Negri v. Koning & Assocs.

• Decision Date: 21 August 2013
• Docket Number: H037804
• Citation: Negri v. Koning & Assocs., 156 Cal.Rptr.3d 697, 216 Cal.App.4th 392 (Cal. App. 2013)
• Court: California Court of Appeals
• Parties: Mark NEGRI, Plaintiff and Appellant, v. KONING & ASSOCIATES, Defendant and Respondent.

216 Cal.App.4th 392

156 Cal.Rptr.3d 697

Mark NEGRI, Plaintiff and Appellant,

v.KONING & ASSOCIATES, Defendant and Respondent.

H037804

Court of Appeal, Sixth District, California.

Filed May 16, 2013

Review Denied August 21, 2013

See3 Witkin, Summary of Cal. Law (10th ed. 2005) Agency and Employment, § 361.

Trial Court: Santa Clara County Superior Court Superior CourtNo. 10–07–CV092242, Trial Judge: Hon. Socrates P. Manoukian(Santa Clara County Super. Ct.No. CV092242)

Law Offices of Ari Moss, Ari E. Moss, Dennis F. Moss, Attorney at Law Dennis F. Moss, Counsel, for Plaintiff/Appellant.

Matheny, Sears, Linkert & Jaime, Michael A. Bishop, N. Kate Jeffries, Counsel for Defendant/Respondent.

Premo, J.

California law provides that, absent an exemption, an employee must be paid time-and-a-half for work in excess of 40 hours per week.To be exempt from that requirement the employee must perform specified duties in a particular manner and be paid “a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.”(Lab.Code, § 515, subd. (a).)

The question presented in this case is whether a compensation scheme based solely upon the number of hours worked, with no guaranteed minimum, can be considered a “salary” within the meaning of the pertinent wage and hour laws.We conclude that such a payment schedule is not a salary and, therefore, does not qualify the employee as exempt.Since the trial court found the employee was exempt, we shall reverse.

A.Factual and Procedural Background

PlaintiffMark Negri is an insurance claims adjuster who was employed by defendantKoning & Associates from May 2004 through October 2005.He was paid $29 per hour with no minimum guarantee.When he worked more than 40 hours in a week he still received only $29 per hour.Plaintiff sued defendant for overtime pay.Defendant denied that plaintiff was owed any overtime since he was classified as an exempt employee under the administrative exemption of Industrial Welfare Commission(IWC) Wage Order 4 (Cal.Code Regs., tit. 8, § 11040(regs. § 11040)).¹

The matter was tried on undisputed facts submitted in the form of a written stipulation.The stipulation contained 30 separate facts, about half of which related to plaintiff's job duties.For example, the parties agreed that plaintiff“made his own schedule” and that he“was never supervised in the field” by defendant's managers.He spent most of his time “recording and tabulating data” and “transmitting that data to insurance carriers.”

The stipulation also explained that plaintiff“was paid based on the total hours he submitted to Defendant for each client.”“Each month, Plaintiff was provided with a billing ledger of all hours that he billed and for which he was compensated.”Plaintiff received “all invoices extended to clients based upon Plaintiff's billed hours.”Plaintiff's “hourly rate of pay was $29 per hour.”“[Defendant] never paid [plaintiff] a guaranteed salary, rather he was paid on an hourly rate of $29.00 per hour per claim basis.That is to say if he worked less claims [ sic ] in a pay period he made less money than if he worked more claims.”But no matter how much he worked, he did not receive overtime pay; “plaintiff was paid $29 per hour for work done on each claim.”Plaintiff estimated that he worked an “average 20 hours a week of overtime” during all 66 weeks he worked for defendant.

Plaintiff's theory of the case was that since he was compensated based upon the hours he worked he did not receive a salary and, therefore, he could not be categorized as exempt.The trial court did not base its decision on the compensation issue, however.At the time the trial court issued its statement of decision, Harris v. Superior Court(2011)53 Cal.4th 170, 135 Cal.Rptr.3d 247, 266 P.3d 953( Harris ), which concerned the classification of insurance claims adjusters, was pending before the Supreme Court.The issue in Harris was whether insurance adjusters “are not exempt employees as a matter of law.”(Id. at p. 175, 135 Cal.Rptr.3d 247, 266 P.3d 953.)Since the issue had not been decided as a matter of state law, the trial court turned to federal law, noting that Department of Labor regulations state that “insurance claims adjusters generally meet the duties requirements for the administrative exemption....”The court also cited several federal cases( In re Farmers Ins. Exchange, Claims Represent.(9th Cir.2007)481 F.3d 1119;Cheatham v. Allstate Ins. Co.(5th Cir.2006)465 F.3d 578;Roe–Midgett v. CC Services, Inc.(7th Cir.2008)512 F.3d 865), which had held that insurance claims adjusters are exempt employees.Although the trial court found that plaintiff had worked “20 hours of overtime a week,”the court nevertheless concluded that plaintiff was an exempt employee.

