By Allen Kato, Fenwick & West LLP
Why should you conduct an exemption audit in California? Employee claims alleging they are misclassified as exempt from overtime (brought as individual claims or class-action lawsuits) are the lawsuit of the day. For example, in March 2012, a California court approved a $35 million settlement by Oracle involving 1700 allegedly misclassified software engineers who will each receive about $14,000. Also, in May 2012, WalMart agreed to settle for $4.8 million an action brought by the federal Department of Labor on behalf of 4,500 allegedly misclassified security guards and vision center managers.
In addition, even the nation’s highest courts are considering misclassification cases. In Pellegrino v. Robert Half International, the California Supreme Court will decide whether account executives were properly classified as administrative exempt employees. Also, in Christopher v. SmithKline Beecham Corp., the U.S. Supreme Court will decide whether pharmaceutical sales representatives qualify for the outside sales exemption. This tidal wave of misclassification cases will inevitably continue until all employers properly classify employees and comply with applicable overtime and related wage and hour laws.
The best method to achieve compliance is to conduct a self-audit of your exempt classifications. Indeed, it is the employer’s obligation to ensure compliance. Even good faith, honest mistakes will not excuse your company from liability for unpaid overtime owed to any misclassified workers.
How do you go about performing such an audit if you’ve never conducted an audit before? On May 16, I provide a practical and detailed overview of the recommended audit process, summarized here. The program, Exemption Audits in California, will cover what information you need to collect to properly conduct the audit of exempt positions you suspect may be misclassified. This information may be found in written job descriptions, job posting notices, and performance evaluations, and by interviewing the supervisor. We’ll address the question: should you interview the employee who performs the job? There are definite legal risks of doing so.
Once the information is gathered, you are ready to analyze the data and reach a decision whether the position is properly classified. My webinar will cover the primary white collar exemptions—executive, professional, and administrative—and the compensation and duties tests that must be satisfied before concluding that a position is indeed exempt. Several less common exemptions will also be summarized.
All three exemptions require that employee exercise discretion and independent judgment. Except perhaps for the most entry-level manual laborer job, virtually every job in the modern economy (even admittedly nonexempt positions) require the exercise of some level of discretion and independent judgment. Unfortunately, there is no bright-line test to decide whether such duties satisfy the exemption test. The program will cover best practices to decide the tough “borderline” cases.
If you conclude that the audited positions are properly classified, then you are done (at least for now). But what if you reach the opposite conclusion? Should you consult an attorney (indeed, should you have consulted an attorney before starting the auditing)? Should you do nothing and hope for the best? Should you reclassify the position as nonexempt? If so, do you pay the overtime that should have been paid, or do you only pay overtime going forward? How do you communicate the changes to the employee without triggering a lawsuit? These are difficult decisions that must be carefully evaluated and considered. All of these questions and more will be addressed in this May 16 webinar.
Allen M. Kato is an attorney in the Employment Practices Group of Fenwick & West LLP in San Francisco. His practice concentrates exclusively on representing management in equal employment opportunity, wage and hour, wrongful termination, privacy, unfair competition, and trade secret matters, and litigating individual and class action lawsuits before courts and agencies. He also trains managers and human resources professionals on a regular basis.