Harris v. Superior Court

Filed 12/29/11

IN THE SUPREME COURT OF CALIFORNIA

FRANCES HARRIS et al., )
)
Petitioners, )
) S156555
v. )
) Ct.App. 2/1 B195121
THE SUPERIOR COURT OF )
LOS ANGELES COUNTY, ) Los Angeles County
) Super. Ct. No. BC 246139
) JCCP No. 4234
Respondent; )
)
LIBERTY MUTUAL INSURANCE )
COMPANY et al., )
)
Real Parties in Interest. )
___________________________________ )
)
LIBERTY MUTUAL INSURANCE )
COMPANY et al., ) Ct.App. 2/1 B195370
)
Petitioners, ) Los Angeles County
) Super. Ct. No. BC 246140
v. ) JCCP No. 4234
)
THE SUPERIOR COURT OF )
LOS ANGELES COUNTY, )
)
Respondent; )
)
FRANCES HARRIS et al., )
)
Real Parties in Interest. )
___________________________________ )

1
 This litigation tests whether certain insurance company claims adjusters are exempt
employees, not entitled to overtime compensation under the Labor Code and regulations
of the California Industrial Welfare Commission (IWC or Commission). Reviewing the
trial court‘s denial of a summary adjudication motion, the Court of Appeal held the
adjusters are not exempt employees as a matter of law. In doing so, the Court of Appeal
misapplied the substantive law. We reverse.
FACTS
Plaintiffs are claims adjusters employed by Liberty Mutual Insurance Company and
Golden Eagle Insurance Corporation (collectively defendants). They filed four class
action lawsuits alleging defendants erroneously classified them as exempt
―administrative‖ employees and seeking damages based on unpaid overtime work. The
four actions were coordinated into one proceeding by the Judicial Council. Plaintiffs 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.‖
Plaintiffs moved for summary adjudication of defendants‘ affirmative defense that
plaintiffs were exempt from the overtime compensation requirements under IWC wage
order No. 4. (Cal. Code Regs., tit. 8, § 11040 (Wage Order 4).) Defendants opposed the
motion and moved to decertify the class.
The trial court decertified the class in part, depending on whether plaintiffs‘ 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 the claims adjusters were nonexempt ―production workers‖ under
the version of Wage Order 4 adjudicated in those cases. (See Bell II, supra, 87
2
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. Plaintiffs sought review of the order partially decertifying the
class and denying their motion for summary adjudication. Defendants sought review of
the trial court‘s partial denial of their motion to decertify the class.
A divided Court of Appeal issued an order to show cause and ruled for plaintiffs. It
directed the trial court to vacate its prior order and enter an order granting plaintiffs‘
motion for summary adjudication of defendants‘ affirmative defense and denying
defendants‘ motion to decertify.
The Court of Appeal‘s analysis focused on Wage Order 4. The majority concluded
that, under the terms of that wage order, plaintiffs could not be considered exempt
employees, either before or after the order‘s amendment. As we explain, the wage order
cannot be interpreted so categorically. The approach employed by the Court of Appeal
majority failed to properly analyze the question.
DISCUSSION
The IWC is a quasi-legislative agency that regulates aspects of the employment
relationship. It promulgates wage orders that provide various exemptions from
California‘s overtime requirements. Labor Code sections 1173, 1178 and 1178.5
authorize the IWC to regulate hours and wages in particular industries. We begin with a
review of the wage orders and statutes at issue here.
Wage Order 4, promulgated by the IWC under Labor Code section 1173, appears in
California Code of Regulations, title 8, section 11040 (Regulations section 11040). It
relates to the hours and wages of those employed in ―Professional, Technical, Clerical,
3
Mechanical, and Similar Occupations.‖ For our purposes, Wage Order No. 4-98 (Wage
Order 4-1998) covers claims arising before October 1, 2000 and Wage Order No. 4-2001
1
(Wage Order 4-2001) applies to claims arising thereafter.
Wage Order 4-1998 made ―persons employed in administrative, executive, or
professional capacities‖ exempt from overtime compensation requirements. (Wage Order
2
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

1
The Commission initially replaced Wage Order 4-1998 with Wage Order No. 4-
2000, which took effect on October 1, 2000, and applies to claims arising on or after that
date. It then replaced Wage Order No. 4-2000 with Wage Order 4-2001, which was
effective on January 1, 2001.
The Court of Appeal concluded that ―there are no relevant differences between
Wage Order 4-2000 and Wage Order 4-2001 for our purposes‖ and thus considered them
together. We conclude likewise. For the purposes of this matter, we consider Wage
Order 4-2001 as applying after October 1, 2000.
2
Wage Order 4-1998 provided as relevant:
―1. Applicability of Order. This Order shall apply to all persons employed in
professional, technical, clerical, mechanical, and similar occupations whether paid on a
time, piece rate, commission, or other basis, unless such occupation is performed in an
industry covered by an industry order of this Commission, except that:
―(A) Provisions of Sections 3 through 12 [governing, e.g., hours and days
of work, minimum wages and rest periods] shall not apply to persons employed in
administrative, executive, or professional capacities. No person shall be considered to be
employed in an administrative, executive, or professional capacity unless one of the
following conditions prevails:
―(1) The employee is 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; or
―(2) The employee is licensed or certified by the State of
California and is engaged in the practice of [a profession such as law or medicine].‖