The trial court entered a judgment in defendant's favor.Plaintiff has timely appealed.

B.Discussion

1.Issue and Standard of Review

The only issue on appeal is whether the trial court erred in finding plaintiff to have been an exempt employee notwithstanding the manner in which he was paid.There are no disputed factual issues.Accordingly, the question is one of law subject to our independent review.(Ghirardo v. Antonioli(1994)8 Cal.4th 791, 801, 35 Cal.Rptr.2d 418, 883 P.2d 960.)

2.Analysis

Exemptions from the overtime pay requirement are proper only where “the employee is primarily engaged in the duties that meet the test of the exemption, customarily and regularly exercises discretion and independent judgment in performing those duties, and earns a monthly salary equivalent to no less than two times the state minimum wage for full-time employment.”(Lab.Code, § 515, subd. (a).)Such exemptions are narrowly construed.(Ramirez v. Yosemite Water Co.(1999)20 Cal.4th 785, 794, 85 Cal.Rptr.2d 844, 978 P.2d 2.)“[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.”(Id. at pp. 794–795, 85 Cal.Rptr.2d 844, 978 P.2d 2.)

The parties agree that Wage Order 4, which governs “persons employed in professional, technical, clerical, mechanical, and similar occupations ...”(regs. § 11040, subd. 1), is the regulation that applies here.Wage Order 4 sets forth detailed requirements for the three allowable exemptions: executive, administrative, and professional.(Regs. § 11040, subd. 1(A)(1), (2), (3).)Among other things, Wage Order 4 provides that to qualify as exempt under any one of these three categories the employee must be primarily engaged in exempt duties ( id.,subd. 1(A)(1)(e);id.,subd. 1(A)(2)(f);id.,subd. 1(A)(3)(b)), and earn “a monthly salary equivalent to no less than two (2) times the state minimum wage for full-time employment”( id.,subd. 1(A)(1)(f);id.,subd. 1(A)(2)(g);id.,subd. 1(A)(3)(d)).

Harris,supra,53 Cal.4th at page 175, 135 Cal.Rptr.3d 247, 266 P.3d 953, involved the job-duties prong of the exemption test.As the Supreme Court explained, “The essence of our holding is that, in 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.”(Id. at p. 190, 135 Cal.Rptr.3d 247, 266 P.3d 953.)Here, however, the question does not relate to the duties prong of the exemption test but to the compensation prong.There is no question that the amount plaintiff was paid exceeded the minimum amount required for exemption.The question is whether the manner in which plaintiff was paid qualifies as a salary within the meaning of Wage Order 4.

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.²Thus, 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 California 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.(2002–03–01.pdf> as of May 16, 2013.)Although DLSE opinion letters are not controlling authority, we properly rely upon them to inform our interpretation of IWC wage orders.( Brinker Restaurant Corp. v. Superior Court(2012)53 Cal.4th 1004, 1028, 139 Cal.Rptr.3d 315, 273 P.3d 513.)Accordingly, we turn to federal law for the definition of “salary.”

The federal salary-basis test is found in the regulations implementing the Fair Labor Standards Act. (29 U.S.C. § 201 et seq.)Those regulations explain that, in order to be exempt from the federal overtime pay requirement, an administrative employee must be engaged in specified administrative job duties and be paid on a “salary or fee basis.”(29 C.F.R. § 541.200(a)(1).)An employee is paid on a “salary basis” if the employee “ regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee ' s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed.Subject to the exceptions provided in paragraph (b) of this section[relating to absences from work], an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked.Exempt employees need not be paid for any workweek in which they perform no work.An employee is not paid on a salary basis if deductions from the employee's predetermined...