On June 12, 2007, a California Court of Appeals narrowly defined California’s administrative exemption to overtime obligations. In Eicher v. Advanced Business Integrators, Inc. (ABI), No. C051746, the court held that a customer service representative did not fall under that exemption because his services were part of the employer’s product, as opposed to the general background administration of the business. The court provided significant guidance as to when employees may or may not fall within the administrative exemption.
Eicher had been a senior consultant at ABI (a sports software developer and retailer), training customers on ABI’s software and providing customers with onsite customer service. ABI had not paid him overtime, contending that he was exempt as an administrative employee.
The trial court disagreed, finding that Eicher devoted the majority of his time to training the customer on how to use the software, or troubleshooting the software during on site implementation. Although Eicher spent a small portion of his work time at ABI’s office engaged in administrative work, these activities were outweighed by the disproportionate amount of time he spent on customer service and product implementation.
ABI appealed, contending that the trial court’s conclusion was erroneous because it did not sufficiently consider whether Eicher performed work directly related to ABI’s general business operations. ABI argued that Eicher had to learn the customers’ management policies and business operations in the course of his work, and performed a substantial degree of administrative functions. ABI also contended on appeal that Eicher was administrative exempt because he performed major special assignments in carrying out the operations of the business.
The Court of Appeal agreed that Eicher was not exempt. The Court of Appeal noted that Eicher had spent the majority of his time performing activities that were at the core of ABI’s primary commercial purpose and product. Although, Eicher was required to learn customers’ management policies and business operations during the course of his work, he did so only to ensure that he could implement the software in the most beneficial way for the customers, and not to participate in policy making decisions or alter the general operation of the business. The court held that employees that have some knowledge of the employer’s business operations, and who engage in incidental administrative work, but do not personally effect company policy, will not be exempt if their principal duties are directed towards creating the employer’s product, even if in the form of commercial services.
The Eicher court also held that the duties which qualified under the California administrative exemption are narrower than those qualifying under the federal administrative exemption. An employee can be considered administrative exempt under the federal exemption if the employee carries out major special assignments for the employer. This classification may encompass a wide range of assignments and provides greater flexibility for employers seeking to classify mid- and high-level employees as exempt. The Eicher court held that this "major special assignment" rule did not apply to the California exemption. The court observed that the California Supreme Court has directed that California exemptions be interpreted narrowly to protect employees.
Customer service representative such as Eicher are commonly treated as overtime exempt because they provide support services often requiring substantial discretion. The Eicher opinion makes clear, however, that they may no longer be classified as administrative exempt employees. On the other hand, employers may face substantial difficulty classifying such employees under the other remaining exemptions – professional, executive or computer professional. In light of the Eicher opinion, employers should re-examine their overtime classification of such customer service personnel or other employees currently classified as administrative exempt.
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