Exclusively Employment Law

Executive Exemption Under California Law

by | Jan 24, 2021 | Misclassification

Many California employees are entitled to important wage and hour protections under California law, including the right to receive (a) overtime compensation for any work performed in excess of eight hours in one workday, or in excess of 40 hours in one workweek and (b) meal and rest breaks.

However, not all California employees are entitled to these rights. Some employees are exempt from certain wage and hour protections (including the right to receive overtime compensation and meal and rest breaks). One such exemption is the executive exemption.

Under California law, an exempt executive is any employee whose duties and responsibilities involve: (1) “The management of the enterprise in which he is employed or of a customarily recognized department or subdivision thereof;” and (2) “Who customarily and regularly directs the work of at least two or more other employees therein;” and (3) “Who has the authority to hire or fire other employees or whose suggestions and recommendations as to the hiring or firing and as to the advancement and promotion or any other change of status of other employees will be given particular weight;” and (4) “Who customarily and regularly exercises discretion and independent judgment; and (5) “Who is primarily engaged in duties which meet the test of the exemption.” (The 2002 Update of The DLSE Enforcement Policies and Interpretations Manual (Revised) (August 2019) (“The Enforcement Manual”), Section 53.1 (emphasis added))

As you can see, the executive exemption requirements are complex. If you believe that your employer has classified you as an exempt executive, you should make sure that your employer has satisfied the above-referenced requirements. If not, your employer may have misclassified you as an exempt employee in violation of California law. Below are six things that you should know about the executive exemption:

No. 1: Although your written job description is a relevant factor in determining whether you are an exempt executive under California law, “[t]he work actually performed by [you] during the course of the work week must, first and foremost, be examined and the amount of time [you] spend on such work….” (Id. at Section 53.2 (emphasis added))

No. 2: Likewise, in determining exempt status, the focus is on your actual job duties, rather than your job title. (See United Parcel Service Wage & Hour Cases, 190 Cal.App.4th 1001, 1015 (2010); see also 20 C.F.R. sec. 541.2 (“A job title alone is insufficient to establish the exempt status of an employee.”).) For instance, even if your job title is “Executive Vice President,” if your actual job duties do not satisfy the above-referenced requirements of the executive exemption, you are not an exempt executive under California law.

No. 3: Regarding the requirement that management duties be exercised over the entire enterprise or a customarily recognized department or subdivision thereof, “[i]t is important to recognize that the term ‘customarily recognized department or subdivision thereof’ has a particular meaning. The phrase is intended to distinguish between ‘a mere collection of employees assigned from time to time to a specific job or series of jobs’ and ‘a unit with permanent status and function.’” (The Enforcement Manual, Section 53.3.1 (emphasis added)) Thus, “in order to meet the criteria of a managerial employee, one must be more than merely a supervisor of two or more employees. The managerial exempt employee must be in charge of the unit, not simply participate in the management of the unit. (Id. (emphasis added))

No. 4: The phrase “exercise of discretion and independent judgment” is “defined as generally involving ‘the comparison and the evaluation of possible courses of conduct and acting or making a decision after the various possibilities have been considered. The term .. implies that the person has the authority or power to make an independent choice, free from immediate direction or supervision and with respect to matters of significance.’” (United Parcel Service Wage & Hour Cases, 190 Cal.App.4th at 1024 (citing 29 C.F.R. § 541.207(a); emphasis added)) In turn, the “requirement that discretion be exercised with respect to ‘matters of significance’ means the decision being made must be relevant to something consequential and not merely trivial.” (United Parcel Service Wage & Hour Cases, 190 Cal.App.4th at 1024 (citing 29 C.F.R. § 541.207(d); emphasis added))

No. 5: Regarding the phrase “exercises discretion and independent judgment,” California’s Division of Labor Standards Enforcement has stated that “[a]n employee who merely applies his or her memory in following prescribed procedures or determining which required procedure to follow is not exercising discretion and independent judgment.” (The Enforcement Manual, Section (emphasis added))

No. 6: “Some examples of management duties which DLSE will accept include: [¶] Interviewing and selecting employees; training employees; setting of rates of pay and hours of work; directing the work of employees; maintaining production or sales records; appraising work performance; recommending changes in status; handling complaints; disciplining employees; planning work schedules; determining techniques to be used; apportioning work among workers; determining the type of materials, supplies, machinery or tools to be used; controlling the flow and distribution of materials, merchandise or supplies; controlling revenue and expense; and providing for the safety of employees and property. [¶] The above list is not inclusive or exclusive.” (Cal. Dept. Industrial Relations, DLSE, Opinion Letter (July 6, 1993), at 5)

If you have questions about the executive exemption under California law, call ((916) 612-0326) or email ([email protected]) Finley Employment Law today. Finley Employment Law serves clients throughout California, including Sacramento, Roseville, Davis, Folsom, and Elk Grove.

The information in this blog post is for general informational and advertising purposes only and is not, nor is it intended to be, legal advice. Instead, you should speak with a California employment attorney for advice regarding your individual situation.