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State Law Favored Over Feds in Overtime Case

When involved in overtime claims based in state law, employers must initially review applicable state statutes and regulations before relying on federal tests, especially when in California.

February 13, 2012

The California Supreme Court stepped away from a federal test that is used to determine whether employees were exempt administrative employees and therefore not entitled to overtime pay. Instead, the court will rely on existing state statutes to make determinations about overtime-pay exemptions, and that state courts may only rely on federal tests, such as the "administrative production worker dichotomy," when state statutes do not provide guidance.

The case involved insurance claims adjusters who worked for Liberty Mutual Insurance Co. and Golden Eagle Insurance Corp. The insurance claims adjusters alleged that they were entitled to overtime pay arising after Oct. 1, 2000. The trial court had granted summary judgment for the insurance companies.

A California Court of Appeal reversed the decision and decided that California law must be interpreted consistent with the federal Fair Labor Standards Act, which provides that insurance claims adjusters were primarily "production" workers and not exempt from overtime pay requirements.

The state Supreme Court instead looked to a 1999 amendment to the California Labor Code and a state regulation. The court held that while the "administrative/production worker dichotomy" (cited by the lower courts) may be referred to, that test does not control. (The administrative/production worker dichotomy test asks a court to determine whether an employee administrates business operations [if so, they are exempt from overtime pay] or if the employee produces the business' work and is not exempt from receiving overtime wages.) The court has remanded the case. Harris v. Superior Court, 2011 WL 6823963 (Cal.S.Ct.2011), (Dec. 29, 2011).

IMPACT: When involved in overtime claims based in state law, employers must initially review applicable state statutes and regulations before relying on federal tests, especially when in California.

James E. Hall, Mark T. Kobata and Marty Denis are partners in the law firm of Barlow, Kobata & Denis, with offices in Los Angeles and Chicago. To comment, email editors@workforce.com.

Workforce Management, February 2012, p. 8 -- Subscribe Now!