Where an employer is claiming that an employee is not entitled to overtime pay because he or she falls under one of the exemptions to the overtime rule, the burden is on the employer to demonstrate that the employee is exempt, and exemptions will only be applied to employees plainly and unmistakably within their terms.

By Joanne Deschenaux, J.D.

An employee seeking overtime pay could bring his claim to trial because the employer failed to show that the worker was an exempt employee, a California appeals court ruled.

The burden is on the employer to show exempt status, and the employer did not do so; therefore, the trial court erred in dismissing the claim, the court said.

The employer develops immunotherapy treatments. The employee began working for the company in 2015 as the director of quality assurance. His offer letter stated that his responsibilities included oversight of quality assurance compliance and managing a quality management system. His starting salary was $180,000 per year.

Although the employee often worked more than eight hours per day, the company did not pay him overtime wages. He received a merit increase to $183,600, effective Jan. 1, 2017. He was terminated on Feb. 8, 2018.

The employee sued the company for failure to pay overtime wages, among other claims. The trial court dismissed the claim before trial, and the employee appealed.

Executive and Administrative Exemptions

The California Industrial Welfare Commission (IWC) established exemptions to an employer’s obligation to provide overtime pay for executive, administrative and professional employees, the appeals court explained. An exemption may apply if the employee is primarily engaged in duties that meet the test of the exemption, and customarily and regularly exercises discretion and independent judgment in performing those duties.

Whether an employee comes within an exemption is an affirmative defense for which the employer bears the burden of proof. A court will narrowly construe exemptions against the employer, and the application of the exemptions is limited to employees plainly and unmistakably within their terms, the court said.

The employer contended that the executive and/or administrative exemptions applied. Those exemptions are provided in IWC Wage Order No. 1-2001.

As to the executive exemption, the employee agreed that he met some of requirements in that his duties and responsibilities involved the management of the company, he had the authority to hire or fire employees, and he exercised discretion and independent judgment.

He denied, however, that he customarily and regularly directed the work of two or more other employees or was primarily engaged in duties that met the test of the exemption.

While a supervisor’s declaration stated that the employee supervised three named employees during his employment, it did not give specific time periods.

The employee said that he did not manage any employees until about a year after he started his employment, and the number of employees he supervised after that rose from one to three over time.
Therefore, the court said, an inference that the employee supervised at least two employees for the entire time he was employed was not warranted.

There was also a dispute as to whether the employee was primarily engaged in exempt duties. “Primarily” means more than one-half of the employee’s work time, the court said. An employee whose primary duty is ordinary production work or routine, recurrent or repetitive tasks cannot qualify for exemption as an executive.

The employee claimed he only spent 30 to 35 percent of the workweek in executive roles, such as assigning, reviewing or supervising work. He said he spent the remaining 65 to 70 percent of his workweek performing tasks, such as monitoring test results and reviewing procedures to ensure compliance with relevant safety regulations.

The employer’s evidence described the employee’s job duties but did not indicate how much of his time was spent on executive duties. The employer did not establish that the employee fell under the executive exemption to the overtime rules, the appeals court said.

The employer claimed that the employee was also exempt under the administrative exemption. The employer established that the employee performed work related to management policies or general business operations, as required to meet the administrative exemption, the court said.

However, as with the executive exemption, the employer failed to present evidence that the employee spent the majority of his work time on exempt duties.

The employer also did not establish that the employee fell under the administrative exemption, the court said, and the employee’s claims for overtime pay should not have been dismissed before trial.

Sawaked v. Atara Biotherapeutics, Calif. Ct. App., No. B306294 (June 6, 2022).

Joanne Deschenaux, J.D., is a freelance writer in Annapolis, Md.