The California Executive Exemption

Under California law, provisions of the Industrial Welfare Commission (IWC) Wage Orders – including overtime compensation and meal and rest period premiums – do not apply to persons employed in an executive capacity.  This exemption is for executives primarily engaged (51%-plus) in managing at least two personnel below them in the chain of command. Exempt executives do not have to oversee – or have the authority to oversee – every worker in the organization.  They can be senior to a distinct division or, conceivably, a department or even a unit.  However, as one moves further down the organizational chart, qualification for exemption becomes less-and-less likely as the chances diminish that the subject employee is going to be involved in actually managing employees more than half of his or her time.

The sort of “managing” that will qualify for executive exemption is not just supervising two or more subordinates, i.e. spending over half of one’s day telling them what to do or supervising them to complete their job assignments or other set lists of tasks.

“Managing personnel” means having and exercising the authority for full responsibility over the planning, recruiting, work priorities and allocation, coordination, documentation (e.g., statistics, evaluations of personnel performance) and production results of a company or a distinct area of a company.  This must include the ability to hire, advance, demote, discipline or fire other employees (or, at least, to make recommendations that are “given particular weight” by senior managers on these matters).  Production, sales or routine clerical or maintenance work, whether or not the same as the work of subordinates, is not management work. However, if a manager must perform a rote or routine duty that is “directly and closely related” to managing personnel – e.g., writing a daily or weekly report of the area’s production, photocopying materials to pass out to subordinates – the law considers these labors as part of exempt duties.

In order to qualify for the executive exemption, a manager must “customarily and regularly exercise discretion and independent judgment.”  This means a manager must have and exercise throughout the workday the power of making independent decisions on important aspects of planning and operations in his or her area.  In contrast, actions that merely follow specified procedures are “paint by numbers” tasks that do not qualify for the exemption.   While every employee must use discretion to make decisions no matter the position, a manager is entrusted to make decisions on matters that have a relatively substantial impact on the success or failure of the business or some major portion of the enterprise.  For example, a janitor may have discretion on which room he or she vacuums first but this does not make him a manager.  On the other hand, a division head deciding to allocate all of the personnel of his or her area to work on an “all hands” promotional blitz for an entire work day is clearly exercising discretion on a sufficiently important matter to qualify for the exemption.

An exempt executive’s purposes, duties and products contained in his or her written job description should accurately emphasize all of the above concepts as requirements, including the expectation that he or she will devote the majority of work time to the task of managing his or her subordinates.  California is a stickler for requiring an executive to manage 51% or more on post hours, week-in and week-out. Working foremen, for example, are not exempt.  The only exceptions include a manager who must pitch-in on rote tasks occasionally or one who must overcome an emergency so demanding in a given week that he or she is unable to actually manage for the majority of work hours.

To qualify an executive for exemption, the employer must pay him or her a salary in each pay period that is at least two times the state minimum wage.  As of January 1, 2008, the minimum is $640 weekly and $2,773.33 monthly.  “Salary” means a predetermined amount that is some or all of the employee’s compensation. “Predetermined” means the employer cannot reduce it due to changes in that worker’s amount or quality of work.  With some exceptions, if an exempt executive works even a single hour in a given workweek, the employer must pay that person his or her salary for the entire week.

If you have any questions, please contact me or any of our other employment law attorneys.   Best, Bob Edwards