California Labor and Employment Defense Blog

California Court Finds Sales Employees Cannot Meet Administrative Exemption -- Pellegrino v. Robert Half Int'l

Previously we blogged about the Second Circuit decision in which a class of loan officers were found to be entitled to federal overtime pay under the Fair Labor Standards Act because their duties fell on the "production" side of the so-called "administrative/production dichotomy."   (See Financial Service Workers May Be Glorified "Production Workers" Who Are Entitled to Overtime -- Davis v. J.P. Morgan Chase & Co. )

In Pellegrino v. Robert Half International, Inc. the Fourth District Court of Appeal has clarified that this same "dichotomy" litmus test also applies to any employer attempt to avoid California overtime by claiming the administrative exemption under the California Wage Orders.

Robert Half is the world's largest staffing firm (a/k/a "headhunter" firm).  The Plaintiffs in Pellegrino were "account executives" who were responsible for recruiting and placing candidates with Robert Half's customers.  The plaintiffs received salary and commissions but were classified as exempt from overtime.  Based on its analysis the position's job duties, however, the Court upheld a verdict that the account executives were essentially glorified salesman rather than exempt administrators.  

The Court reached this conclusion by noting that the first element of the administrative exemption is that an exempt position must be "directly related to management policies or general business operations."  This element, in turn, triggers the so-called "dichotomy" test, which the Court described as follows:

The phrase ‘directly related to management policies or general business operations of his employer or his employer's customers' describes those types of activities relating to the administrative operations of a business as distinguished from ‘production’ or, in a retail or service establishment, ‘sales' work. In addition to describing the types of activities, the phrase limits the exemption to persons who perform work of substantial importance to the management or operation of the business of his employer or his employer's customers.

By contrast, the evidence showed that the account executives had little or nothing to do with setting the internal policies of their employer were instead trained and evaluated for the purpose of achieving quantitative success in "selling the services of RHI's temporary employees to clients."  

The Court thus concluded that the duties of an account executive "were not directly related to management policies because they instead constituted sales work."  As a result, it determined that the six plaintiffs were properly found to have been misclassified and were collectively entitled to unpaid overtime and penalties of $615,000.

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