4
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, subd. (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
3
employees‖ whose primary duties ―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. (Ibid.)
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 plaintiffs‘ 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.

3
Wage Order 4-1998 and Wage Order 4-2001 define ―primarily‖ as ―more than
one-half of the employee‘s work time.‖ (Regs., § 11040, subd. 2(N).) Thus, in order to
be covered by the administrative exemption under either order, employees must spend
over one-half of their work time doing work that fits the test of the exemption.

5
 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
4
review, the Commission issued Wage Order 4-2001.

4
In pertinent part, Wage Order 4-2001 provides:
―1. Applicability of Order. This order shall apply to all persons employed in
professional, technical, clerical, mechanical, and similar occupations whether paid on a
time, piece rate, commission, or other basis, except that:
―(A) Provisions of sections 3 through 12 [governing, e.g., hours and days of
work, minimum wages and rest periods] shall not apply to persons employed in
administrative, executive, or professional capacities. The following requirements shall
apply in determining whether an employee‘s duties meet the test to qualify for an
exemption from those sections:
―(1) Executive Exemption. . . [¶] . . . [¶]
―(2) Administrative Exemption. A person employed in an administrative
capacity means any employee:
―(a) Whose duties and responsibilities involve either:
―(i) 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; or
―(ii) The performance of functions in the administration of a school
system . . . ; and
―(b) Who customarily and regularly exercises discretion and independent
judgment; and
―(c) Who regularly and directly assists a proprietor, or an employee
employed in a bona fide executive or administrative capacity (as such terms are defined
for purposes of this section); or
―(d) Who performs under only general supervision work along
specialized or technical lines requiring special training, experience, or knowledge; or
―(e) Who executes under only general supervision special assignments
and tasks; and
―(f) Who is primarily engaged in duties that meet the test of the
exemption. The activities constituting exempt work and non-exempt work shall be
construed in the same manner as such terms are construed in the following regulations
under the Fair Labor Standards Act effective as of the date of this order: 29 C.F.R.
Sections 541.201-205, 541.207-208, 541.210, and 541.215. Exempt work shall include,
6
 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 then in effect. So, just as the statute is
understood in light of the wage order, the wage order is construed in light of the
incorporated federal regulations.
The precise question here is whether plaintiffs‘ work as claims adjusters is
encompassed by the expanded language of the statute, wage orders, and federal
regulations that delineate what work qualifies as administrative.
The Administrative Exemption
As part of its function, the IWC issues ―Statements As To The Basis‖ (hereafter,
Statement or Commission Statement) explaining ―how and why the commission did what
it did.‖ (California Hotel & Motel Assn. v. Industrial Welfare Com. (1979) 25 Cal.3d
200, 213.) With respect to Wage Order 4-2001, the Commission Statement notes, ―The
IWC intends the regulations in these wage orders to provide clarity regarding the federal

for example, 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. The work actually
performed by the employee during the course of the workweek must, first and foremost,
be examined and the amount of time the employee spends on such work, together with
the employer‘s realistic expectations and the realistic requirements of the job, shall be
considered in determining whether the employee satisfies this requirement.
―(g) Such employee must also earn a monthly salary equivalent to no less
than two . . . times the state minimum wage for full-time employment. . . .‖ (Regs.,
§ 11040.)

