United States: Harris v. Superior Court (Liberty Mutual): California Supreme Court Defines The Scope Of The Administrative Exemption And Finds Insurance Adjusters Can Be Exempt

Last week the California Supreme Court, in a unanimous decision, reversed the Court of Appeal's decision that held that insurance adjusters are not exempt employees as a matter of law. In a highly technical decision involving the interplay of provisions of the Labor Code, the Wage Orders, and the incorporated Federal regulations, the Supreme Court found that the Court of Appeal had misapplied the substantive law concerning the administrative exemption. The court focused its inquiry on one aspect of the administrative exemption: "whether plaintiff's work is administrative." In its lengthy decision the Supreme Court reviewed the language in the Labor Code and in the Industrial Welfare Commission Orders dealing with the administrative exemption as well as the Federal regulations that the Wage Orders incorporate and which are to be used to "construe" the contours of the administrative exemption.

The Supreme Court held that the Court of Appeal erred by only focusing on one subpart of the Federal regulation defining the requirement that an administrative employee must be involved in non-manual work that is "directly related to management policies or general business operations of the employer or the employer's customers." Relying solely on this language and the so-called administrative/production worker dichotomy, the Court of Appeal held as a matter of law that insurance adjusters could not be exempt since they performed work that was essentially production work for the company. Stated in the reverse, as they were performing production work, they could not be exempt as administrative employees.

The Supreme Court held that elevating the administrative/production worker dichotomy to a "dispositive test" rather than simply an analytical tool was error. The Supreme Court also held that the Court of Appeal erred by not looking at the incorporated Federal regulations as a whole to determine whether insurance adjusters could be exempt. The Supreme Court pointed out that in another part of the incorporated Federal regulations insurance adjusters were specifically listed as employees who could be exempt as administrative employees. Thus, the Supreme Court reversed the Court of Appeal on the summary judgment motion, sending the case back to the trial court for action consistent with the principles stated in the opinion.


Liberty Mutual appealed the Court of Appeal's decision to the Supreme Court which issued its decision last week. The Court resolved two issues:

  1. Do claims adjusters employed by insurance companies perform duties that qualify for the "administrative exemption" as defined by the California Industrial Welfare Commission ("IWC") in its wage orders? The Court answered yes if they meet certain criteria.
  2. Is the administrative exemption limited to those few employees who perform work "at the level of policy or general operations"? The Court answered no.


All employees in California are entitled to overtime unless they qualify for an exemption from overtime, for example, under one of the so-called white collar exemptions: the executive, administrative, or professional exemption. The exact contours of the administrative exemption from overtime under California Wage and Hour Law in general, and the exempt status of insurance adjusters under the administrative exemption in particular, have long been in dispute in California. One of the most well-known and oft-cited cases in this area, Bell v. Farmers Insurance originally filed in 1996, resulted in three appellate court decisions and a judgment reportedly in excess of $120 million when ultimately paid.

Those three Bell decisions, however, represented the high-water mark for non-exempt status for insurance adjusters as a spate of Federal court decisions and administrative interpretations from the U.S. Department of Labor, unlike Bell, found insurance adjusters exempt and rejected Bell's rigid formulation of the "administrative/production worker dichotomy" as outdated in a modern post-industrial service economy. Recent California decisions such as Hodge v. Aon Insurance Services (2011) 192 Cal.App.4th 1361, review granted, also rejected Bell and found that insurance adjusters were generally exempt as administrative employees.

A broader concern for all employers of workers classified as exempt from overtime under the administrative exemption was the Court of Appeal's decision in the Harris case that the administrative exemption is limited to those few employees who perform work "at the level of policy or general operations." The Federal decisions interpreting the administrative exemption under Federal law have found the administrative exemption to be much broader, as did the dissent in the Court of Appeal's decision which the Supreme Court cited with approval at several points in its Harris decision. The dissent in the Court of Appeal's decision was penned by Miriam Vogel, former long-time Court of Appeal Justice, who joined the Los Angeles office of Morrison & Foerster in 2008 as Senior Of Counsel.


The Supreme Court's decision in Harris v. Superior Court is good news for California employers. Plaintiffs' lawyers arguing the administrative exemption in misclassification cases invariably cite the administrative/production worker dichotomy from the three Bell cases as dispositive for a very narrow interpretation of the administrative exemption. The Supreme Court's decision makes it clear that the administrative/production worker dichotomy has little application in most administrative exemption cases and that any analysis must take into account all of the language in the Labor Code, the Wage Orders, and the incorporated Federal regulations. The decision essentially validates a number of previous lower Federal and state court decisions that had found insurance adjusters exempt. The decision makes it clear that the administrative exemption covers more than just the few employees performing work at the level of "policy" or "general operations." Thus, it is likely that employers will now be able to obtain summary judgment in more of these cases. To some extent this has already begun to happen as lower California cases have increasingly followed Federal court decisions on insurance adjusters and rejected strict application of the administrative/production worker dichotomy.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions