(Super. Ct. Nos. BC246139, BC246140) (JCCP No. 4234 - Liberty Mutual Overtime Cases)
The opinion of the court was delivered by: Carolyn B. Kuhl, Judge.
(opn. on remand from Supreme Court)
CERTIFIED FOR PUBLICATION
(Super. Ct. Nos. BC246139, BC246140) (JCCP No. 4234 - Liberty Mutual Overtime Cases)
ORIGINAL PROCEEDINGS in mandate.
Petition in No. B195121 granted; petition in No. B195370 denied.
These writ proceedings are before us on remand from the Supreme Court following the court's decision in Harris v. Superior Court (2011) 53 Cal.4th 170 (Harris). The court reversed our previous decision in this case, concluding that we had "misapplied the substantive law." (Id. at p. 175.) The court remanded for us to reconsider the matter in light of the correct legal standard.
Defendants are insurance companies, the employers of plaintiffs, the companies' claims adjusters, who seek damages based on overtime work for which they allege they were not properly paid (Employers and Adjusters, respectively). Adjusters' claims are governed by two different California regulations promulgated by California's Industrial Welfare Commission (IWC): Wage Order No. 4-98 (Wage Order 4-1998), applying to claims arising before October 1, 2000, and Wage Order No. 4-2001 (Wage Order 4-2001), applying to claims arising thereafter.
Employers claim that the administrative exemption to the overtime compensation requirements applies to claims adjusters. Adjusters claim that the exemption does not apply. In addition, Adjusters contend that the issue of whether their work duties are of the kind required for application of the administrative exemption is a predominant issue common to the claims of all putative class members, warranting class certification. The trial court initially agreed and certified Adjusters' proposed class. Later, however, the court revisited the issue and decertified the class for all claims arising after October 1, 2000, on the ground that under Wage Order 4-2001, but not under Wage Order 4-1998, the work duties issue is neither dispositive nor a predominant issue that would justify class treatment of Adjusters' claims.
Both sides petitioned for writ review. Employers seek decertification of the portion of the class that remains certified. Adjusters seek recertification of the decertified portion of the class and also challenge the trial court's denial of their motion for summary adjudication of Employers' affirmative defense based on the administrative exemption. We grant Adjusters' petition and deny Employers' petition because Adjusters' primary work duties are the day-to-day tasks of adjusting individual claims not directly relating to management policies or general business operations.
As stated in Harris: "[Adjusters are] claims adjusters employed by Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation (collectively [Employers]). [Adjusters] filed four class action lawsuits alleging [Employers] erroneously classified them as exempt 'administrative' employees and seeking damages based on unpaid overtime work. The four actions were coordinated into one proceeding. [Adjusters] also moved for class certification. The trial court certified a class of 'all non-management California employees classified as exempt by Liberty Mutual and Golden Eagle who were employed as claims handlers and/or performed claims-handling activities.'" (Harris, supra, 53 Cal.4th at p. 175.)
Adjusters and Employers subsequently filed cross-motions for summary adjudication of Employers' affirmative defense that Adjusters are exempt administrative employees and thus not entitled to overtime compensation. Employers simultaneously moved, in the alternative, to decertify the class, and they later withdrew their motion for summary adjudication.
"The trial court decertified the class in part, depending on whether [Adjusters'] claims arose before or after October 1, 2000, the date the IWC replaced an earlier version of Wage Order 4. The court afforded the disparate treatment because it felt bound by the authority of Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805 (Bell II) and Bell v. Farmers Ins. Exchange (2004) 115 Cal.App.4th 715 (Bell III) (collectively Bell cases).
"For claims arising before October 1, 2000, the trial court decided that the Bell cases compelled a ruling that [Adjusters] were nonexempt 'production workers' under the version of Wage Order 4 adjudicated in those cases. (See Bell II, supra, 87 Cal.App.4th at p. 826.) The court decertified the class as to all claims arising after October 1, 2000, the effective date of a new Wage Order 4. The court did not believe the Bell cases applied to the revised version of Wage Order 4 because those cases did not consider the new wage order, nor did they apply the federal regulations specifically incorporated into it. Recognizing that the law was unsettled, the court suggested the parties seek interlocutory review by the Court of Appeal.
"Both parties did so. [Adjusters] sought review of the order partially decertifying the class and denying their motion for summary adjudication. [Employers] sought review of the trial court's partial denial of their motion to decertify the class." (Harris, supra, 53 Cal.4th at pp. 175-176.)
We issued an order to show cause, ordered that the petitions be consolidated, and, in a published opinion, granted Adjusters' petition and denied Employers' petition. We directed the trial court to grant Adjusters' motion for summary adjudication and to deny in its entirety Employers' motion to decertify the class. (See Harris, supra, 53 Cal.4th at p. 176.)
The Supreme Court granted review and reversed. The court identified certain errors in our reasoning and clarified certain points concerning the governing law. The court reversed our judgment and remanded to this court to reconsider the matter in light of "the appropriate legal standard set out herein." (Harris, supra, 53 Cal.4th at p. 191.) The court directed us on remand to "review the trial court's denial of the summary adjudication motion" but did not expressly direct us to review the class certification issue as well. (Ibid.) The court did indicate, however, that the parties remained "free to raise the issue on remand" (id. at p. 190, fn. 9), and the parties have done so in their supplemental briefing in this court.