7
regulations that can be used [to] describe the duties that meet the test of the exemption
under California law, as well as to promote uniformity of enforcement. The IWC deems
only those federal regulations specifically cited in its wage orders, and in effect at the
time of promulgation of these wage orders, to apply in defining exempt duties under
California law.‖ (Italics added.)
Accordingly, Wage Order 4-2001 specifically directs that whether work is exempt
or nonexempt ―shall be construed in the same manner as such terms are construed in the
following regulations under the Fair Labor Standards Act effective as of the date of this
5
order: 29 C.F.R. Sections 541.201-205, 541.207-208, 541.210, and 541.215.‖ (Wage
Order 4-2001, subd. 1(A)(2)(f).)
Like its predecessor, Wage Order 4-2001 exempts ―persons employed in
administrative, executive, or professional capacities.‖ (Wage Order 4-2001, subd. 1(A).)
Unlike its predecessor, subdivision 1(A)(2) of the new wage order describes the
administrative exemption in some detail. It provides, in part, that persons are employed
in an administrative capacity if their duties and responsibilities involve office or
nonmanual work ―directly related to management policies or general business operations
of [their] employer or [the] employer‘s customers.‖ (Wage Order 4-2001, subd.
1(A)(2)(a)(i), italics added.)
Federal Regulations former part 541.205 (2000) is one of the regulations
6
incorporated in Wage Order 4-2001, subdivision 1(A)(2)(f). That regulation defined the
5
Regulations appearing in title 29 of the Code of Federal Regulations are hereafter
referred to as ― Federal Regulations.‖ Citations to the Federal Regulations are as they
existed on January 1, 2001, the effective date of Wage Order 4-2001. (Current
regulations are found in Fed. Regs. § 541.203 (2011).)
6
Federal Regulations former part 541.205 described when a claims adjuster‘s work
is ― ‗directly related to management policies or general business operations.‘ ‖ In
pertinent part it provided:
―(a) The phrase ‗directly related to management policies or general business
operations of his employer or his employer‘s customers‘ describes those types of
8
activities relating to the administrative operations of a business as distinguished from
‗production‘ or, in a retail or service establishment, ‗sales‘ work. In addition to
describing the types of activities, the phrase limits the exemption to persons who perform
work of substantial importance to the management or operation of the business of his
employer or his employer‘s customers.
―(b) The administrative operations of the business include the work performed
by so-called white-collar employees engaged in ‗servicing‘ a business as, for example,
advising the management, planning, negotiating, representing the company, purchasing,
promoting sales, and business research and control. An employee performing such work
is engaged in activities relating to the administrative operations of the business
notwithstanding that he is employed as an administrative assistant to an executive in the
production department of the business.
―(c) As used to describe work of substantial importance to the management or
operation of the business, the phrase ‗directly related to management policies or general
business operations‘ is not limited to persons who participate in the formulation of
management policies or in the operation of the business as a whole. Employees whose
work is ‗directly related‘ to management policies or to general business operations
include those [whose] work affects policy or whose responsibility it is to execute or carry
it out. The phrase also includes a wide variety of persons who either carry out major
assignments in conducting the operations of the business, or whose work affects business
operations to a substantial degree, even though their assignments are tasks related to the
operation of a particular segment of the business.
―(1) It is not possible to lay down specific rules that will indicate the
precise point at which work becomes of substantial importance to the management or
operation of a business. It should be clear that the cashier of a bank performs work at a
responsible level and may therefore be said to be performing work directly related to
management policies or general business operations. On the other hand, the bank teller
does not. Likewise it is clear that bookkeepers, secretaries, and clerks of various kinds
hold the run-of-the-[mill] positions in any ordinary business and are not performing work
directly related to management policies or general business operations. On the other
hand, a tax consultant employed either by an individual company or by a firm of
consultants is ordinarily doing work of substantial importance to the management or
operation of a business.
―(2) An employee performing routine clerical duties obviously is not
performing work of substantial importance to the management or operation of the
business even though he may exercise some measure of discretion and judgment as to the
manner in which he performs his clerical tasks. . . .
―(3) Some firms employ persons whom they describe as ‗statisticians.‘ If
all such a person does, in effect, is to tabulate data, he is clearly not exempt. However, if
such an employee makes analyses of data and draws conclusions which are important to
9
italicized phrase above. It is this ―directly related‖ phrase that distinguishes between
―administrative operations‖ and ―production‖ or ―sales‖ work. (Fed. Regs. § 541.205(a)
(2000).)
Parsing the language of the regulation reveals that work qualifies as
―administrative‖ when it is ―directly related‖ to management policies or general business
operations. Work qualifies as ―directly related‖ if it satisfies two components. First, it
must be qualitatively administrative. Second, quantitatively, it must be of substantial
importance to the management or operations of the business. Both components must be
satisfied before work can be considered ―directly related‖ to management policies or
general business operations in order to meet the test of the exemption. (Fed. Regs. §
541.205(a) (2000).)

the determination of, or which, in fact, determine financial, merchandising, or other
policy, clearly he is doing work directly related to management policies or general
business operations. . . .
―(4) Another example of an employee whose work may be important to
the welfare of the business is a buyer of a particular article or equipment in an industrial
plant or personnel commonly called assistant buyers in retail or service
establishments. . . .
―(5) The test of ‗directly related to management policies or general
business operations‘ is also met by many persons employed as advisory specialists and
consultants of various kinds, credit managers, safety directors, claim agents and adjusters,
wage-rate analysts, tax experts, account executives of advertising agencies, customers‘
brokers in stock exchange firms, promotion men, and many others.
―(6) It should be noted in this connection that an employer‘s volume of
activities may make it necessary to employ a number of employees in some of these
categories. The fact that there are a number of other employees of the same employer
carrying out assignments of the same relative importance or performing identical work
does not affect the determination of whether they meet this test so long as the work of
each such employee is of substantial importance to the management or operation of the
business.‖ (Fed. Regs. § 541.205(a)-(c) (2000).)

