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Compensation Based Solely Upon Hours, With No Guaranteed Minimum, Is Not a Salary

In Exemptions, Salary on May 18, 2013 at 3:16 am
Daily salary IMG 0077

Daily salary IMG 0077 (Photo credit: Wikipedia)

On Thursday, the Sixth District held that a compensation system based solely on the number of hours worked, with no guaranteed minimum cannot be considered a salary, and therefore cannot serve as the basis for an exempt classification.  Negri v. Koning & Associates, No. H037804, __ Cal. App. 4th __ (6th Dist. May 16, 2013).  California Labor Code § 515(a) requires that to be exempt, the employee must earn a “monthly salary equivalent to no less than two times the state minimum wage for full-time employment.”

Plaintiff is an insurance claims adjuster who was paid $29 per hour with no minimum guarantee.  Slip Op. at 1.  When he worked more than 40 hours in a week, he was still paid at $29 per hour.  He brought a claim for overtime pay, and the trial court issued a defense verdict, concluding that plaintiff was an exempt employee.  Id. at 3.

Defendant argued that plaintiff was properly classified as exempt because plaintiff’s workload was not subject to reduction or variation, and he worked substantially the same number of hours each week of his employment.  In other words, defendant argued that even though it paid plaintiff by the hour, because there was always enough work to occupy him for 60 hours per week, the resulting compensation was a salary because it did not vary.  Defendant further maintained that “some sort of reduction in workload” must actually occur in order for an employee to lose his exemption.

The Court of Appeal disagreed, even though plaintiff always received an unvarying minimum amount of pay in practice:

We recognize that, in practice, defendant always paid plaintiff the equivalent $29 per hour for 40 hours per week so that he, in effect, received an unvarying minimum amount of pay. We also recognize that, as a general matter, an exempt employee may be paid extra for extra work without losing the exemption. (See Kennedy, supra, 410 F.3d at p. 371.) The problem here is that defendant stipulated to the fact that it “never paid [plaintiff] a guaranteed salary”; if he worked fewer claims “he made less money than if he worked more claims.” That is the same thing as saying that plaintiff was not paid “a predetermined amount” that “was not subject to reduction based upon the quantity of work performed.” He was not paid a salary. For that reason, defendant did not prove that the administrative exemption of Wage Order 4 applies in this case.

Slip Op. at 8-9.

Judges & Attorneys

Associate Justice Eugene M. Premo delivered the opinion for the Court, with Presiding Justice Conrad L. Rushing and Associate Justice Franklin D. Elia concurring.

Appeal from judge of the Santa Clara County Superior Court, Hon. Socrates P. Manoukian.

Counsel for Plaintiff/Appellant: Ari Moss, Dennis F. Moss

Counsel for Defendant/Respondent: Michael A. Bishop, N. Kate Jeffries.

By CHARLES H. JUNG