216 | 2023 Cal-Peculiarities ©2023 Seyfarth Shaw LLP www.seyfarth.com 7.6 “White Collar” Exemptions from Wage Requirements Section 1(A) of most of the Wage Orders states that sections 3 through 12 of the Wage Orders do not apply to employees covered by the administrative, professional, or executive exemptions. Section 1(C) indicates that the same is true for outside salespeople. The California administrative, professional, and executive exemptions resemble the corresponding federal exemptions, but an employer generally will find it harder under California law than under federal law to establish that an employee is exempt. For one thing, federal wage and hour law is not inherently pro-plaintiff, while California wage and hour law definitely is. A 2018 U.S. Supreme Court decision considered whether service advisors at an auto dealership qualified under an FLSA overtime exemption that applies to salespeople primarily engaged in servicing automobiles. The Ninth Circuit, finding the statutory language ambiguous, ruled for the plaintiff under a “principle that exemptions to the FLSA should be construed narrowly.”161 The U.S. Supreme Court “reject[ed] this principle as a useful guidepost for interpreting the FLSA. … The narrow-construction principle relies on the flawed premise that the FLSA pursues its remedial purpose at all costs. … But the FLSA … exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement. … We thus have no license to give the exemption anything but a fair reading.”162 California, meanwhile, is radically different. Its high court proclaims that wage and hour exemptions are “narrowly construe[d] … against the employer.”163 7.6.1 Salary requirement Under both federal and state law, an employee must be salaried to qualify as an administrative, professional, or executive employee. Thus, with some specific exceptions (e.g., computer professionals, physicians), all hourly paid employees are nonexempt, regardless of their duties or their level of pay. Minimum salary. For exemptions requiring a salary basis, the salary paid must meet a certain numerical minimum. Under federal law, the salary basis is met so long as the weekly salary is at least $684 (equating to an annual salary of $35,568).164 In California it’s different. To qualify as a salaried exempt employee, a California employee must earn a salary that is at least twice the monthly state minimum wage for full-time (40 hours per week) employment.165 So as California’s minimum wage escalates, the minimum pay needed to meet the salary basis escalates accordingly. For employers with more than 25 employees, the minimum weekly salary for an exempt California employee as of 2023 is $1,240 (twice the minimum wage of $15.50 and equivalent to an annual salary of $64,480). A Court of Appeal decision has held that a guaranteed minimum monthly commission draw for financial advisers did not equal a “salary,” and thus the advisors were not paid the minimum salary required for the administrative exemption. Reversing a summary judgment for the employer, the Court of Appeal reasoned that, to qualify as salary, payments must be predetermined, and that draw against future commissions paid if the financial advisers fell below a certain level did not qualify as “salary.” The Court of Appeal held that advances on not-yet-earned commissions do not constitute wages under California law. The employer’s pay structure thus did not satisfy the salary basis test, and the administrative exemption for employees paid a monthly salary equivalent to at least twice the state minimum wage for full-time employment therefore did not apply.166 Vacation deductions for partial-day personal absences? In interpreting the salary requirement, federal regulators have permitted employers some flexibility in charging an employee’s PTO bank for partial-day absences from work. But the DLSE argued that California vacation pay, being “vested,” cannot be deducted for partial-day absences without destroying the salary basis. A 2005 Court of Appeal decision rejected this theory,
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