10
 The regulation goes on to further explicate both components. Federal Regulations
former part 541.205(b) discusses the qualitative requirement that the work must be
administrative in nature. It explains that administrative operations include work done by
―white collar‖ employees engaged in servicing a business. Such servicing may include,
as potentially relevant here, advising management, planning, negotiating, and
representing the company. Federal Regulations former part 541.205(c) relates to the
quantitative component that tests whether work is of ―substantial importance‖ to
management policy or general business operations.
Read together, the applicable Labor Code statutes, wage orders, and incorporated
federal regulations now provide an explicit and extensive framework for analyzing the
administrative exemption.
Trial Court and Court of Appeal Decisions
As noted, plaintiffs moved for summary adjudication of defendants‘ affirmative
defense that plaintiffs were exempt from overtime compensation requirements. The
motion challenged whether plaintiffs‘ work met the test of the administrative exemption.
Defendants opposed the motion and moved to decertify the class. A summary
adjudication motion must completely dispose of the affirmative defense to which it is
directed. (Code Civ. Proc., § 437c, subd. (f)(1); North Coast Women’s Care Medical
Group, Inc. v. Superior Court (2008) 44 Cal.4th 1145, 1160; Hood v. Superior Court
(1995) 33 Cal.App.4th 319, 322-323.)
As explained, the test for the one element of the administrative exemption at issue
here, the character of plaintiffs‘ duties, has both a qualitative and a quantitative
component. Because the test is conjunctive, plaintiffs need only show that defendants
cannot meet their burden as to either part of the test in order to succeed on their motion
for summary adjudication. (See Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785,
794-795.) Here, plaintiffs attacked defendants‘ showing as to the qualitative component,
i.e, whether the work was administrative in nature. We limit our further discussion to
11
that question. We express no opinion as to whether the record reveals a triable issue on
the quantitative component of the test.
To argue that the test of the administrative exemption could not be met, plaintiffs
placed great emphasis on the so-called administrative/production worker dichotomy.
This dichotomy was applied by the court in the Bell cases. As we explain, the Court of
Appeal majority‘s overreliance on the Bell cases created much of the confusion here. In
order to understand why this is so, some discussion of both the administrative/production
worker dichotomy and the court‘s reliance on it in the Bell cases is necessary.
In basic terms, the administrative/production worker dichotomy distinguishes
between administrative employees who are primarily engaged in ― ‗administering the
business affairs of the enterprise‘ ‖ and production-level employees whose ― ‗primary
duty is producing the commodity or commodities, whether goods or services, that the
enterprise exists to produce and market. [Citation.]‘ ‖ (Bell II, supra, 87 Cal.App.4th at
p. 821.) Plaintiffs here contended that this concept was the touchstone for deciding
whether they fell under the administrative exemption.
As discussed, the trial court decertified the class in part, depending on whether
plaintiffs‘ claims arose before or after October 1, 2000, the date the IWC amended Wage
Order 4-1998. The trial court felt bound by the Bell cases, which interpreted Wage Order
4-1998. In doing so, the Bell cases held that, under the provisions of Wage Order 4-1998,
claims adjusters were nonexempt ―production workers.‖ (See Bell II, supra, 87
Cal.App.4th at p. 826.) The trial court here decertified the class as to all claims arising
after October 1, 2000, when Wage Order No. 4-2000 became effective. (See ante, fn. 1.)
The Bell cases had no occasion to consider Wage Order 4-2001. We examine the Bell
cases in some detail because the Court of Appeal relied so heavily upon them in
construing Wage Order 4-2001.
The Bell litigation involved a class action suit based on an allegation that the
plaintiffs were denied overtime compensation. (Bell II, supra, 87 Cal.App.4th at p. 808.)
12
The plaintiffs were insurance claims representatives employed in a number of branch
offices of Farmers Insurance Exchange (FIE). There was extensive information in the
record about the nature of the plaintiffs‘ work and the way the business was structured.
In the first Bell case, the defendants sought review of the class certification order.
That matter was dismissed on procedural grounds. (See Bell III, supra, 115 Cal.App.4th
at p. 720.)
Bell II arose after the grant of summary adjudication in which the trial court
determined that the claims representatives were not ―administrators‖ and thus the
administrative exemption contained in Wage Order 4-1998 was not applicable to the
plaintiffs. (Bell II, supra, 87 Cal.App.4th at pp. 808-809.) That ruling was affirmed. (Id.
at p. 821.)
Bell III was an appeal taken after a jury trial. As part of that appeal the defendants
urged the court to reconsider its holding in Bell II in light of ― ‗[r]ecent developments in
federal law.‘ ‖ (Bell III, supra, 115 Cal.App.4th at p. 727.) While concluding that actual
reconsideration was precluded by the law of the case doctrine, the Bell III court addressed
the defendants‘ criticism of Bell II at length. (Bell III, at pp. 727-739.) As a result, the
Bell III court provided a judicial gloss to its earlier opinion in Bell II.
Bell II considered Wage Order 4–1998, subdivision 1(A) which directs that the
overtime regulations shall not apply to those working in ―administrative, executive, or
professional capacities.‖ Subdivision 1(A)(1) provided that no person may be considered
to work in one of those capacities unless the work done ―is primarily intellectual,
managerial, or creative, . . . requires exercise of discretion and independent judgment,‖
and is compensated at a given rate. As noted, the wage order itself did not provide any
―independent meaning‖ for the term ―administrative capacities.‖ (Bell II, supra, 87
Cal.App.4th at p. 811.)

