employee spends on such work, together with the employer’s realistic expectations and the realistic requirements of the job, shall be considered … .’ No bright-line rule can be established classifying everyone with a particular job title as per se exempt or nonexempt—the regulations identify job duties, not job titles. ‘A job title alone is insufficient to establish the exempt status of an employee. The exempt or nonexempt status of any particular employee must be determined on the basis of whether the employee’s salary and duties meet the requirements of the regulations … .’ ” (United Parcel Service Wage & Hour Cases, supra, 190 Cal.App.4th at p. 1014–1015, original italics, internal citation omitted.)

•“This is not a day-by-day analysis. The issue is whether the employees ‘ “spend more than 51% of their time on managerial tasks in any given workweek.” ’ ” (Batze v. Safeway, Inc. (2017) 10 Cal.App.5th 440, 473, fn. 36 [216 Cal.Rptr.3d 390].)

•“Put simply, ‘the regulations do not recognize “hybrid” activities—i.e., activities that have both “exempt” and “nonexempt” aspects. Rather, the regulations require that each discrete task be separately classified as either “exempt’ or “nonexempt.” [Citations.]’ [¶] We did not state, however, that the same task must always be labeled exempt or nonexempt: ‘ [I]dentical tasks may be “exempt” or ‘nonexempt” based on the purpose they serve within the organization or department.’ ” (Batze, supra, 10 Cal.App.5th at p. 474.)

•“In basic terms, the administrative/production worker dichotomy distinguishes between administrative employees who are primarily engaged in ‘ “administering the business affairs of the enterprise” ’ and production-level employees whose ‘ “primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce and market.” [Citation.]’ ¶¶ [T]he dichotomy is a judicially created creature of the common law, which has been effectively superseded in this context by the more specific and detailed statutory and regulatory enactments.” (Harris, supra, 53 Cal.4th at pp. 183, 188.)

•“We do not hold that the administrative/production worker dichotomy … can never be used as an analytical tool. We merely hold that the Court of Appeal improperly applied the administrative/production worker dichotomy as a dispositive test. [¶] … [I]n resolving whether work qualifies as administrative, courts must consider the particular facts before them and apply the language of the statutes and wage orders at issue. Only if those sources fail to provide adequate guidance … is it appropriate to reach out to other sources.” (Harris, supra, 53 Cal.4th at p. 190.)

•“[T]he federal regulations incorporated into Wage Order 7 do not support the ‘multi-tasking’ standard proposed by [defendant]. Instead, they suggest, as the trial court correctly instructed the jury, that the trier of fact must categorize tasks as either ‘exempt’ or ‘nonexempt’ based on the purpose for which [plaintiff] undertook them.” (Heyen, supra, 216 Cal.App.4th at p. 826.)

•“Wage Order 4 refers to compensation in the form of a ‘salary.’ It does not define the term. The regulation does not use a more generic term, such as ‘compensation’ or ‘pay.’ Either of these terms would encompass hourly wages, a fixed annual salary, and anything in between. ‘Salary’ is a more specific form of compensation. A salary is generally understood to be a fixed rate of pay as distinguished from an hourly wage. Thus, use of the word ‘salary’ implies that an exempt employee’s pay must be something other than an hourly wage. California’s Labor Commission noted in an opinion letter dated March 1, 2002, that the Division of Labor Standards Enforcement (DLSE) construes the IWC wage orders to incorporate the federal salary-basis test for purposes of determining whether an employee is exempt or nonexempt.” (Negri v. Koning & Associates (2013) 216 Cal.App.4th 392, 397–398 [156 Cal.Rptr.3d 697, footnote omitted.)

•“[T]he costs incurred by an employer to provide an employee with board, lodging or other facilities may not count towards the minimum salary amount required for exemption … .” (Kao v. Holiday (2017) 12 Cal.App.5th 947, 958 [219 Cal.Rptr.3d 580].)

•“The rule is that state law requirements for exemption from overtime pay must be at least as protective of the employee as the corresponding federal standards. Since federal law requires that, in order to meet the salary basis test for exemption the employee would have to be paid a predetermined amount that is not subject to reduction based upon the number of hours worked, state law requirements must be at least as protective.” (Negri, supra, 216 Cal.App.4th at p. 398.)

•“Under California law, to determine whether an employee was properly classified as ‘exempt,’ the trier of fact must look not only to the ‘work actually performed by the employee during the … workweek,’ but also to the ‘employer’s realistic expectations and the realistic requirements of the job.’ ” (Heyen, supra, 216 Cal.App.4th at p. 828.)

•“Having recognized California’s distinctive quantitative approach to determining which employees are outside salespersons, we must then address an issue implicitly raised by the parties that caused some confusion in the trial court and the Court of Appeal: Is the number of hours worked in sales-related activities to be determined by the number of hours that the employer, according to its job description or its estimate, claims the employee should be working in sales, or should it be determined by the actual average hours the employee spent on sales activity? The logic inherent in the IWC’s quantitative definition of outside salesperson dictates that neither alternative would be wholly satisfactory. On the one hand, if hours worked on sales were determined through an employer’s job description, then the employer could make an employee exempt from overtime laws solely by fashioning an idealized job description that had little basis in reality. On the other hand, an employee who is supposed to be engaged in sales activities during most of his working hours and falls below the 50 percent mark due to his own substandard performance should not thereby be able to evade a valid exemption. A trial court, in determining whether the employee is an outside salesperson, must steer clear of these two pitfalls by inquiring into the realistic requirements of the job. In so doing, the court should consider, first and foremost, how the employee actually spends his or her time. But the trial court should also consider whether the employee’s practice diverges from the employer’s realistic expectations, whether there was any concrete expression of employer displeasure over an employee’s substandard performance, and whether these expressions were themselves realistic given the actual overall requirements of the job.” (Ramirez, supra, 20 Cal.4th at pp. 801–802, original italics.)