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The following is not meant to be legal advice.

On August 16, 2007, the California Court of Appeal decided on Harris v. Superior Court.  The case was on the administrative exemption under California law. The case involved employees who were claims adjusters.  The adjusters were engaged in work that fell on production, and were nonexempt because they investigate and estimate claims, make coverage determinations, set reserves, negotiate settlements, make settlement recommendations. To prevent from having to pay overtime, the employers should have monitored working hours of employees to keep them below 8 hours per day and 40 hours per week, and made sure they took their rest and meal periods.

The employees alleged that the insurance companies did not properly classify them as exempt from the overtime compensation requirements of California law. The exemption is based on FLSA regulations.  According to the regulations, employees performing production work do not qualify for the administrative exemption. 

The court studied whether the work the claims adjusters did directly related to management policies or general business operations of an employer.  They looked at two requirements: (1) the work must be of a certain type (administrative not production work) and (2) the work must be of importance to the management or operation of the business.

The duties of the insurance claims adjusters were part of the operations of the defendants’ business.  Employers might review the job descriptions and functions of employees classified as administrative-exempt and make sure their tasks do not primarily relate to carrying out the daily business of the employer.  To be classified under the category, they should be working on management policy and operations.