13
 FIE argued that the scope of the administrative exemption, as it related to those
7
plaintiffs, was defined exclusively by Wage Order 4-1998, subdivision 1(A)(1) and (2).
In rejecting this argument the court noted that the description of qualifying duties was
―very brief‖ and could not ―reasonably be considered . . . an adequate definition of the
phrase ‗administrative, executive, or professional capacities.‘ ‖ (Bell II, supra, 87
Cal.App.4th at p. 811.)
In part, because of the brevity of treatment, the Bell II court concluded that it was
reasonable to give the term ―administrative capacity‖ an independent meaning beyond,
and unlimited by, the description contained in Wage Order 4-1998, subdivision 1(A)(1).
Thus, the court considered the term ―administrative capacity‖ to describe the role of an
employee in the business enterprise. It distinguished between that role and the duties of
an employee as generally set out in subdivision 1(A)(1)—i.e., work that is ―primarily
intellectual, managerial, or creative, and which requires exercise of discretion and
independent judgment.‖ (See Bell II, supra, 87 Cal.App.4th at pp. 819-820.)
It is apparent that many of the same concepts now set out in Labor Code section
515, Wage Order 4-2001, and the incorporated federal regulations were also at play in
Bell II. However, under the new statute and wage order, the way in which those concepts
interrelate has been substantially clarified. The Bell II court did not have the benefit of
these clarifications. As a result, the Bell II court was challenged to reach beyond the
language of the enactments to resolve the thorny issue before it.
In essence, Bell II treated the analysis as a two-pronged inquiry, the first prong
going to role and the second to duties. (See Bell III, supra, 115 Cal.App.4th at p. 736.) It

7
Wage Order 4-1998, subdivision 1(A)(2) related to the professional aspect of the
exemption and covered those practicing a profession like law or medicine. That
subdivision obviously was not implicated in the Bell cases.