We review the trial court's order denying a motion for summary adjudication de novo. (Certain Underwriters at Lloyd's of London v. Superior Court (2001) 24 Cal.4th 945, 972.) We review the trial court's rulings on class certification for abuse of discretion, but a ruling based upon a legal error constitutes an abuse of discretion. (Sav-On Drug Stores, Inc. v. Superior Court (2004) 34 Cal.4th 319, 326-327; see also Horsford v. Board of Trustees of California State University (2005) 132 Cal.App.4th 359, 393 [legal error constitutes abuse of discretion].) We review the trial court's interpretation of statutes and regulations de novo. (People ex rel. Lockyer v. Shamrock Foods Co. (2000) 24 Cal.4th 415, 432 [statutes]; Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 794 [regulations].)
I. Overview of the California and the Federal Regulations
Labor Code section 1173 grants the IWC a broad mandate to regulate the working conditions of employees in California, including the setting of standards for minimum wages and maximum hours. (See Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 701-702; see also Bell v. Farmers Ins. Exchange, supra, 87 Cal.App.4th at p. 810 (Bell II).) To that end, the IWC has promulgated 17 different "wage orders" applying to distinct groups of employees. (See Cal. Code Regs., tit. 8, §§ 11010-11170.) At issue in this case are Wage Order 4-1998 and Wage Order 4-2001, which govern the wages and hours of employees in "Professional, Technical, Clerical, Mechanical, and Similar Occupations." (Cal. Code Regs., tit. 8, § 11040 (Regs. § 11040).) "For our purposes, [Wage Order 4-1998] covers claims arising before October 1, 2000, and [Wage Order 4-2001] applies to claims arising thereafter." (Harris, supra, 53 Cal.4th at p. 177.) More precisely, the IWC first replaced Wage Order 4-1998 with Wage Order No. 4-2000, which took effect on October 1, 2000, and then replaced Wage Order No. 4-2000 with Wage Order 4-2001, which took effect on January 1, 2001. For purposes of this case, there are no relevant differences between Wage Order No. 4-2000 and Wage Order 4-2001, so "we consider Wage Order 4-2001 as applying after October 1, 2000." (Harris, supra, 53 Cal.4th at p. 177, fn. 1.)
Both wage orders provide for certain exemptions from the overtime compensation requirements. The exemptions are affirmative defenses, so an employer bears the burden of proving that an employee is exempt. (Ramirez v. Yosemite Water Co., supra, 20 Cal.4th at pp. 794-795.)
As explained by Harris: "Wage Order 4-1998 made 'persons employed in administrative, executive, or professional capacities' exempt from overtime compensation requirements. (Wage Order 4-1998, subd. 1(A).) Wage Order 4-1998 did not articulate the precise scope of the administrative exemption. It did, however, limit the exemption to employees 'engaged in work which is primarily intellectual, managerial, or creative, and which requires exercise of discretion and independent judgment, and for which the remuneration is not less than $1150.00 per month . . . .' (Wage Order 4-1998, subd. 1(A)(1).)
"The practical effect of Wage Order 4-1998, and other orders issued by the IWC during that year, was that about eight million workers lost their right to overtime pay because the orders 'deleted the requirement to pay premium wages after eight hours of work a day.' (Stats. 1999, ch. 134, § 2(f), p. 1820, enacting Assem. Bill No. 60 (1999-2000 Reg. Sess.).) In response, the Legislature passed the 'Eight-Hour-Day Restoration and Workplace Flexibility Act of 1999.' (Stats. 1999, ch. 134, § 1, p. 1820, adding and amending provisions of Lab. Code, § 500 et seq.) The act amended Labor Code section 510, which provides that a California employee is entitled to overtime pay for work in excess of eight hours in one workday or 40 hours in one week. (Lab. Code, § 510, subd. (a).) However, Labor Code section 515, subdivision (a), added by the act, exempts from overtime compensation 'executive, administrative, and professional employees' whose primary duties[*fn1 ] 'meet the test of the exemption,' who 'regularly exercise discretion and independent judgment in performing those duties' and who earn a monthly salary at least twice the state minimum wage for full-time employees. (Lab. Code, § 515, subd. (a).)
"Under the statute then, to qualify as 'administrative,' employees must (1) be paid at a certain level, (2) their work must be administrative, (3) their primary duties must involve that administrative work, and (4) they must discharge those primary duties by regularly exercising independent judgment and discretion. The narrow question here involves the second point, whether [Adjusters'] work is administrative. That is, whether it meets the test of the exemption. These statutory standards are further understood in light of the applicable wage order.
"Labor Code section 515, subdivision (a) directs the IWC to conduct a review of the duties that meet the test of the exemption and, if necessary, modify the regulations. After review, the Commission issued Wage Order 4-2001.
"A comparison of Wage Order 4-1998 and Wage Order 4-2001 reveals that the latter contains a much more specific and detailed description of work that is properly described as administrative. Whereas Wage Order 4-1998 contains only a single sentence relative to an employee involved in administrative work, Wage Order 4-2001 discusses the scope of the administrative exemption in seven fairly extensive and interrelated subdivisions. (Compare Wage Order 4-1998, subd. 1(A)(1) with Wage Order 4-2001, subd. 1(A)(2)(a)-(g).) Specifically, Wage Order 4-2001, subdivision 1(A)(2)(f) provides that the terms 'exempt' and 'non-exempt' are to be construed under certain incorporated regulations listed in the federal Fair Labor Standards Act of 1938 (29 U.S.C. § 201 ...