This article is Part 1 of a two-part series providing an overview of recent California Supreme Court decisions in employment law. Part 2 of this article will be featured soon.

The California Supreme Court decided several significant employment law cases during the past year. This article provides a summary of these decisions and also highlights several important matters pending review.

Harris v. Superior Court-December 29, 2011

In Harris, a class of Insurance Claims Adjusters sued their employer for unpaid overtime, arguing that their employer misclassified them under California’s “administrative exemption.” Under the “administrative exemption,” employees are exempt from overtime pay and other wage laws if they perform “office or non-manual work directly related to management policies or general business operations of his/her employer or his/her employer’s customers.” Employees whose work is mostly in “production” or “sales” will not meet the exemption because it is not “directly related to management policies or general business operations.” Courts have said there is an “administrative/production dichotomy.”

Relying heavily on the dichotomy, the Court of Appeal initially held that the Adjusters did not meet the test of the “administrative exemption” because their duties of investigating, adjusting and settling claims was part of the “product” sold by their employer (insurance policies). Thus, the Adjusters’ work was mainly involved the “production” of their employer’s product, rather than the “administration” of the company’s business operations.

But the Supreme Court unanimously held that the Court of Appeal misapplied the “administrative/production dichotomy.” The Court explained the determination of whether the “administrative exemption” applies must first be considered by analyzing and applying the language under the applicable California Wage Orders and certain federal regulations (neither of which mention a “dichotomy”). The Court noted that the lower court had relied on its own interpretation of the test, “rather than applying the language of the relevant wage order and regulations.”

The Court remanded the case to the Court of Appeal for reconsideration in light of its ruling. In July 2012, the appeals court again found that the Adjusters are non-exempt employees under the “administrative exemption.” This time, the court of appeal held that the Adjusters’ day-to-day tasks of investigating and estimating claims, making coverage determinations, setting reserves, negotiating settlements, and making settlement recommendations did not satisfy the administrative exemption test because none of that work is carried out at the level of management policy or general business operations. Rather, this work is all part of the day-to-day operations of the Employer’s business and therefore not sufficiently “related” to management policies or business operations. As of this writing, the employer once again is preparing a request for review to the California Supreme Court

C.A. v. William S. Hart Union High School Dist. – March 8, 2012

The plaintiff, a high school student, sued the school district and his school counselor. He claimed the counselor sexually harassed and abused him. Plaintiff alleged that the school district was liable for negligently hiring and retaining the counselor because it knew that the counselor had previously engaged in sexually-inappropriate conduct with minor students.

The trial court dismissed the case and the Court of Appeal affirmed, holding that the school district could not be liable because the counselor’s alleged inappropriate conduct was outside the scope of his employment. However, the Supreme Court reversed, finding that school districts may be held liable if a supervisory or administrative employee negligently exposes a student to a “foreseeable danger of molestation” by a school employee. The Court found that the special relationship between the student/plaintiff and the school district created a duty of due care under these circumstances. Thus, the duty of care owed by school personnel to students includes the “duty to use reasonable measures to protect students from foreseeable injury at the hands of third parties acting negligently or intentionally.” The Court also found that supervisory employees have a duty to take reasonable measures to protect students from abuse and harassment. This duty includes reasonably protecting students from teachers or counselors who “they know or should have known are prone to such abuse.”

Brinker Restaurant Corp. v. Superior Court – April 12, 2012

By far the most anticipated ruling in the employment law arena this term, the Court provided needed guidance on the state’s meal and rest break laws. The Court determined that to comply with California’s meal break statutes, employers must provide employees with a 30-minute, uninterrupted meal period by relieving employees, “of all duty for the designated time period.” However, employers do not have to “ensure” that the employee does no work.”

With respect to the timing of meal breaks, the Court held that unless the employees waive their meal period, Labor Code section 512 requires employers to provide a meal period no later than the end of the employees’ fifth hour of work, and a second meal period no later than the end of the employees’ tenth hour of work. The Court refused to hold either that employers must provide a meal period after every five hours, or that a meal period must start at a particular time within the windows described above.

The Court also held that California law requires employers to “authorize and permit rest breaks.” Determination of the appropriate rest period is based on the total hours worked in a day at a rate on ten minutes net rest for every four hours, or major fraction thereof, worked. Thus, to comply, employers must permit 10-minute, uninterrupted rest periods for shifts from three and one-half to six hours in length, 20-minute rest periods for shifts lasting more than six hours and up to ten hours, 30-minute rest periods for shifts of more than ten hours and up to 14 hours in length, and so on. The Court concluded that employers should make a good faith effort to make rest breaks available on either side of a meal break for employees working an eight- hour shift.

Finally, the Court ruled that trial courts may determine whether common issues of law and fact exist in a class action suit, without deciding whether the class claims have any legal merit. The plaintiffs’ bar believes this part of the court’s ruling opens up new doors for class action claims, even as the Court’s discussion of meal and rest period law may close them.

Stay tuned for Part 2 of this article.

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