14
was in deducing the role denoted by the term ―administrative capacity‖ that the Bell II
court turned to the administrative/production worker dichotomy. (Bell III, at p. 729.)
The Bell II court found the dichotomy a useful tool based on the state of the record
before it and the wording of Wage Order 4-1998. Even so, the court noted that the
dichotomy offers only a ―broad distinction demanding further refinement in some cases.‖
(Bell II, supra, 87 Cal.App.4th at p. 820.)
In reaching its conclusion, the Bell II court relied on the following undisputed facts.
FIE did not sell insurance. It did, however, perform substantial claims-handling work for
other related companies within the Farmers Insurance Group of Companies and was
reimbursed for the cost of those services. FIE performed a specialized function within
the broader corporate structure of the Farmers Insurance Group of Companies. As a
result of the corporate structure, FIE was managed by another company, Farmers Group,
Inc. Farmers Group, Inc., performed a large number of what would normally be
considered administrative activities, including auditing, legal counseling, underwriting,
and other matters not directly related to claims. Claims representatives had no formal
advisory role in setting FIE‘s claims-handling policy. (Bell II, supra, 87 Cal.App.4th at
pp. 823-824.)
The Bell II court concluded that, on its record, there were no triable issues of
material fact supporting any conclusion other than that FIE‘s business was to handle
claims. As a result, the adjusters fell squarely on the production side of the
administrative/production worker dichotomy. (Bell II, supra, 87 Cal.App.4th at p. 826.)
The Bell II court went on to decide whether that conclusion supported a grant of
summary adjudication. It acknowledged that the question was a complex one. It
explicitly recognized the limitations of the dichotomy were it to be applied in other
contexts: ―the administrative/production worker dichotomy is a somewhat gross
distortion that may not be dispositive in many cases.‖ (Bell II, supra, 87 Cal.App.4th at
p. 826.) Further, ―some employees perform specialized functions within [a] business
15
organization that cannot readily be characterized in terms of the . . . dichotomy.‖ (Ibid.)
―Other employees perform jobs involving wide variations in responsibility that may call
for finer distinctions than the . . . dichotomy provides.‖ (Id. at p. 827.) It went on to note
that claims adjusting illustrates the kind of work that may call for such a finer distinction,
because a great variety of employees may be covered by such a job title. Some adjusters
may do fairly routine work, while others may have expansive authority and their
decisions may have substantial importance to the business of their employers. (Ibid.)
The Bell II court warned that in the absence of ―detailed interpretative regulations‖
such as those at play in the federal cases, ―California courts must use great caution in
granting summary judgment or summary adjudication on the basis of such a broad
distinction as the administrative/production worker dichotomy.‖ (Bell II, supra, 87
Cal.App.4th at p. 827.)
The Bell II court concluded that summary adjudication was appropriate in light of
its particular record. It noted that FIE had deliberately decided to structure its operations
in a given manner. (Bell II, supra, 87 Cal.App.4th at p. 827.) The effect of that decision
was to render the work of its claims representatives ―routine and unimportant‖ in terms of
its business impact, as the plaintiffs were merely producers of the product sold by the
defendants. The settlement authority of claims representatives was set at a low level. (Id.
at p. 828.) Conversely, when a decision involved ―matters of greater importance‖ it was
made by a supervisor, with the adjusters functioning merely as ―investigators‖ or
―conduits of information.‖ (Ibid.) Because the FIE adjusters‘ role in the business was
―routine and unimportant‖ they could not be considered administrative workers. (Ibid.)
Because the adjusters were not administrative workers due to their role, defendants
could not satisfy the first prong of Bell II‘s two-part test. As a result, the Bell II court
concluded that it need not consider whether the plaintiffs‘ duties fell under the
description set out in Wage Order 4–1998, subdivision 1(A)(1) of those whose work was
―primarily intellectual, managerial, or creative,‖ and ―require[d] the exercise of discretion
16
and independent judgment.‖ The court was careful to point out that its separate
determination as to the plaintiffs‘ role in FIE‘s business disposed of that case but
recognized that in other cases careful analysis of employees‘ duties might be necessary to
determine whether their status was exempt or not. (Bell II, supra, 87 Cal.App.4th at p.
829.) As the Bell III court noted, ―our opinion in Bell II was based on the restricted
record before us and cannot be read out of that context.‖ (Bell III, supra, 115 Cal.App.4th
at p. 730.)
The Bell cases are distinguishable from this case in two important ways. First, those
opinions carefully limited their holdings to their facts, including the defendants‘
stipulation that the work performed by all plaintiffs was ―routine and unimportant.‖ In
light of the stipulation, there was no dispute that the plaintiffs‘ work placed them on the
production side of the administrative/production worker dichotomy. (Bell II, supra, 87
Cal.App.4th at p. 826.) In so concluding, the Bell II court effectively conflated the
qualitative and quantitative aspects of the ―directly related‖ test now set out in Wage
Order 4-2001 and amplified in Federal Regulations former part 541.205(a), (b), and (c).
(See ante, at pp. 7-11.)
Second, because Wage Order 4-1998 did not provide sufficient guidance, the Bell II
court looked beyond the language of the wage order and employed the
administrative/production worker dichotomy as an analytical tool. The whole approach
in Bell II rested on the conclusion that Wage Order 4-1998 failed to provide a sufficient
explanation of the extent of the administrative exemption. (Combs v. Skyriver
Communications (2008) 159 Cal.App.4th 1242, 1260 (Combs).) By comparison, Wage
Order 4-2001, the operative order here, along with the incorporated federal regulations,
set out detailed guidance on the question.
In concluding that plaintiffs were not exempt administrative employees, the Court of
Appeal majority placed substantial reliance on the Bell cases. It was unpersuaded by
defendants‘ argument that Bell II is distinguishable because there FIE had conceded that
17
its claims adjusters‘ duties were ―routine and unimportant.‖ (Bell II, supra, 87
Cal.App.4th at p. 828.) The majority here stated, ―We agree that defendants have
introduced substantial evidence that plaintiffs‘ work is not routine and unimportant, and
that Bell II is distinguishable on that ground. But the fact remains that plaintiffs‘ work —
investigating claims, determining coverage, setting reserves, etc. — is not carried on at
the level of policy or general operations, so it falls on the production side of the
dichotomy. Not all production work is routine or unimportant.‖
The Court of Appeal majority was correct in noting that Bell II is distinguishable. It
erred when it relied on distinguishable authority to create a rigid rule, an outcome even
the Bell cases cautioned against. The majority below did acknowledge new Wage Order
4-2001 and some of the applicable federal regulations. It did not, however, consider all
of the relevant aspects of Federal Regulations former part 541.205, specifically subpart
(b). Instead, it reached out for support to other federal regulations not incorporated in
Wage Order 4-2001.
The majority below focused on Federal Regulations former part 541.205(a),
concluding that ―only work performed at the level of policy or general operations can
qualify as ‗directly related to management policies or general business operations.‘ In
contrast, work that merely carries out the particular day-to-day operations of the business
is production, not administrative, work. That is the administrative/production worker
dichotomy, properly understood. [Fn. omitted.]‖
The majority below provided its own gloss to the administrative/production worker
dichotomy and used it, rather than applying the language of the relevant wage order and
regulations. Such an approach fails to recognize that the dichotomy is a judicially created
creature of the common law which has been effectively superseded in this context by the
more specific and detailed statutory and regulatory enactments.
While it bolstered its conclusion by citing Federal Regulations former part
541.205(a), the majority failed to adequately consider other subparts of that regulation.
18
Such an approach violates the long-standing rule of construction that an enactment is to
be read as a whole and that interpretations are to be avoided if they render part of an
enactment nugatory. (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735; McLaughlin v.
State Bd. of Education (1999) 75 Cal.App.4th 196, 211.)
As discussed above (see ante, at pp. 8-11), Federal Regulations former part
541.205(a), (b), and (c) must be read together in order to apply the ―directly related‖ test
and properly determine whether the work at issue satisfies the administrative exemption.
For example, former part 541.205(b) supplied a general description of the types of duties
that constitute ―administrative operations of the business.‖ It included work performed
by ―white-collar employees engaged in ‗servicing‘ a business as, for example, advising
the management, planning, negotiating, [and] representing the company.‖ The dissent
below argued, ―That is what claims adjusters do—they negotiate settlements (and
conclude some without seeking approval), advise management, and process claims.‖ The
incorporation of former part 541.205(b) shows that whether work is part of the
―administrative operations‖ of a business depends, in part, on whether it involves
advising management, planning, negotiating, and representing the company. It is not so
narrowly limited as the majority below declared.
The Court of Appeal also cited Bratt v. County of Los Angeles (9th Cir. 1990) 912
F.2d 1066 (Bratt) in support of its holding. Bratt held that under the federal Fair Labor
Standards Act, the administrative exemption does not apply to probation officers, stating,
―[T]he test is whether the activities are directly related to management policies or general
business operations. . . . [¶] . . . [W]hile the regulations provide that ‗servicing‘ a business
may be administrative, . . . § 541.205(b), ‗advising the management‘ as used in that
subsection is directed at advice on matters that involve policy determinations, i.e., how a
business should be run or run more efficiently, not merely providing information in the
course of the customer‘s daily business operation.‖ (Bratt, at p. 1070.)

