The BP Blast!: A California Employment Law Blog

Simple Math: More Layoffs Equals More Lawsuits!

When the economy struggles many employers cut costs through layoffs, hiring freezes, and/or reduced recruiting efforts. While these are often business necessities, before taking such any course of action, employers should be aware of the recent rise in charge filings with the U.S. Equal Employment Opportunity Commission (EEOC).

According to recently released EEOC statistics for 2007, charges of employment bias rose nine percent, the biggest annual increase since the early 1990s and the highest volume of charges since 2002. While race continued to be the largest charge category (with 30,510 charges filed in 2007), retaliation charges became the second largest category with 26,663 charges, bypassing, for the first time ever, the 24,826 sex-based charges. the 2007 figures also included 19,103 age-based charges and 17,734 disability discrimination charges.

On the surface, an employer's decision to lay off employees in the midst of a recession has no correlation to claims of discrimination. However, the EEOC itself acknowledged changing economic conditions as one of several possible explanations for the recent rise in the filing of charges of discrimination. Thus, if reductions-in-force or other cost-saving efforts are not well thought out or mis-handled, an employer may see an increase in EEOC charges filed against it. Potential EEOC charges will undoubtedly increase legal fees and will have an impact of savings achieved from employers cost cutting efforts.


Start Up Employees Exempt?: Administrative Exemption Strengthened in California

In California, unless specifically exempted, an employee is presumed to be non-exempt and subject to the provisions of the applicable Wage Order. However, if properly subject to an exemption an employee will be exempt from entitlements under many sections of the Wage Order, including meal & rest periods, recordkeeping, and the minimum wage and overtime provisions.

A recent decision by the California Fourth District Court of Appeal held that an employee working in a fast-paced start-up business operating with a "flat organization"
could still qualify for the administrative exemption for salaried employees as long as all requirements for the exemption were satisfied. In the ruling, the appellate court adopted the common-sense analysis set forth by the federal regulations applicable to the "administrative exemption," which are expressly incorporated by the Industrial Welfare Commission Wage Orders. Combs v. Skyriver Communications.

An employee is properly employed in an administrative capacity under this exemption if the employee satisfies a five-prong test largely centered around whether the employee's duties and responsibilities involve the performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his/her employer's customers.

To assist in the determination of this so called "duties test," the Wage Order provides that exempt work includes all work that is "directly and closely related to exempt work" and work which is properly viewed as "a means for carrying out exempt functions."
This shows that multi-tasking need not count against an employee's exempt status when the employee is also performing an exempt duty.
The Facts in the Combs Case: Skyriver was a high-speed, wireless, broadband internet service provider. The company was described as a "young start-up company." The employee, Mark Combs, worked as manager of capacity planning, and later as director of network operations. He was paid a salary ranging between $70,000 and $90,000. Combs later depicted his job as nothing but a glorified troubleshooter, complained that he had to carry a pager, that his meal breaks were interrupted, and that he could not take a rest break.
But if Combs were exempt, he would not have been entitled to meal and rest periods.

In his resume, prepared after he left Skyriver, he detailed that, as Skyriver's director of network operations, he was responsible for a broad array of important functions, including project management, budgeting, vendor management, purchasing, forecasting; management of employees, overseas deployment of wireless data network, the integration and standardization of three networks into the Skyriver architecture; and the overseeing of day-to-day network operations of the company.

At trial, Combs and his witnesses acknowledged his resumé was accurate. Among other things, Combs further testified on his own behalf that his "core" responsibility at Skyriver was "maintaining the well-being of the network," and that he spent 60 to 70 percent of his time working alongside other employees in carrying out that responsibility. Combs argued he was non-exempt employee because his work involved production as opposed to purely administrative duties. Combs submitted evidence that the company was a flat organization where "everybody worked with everybody."

The trial court granted Skyriver's motion for judgment, holding that Combs was performing duties that involved matters of substantial importance to running the business.
The mere fact that he worked alongside other employees did not change the fact that he was performing exempt duties. The court held that start-up companies by their nature had fewer employees requiring greater flexibility.
Combs appealed but the appellate court also held that "substantial evidence shows that Comb's exercise of discretion and independent judgment pertained to matters of significance." The court reasoned that Combs' own testimony and documentary exhibits, including emails, demonstrated that he was performing primarily exempt functions. In short, although Combs strained to "dumb down" his duties, the courts saw the job for what it really was: an exempt position.

Ultimately, this case is good news for employers involved in misclassification lawsuits.
However, below are a few tips to try and avoid ever being in the position of being sued over misclassification issues.

Employers must devise job descriptions to satisfy exemption requirements, and ensure that such jobs rationally fit the organizational structure to preserve exempt duties.
Employers should also conduct periodic internal audits of all salaried exempt positions, preferably with the advice of legal counsel, to make sure that the pertinent job descriptions and expectations within the organizational structure properly set out exempt duties. Finally, make sure by observation and that the actual duties performed by employees in exempt jobs are consistent with the reasonable expectations of their job descriptions.