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Misclassification of Exempt Employees

By any measure, California is an employee-friendly state. Workers here enjoy a higher minimum wage than just about anywhere else, and the right to receive overtime pay kicks in above and beyond the 40-hour workweek of federal law. Still, not all California workers are entitled to overtime or a minimum wage. The law provides significant exemptions that disqualify entire swaths of the workforce. Some of these exemptions are hard to follow, and it’s not uncommon for employers to misclassify eligible employees as exempt, and it’s equally as often that employees themselves don’t understand whether they are exempt or not.

The California wage and hour lawyers at Rounds & Sutter LLP help employers and employees in Ventura, Oxnard, Camarillo, and surrounding areas in Southern California understand when workers are and are not exempt from minimum wage and maximum hour laws. If you are concerned that you or employees at your workplace are being misclassified as exempt from overtime, contact our office to share your concerns with our team of skilled and knowledgeable California employment law attorneys.

The White-Collar Exemption

The so-called white-collar exemption is one of the most frequently used (and misused) exceptions from paying workers a minimum wage and overtime when applicable. Workers who fall into this category include executive, administrative, and professional employees. Each category has its own unique set of criteria to determine whether a worker is exempt or not:

  • Executive – Is involved in the management of the company or at least a department and has two or more direct subordinates
  • Administrative – Performs non-manual labor or office work that is connected to general business operations or management policies
  • Professional – Works in one of the professions listed in California law, such as doctors, surgeons, government employees, private school teachers, outside salespersons, and workers in Information Technology

Additionally, to claim the white-collar exemption in any of the above categories, the worker must be paid on a salary basis that is at least twice the California minimum wage. The employee must be engaged in exempt duties at least half of the time, and they must regularly employ independent judgment and discretion in the performance of their tasks.

Independent Contractors Are Exempt

Minimum wage and overtime laws apply to employees as distinguished from independent contractors. The question of whether a worker qualifies as an employee or independent contractor has historically been one of the more difficult questions to answer in employment law. Agencies such as the Department of Labor and the Internal Revenue Service use different criteria for different reasons, creating a confusing mess. In addition, California has gone through many rounds of revisions in the courts, in the state assembly, and at the ballot box in an attempt to clarify whether gig workers such as people who drive for Uber, Lyft, DoorDash and Postmates are employees or independent contractors.

Currently, California courts use what is called the ABC test to determine whether a worker is an employee or an independent contractor. The ABC test requires that a worker meet all three of the criteria listed below to be properly classified as an independent contractor:

  • The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact;
  • The worker performs work that is outside the usual course of the hiring entity’s business; and
  • The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as that involved in the work performed.

Despite efforts to adopt a clear and easy-to-use test, the ABC test can be difficult to understand and apply. To make matters worse, the ABC test does not apply in all situations. In some instances, courts apply an older (and lengthier) test, while in other cases, specific wage orders or an employment contract might be controlling. Many professions are also outright exempt from the ABC test.

Get Help With Classification and Misclassification of Exempt Employees in California

California and federal laws regarding exemptions from overtime can be confusing for employers and employees alike, and while some employers might intentionally misclassify employees just to get out of paying overtime, it is equally likely that employers might unintentionally misapply the law and misclassify workers who ought to be receiving overtime. Either way, the damage to the employee is significant, as is the potential liability exposure to the employer.

If you are a California employer or employee with questions or concerns regarding how you or workers at your workplace are classified, contact Rounds & Sutter LLP to speak with a team of experienced and dedicated California employment law attorneys. From our offices in Ventura and Westlake Village, we serve individuals and small businesses in Oxnard, Camarillo, and surrounding areas in Southern California. Call us today at 805-650-7100 for advice and representation from our skilled and knowledgeable team.