19
 Applying Bratt to this case, the majority below reasoned that ―although advising
management about the formulation of policy is exempt administrative work, advising
management about the settlement of an individual claim is not.‖ The majority held that
plaintiffs‘ duties here are ―not carried on at the level of policy or general operations.‖
Bratt‘s persuasiveness is in doubt. The Ninth Circuit has subsequently held that
under more recent applicable federal regulations, claims adjusters are exempt from the
Fair Labor Standards Act‘s overtime requirements ―if they perform activities such as
interviewing witnesses, making recommendations regarding coverage and value of
claims, determining fault and negotiating settlements.‖ (Miller v. Farmers Ins. Exch. (In
8
Re Farmers Ins. Exch.) (9th Cir. 2007) 481 F.3d 1119, 1124.) In addition, Bratt
involved probation officers, not claims adjusters. The Bratt court concluded that the
probation officers were more like inspectors who merely supply information:
―[A]lthough probation officers provide recommendations to the courts, these
recommendations do not involve advice on the proper way to conduct the business of the
court, but merely provide information which the court uses in the course of its daily
production activities.‖ (Bratt, supra, 912 F.2d at p. 1070.)
The analysis in Bratt highlights the difficulty in relying on the particular role of
employees in one enterprise to deduce a rule applicable to another kind of business. It
also reveals the limitations of the administrative/production worker dichotomy itself as an

8
We note that many federal courts are in accord with this conclusion. (See Smith v.
Government Employees Ins. Co. (D.C. Cir. 2010) 590 F.3d 886, 897; Roe-Midgett v. CC
Services, Inc. (7th Cir. 2008) 512 F.3d 865, 875; Cheatham v. Allstate Ins. Co. (5th Cir.
2006) 465 F.3d 578, 585-586; McAllister v. Transamerica Occidental Life Ins. Co. (8th
Cir. 2003) 325 F.3d 997, 998, 1001; Jastremski v. Safeco Ins. Companies (N.D. Ohio
2003) 243 F.Supp.2d 743, 753; Palacio v. Progressive Ins. Co. (C.D.Cal. 2002) 244
F.Supp.2d 1040, 1045, 1047.) These cases are instructive because the regulations
enacted by the United States Department of Labor after Wage Order 4-2001 were
intended to be consistent with the old regulations. (See, e.g., Miller v. Farmers Ins. Exch.
(In Re Farmers Ins. Exch.), supra, 481 F.3d at pp. 1128-1129.)

20
analytical tool. As the dissent below points out, ―[B]ecause the dichotomy suggests a
distinction between the administration of a business on the one hand, and the ‗production‘
end on the other, courts often strain to fit the operations of modern-day post-industrial
service-oriented businesses into the analytical framework formulated in the industrial
climate of the late 1940‘s.‖
The Court of Appeal majority also sought to bolster its conclusion by observing:
―[U]nder the [federal Fair Labor Standards Act], employees whose duties ‗necessitate
irregular hours of work‘ may enter contracts with their employers guaranteeing constant
pay for varying workweeks that might otherwise violate the maximum hour requirements
of the statute. [Citation.]‖ It then referred to Federal Regulations part 778.405, which
lists ―insurance adjusters‖ as employees who are eligible to enter into the varying
workweek contracts permitted by the Fair Labor Standards Act. The majority reasoned
that, by implication, plaintiffs are nonexempt employees, ―otherwise, the provision
concerning varying-workweek contracts would have nothing to do with them.‖ The
implication is unwarranted. The IWC Statement issued in connection with Wage Order
4-2001 clearly states that “only those federal regulations specifically cited in its wage
orders, and in effect at the time of promulgation‖ shall be applied in defining exempt
duties under California law. (Italics added.) Federal Regulations part 778.405 is not
listed, and was thus not incorporated by the IWC for the purposes of construing the wage
order.
Defendants also argue that the Court of Appeal improperly relied on opinion letters
issued in 1998 and 2003 by the Division of Labor Standards Enforcement (DLSE), the
state agency that enforces IWC orders. Although we generally give DLSE opinion letters
―consideration and respect,‖ it is ultimately the judiciary‘s role to construe the language.
(Compare Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 1105, fn. 7
with Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 576.) The
1998 letter applies the administrative/production worker dichotomy and concludes that
21
claims adjusters described by the Bell plaintiffs‘ attorneys were not exempt. The 2003
letter states that the Bell II analysis of the dichotomy is still viable after the IWC‘s
adoption of Wage Order 4-2001. Our decision is not inconsistent with these letters. We
do not hold that the administrative/production worker dichotomy was misapplied to the
Bell II plaintiffs, based on the record in that case, or that the dichotomy can never be used
as an analytical tool. We merely hold that the Court of Appeal improperly applied the
administrative/production worker dichotomy as a dispositive test.
The essence of our holding is that, in resolving whether work qualifies as
administrative, courts must consider the particular facts before them and apply the
language of the statutes and wage orders at issue. Only if those sources fail to provide
adequate guidance, as was the case in Bell II, is it appropriate to reach out to other
sources.
We express no opinion on the strength of the parties‘ relative positions. We merely
9
hold that the Court of Appeal majority erred in its analysis.

9
Defendants contend that if the Court of Appeal erred, this court should decertify
the class in its entirety. In light of our limited ruling, we decline to decertify the class.
However, defendants are free to raise the issue on remand.

22
 DISPOSITION
We reverse the judgment of the Court of Appeal and remand with directions that it
review the trial court‘s denial of the summary adjudication motion, applying the
appropriate legal standard set out herein.

CORRIGAN, J.
WE CONCUR:

CANTIL-SAKAUYE, C. J.
KENNARD, J.
BAXTER, J.
WERDEGAR, J.
CHIN, J.
LIU, J.

23
See last page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Harris et al. v. Superior Court
__________________________________________________________________________________

Unpublished Opinion
Original Appeal
Original Proceeding
Review Granted
Rehearing Granted XXX 154 Cal.App.4th 164

__________________________________________________________________________________

Opinion No. S156555
Date Filed: December 29, 2011
__________________________________________________________________________________

Court: Superior
County: Los Angeles
Judge: Carolyn B. Kuhl

__________________________________________________________________________________

Counsel:

Lerach Coughlin Stoia Geller Rudman & Robbins, Coughlin Stoia Gellar Rudman & Robbins, Patrick J. Coughlin,
Theodore J. Pintar, Steven W. Pepich, Kevin K. Green, Steven M. Jodlowski; Cohelan & Khoury, Cohelan Khoury
& Singer, Timothy D. Cohelan, Isam C. Khoury, Michael D. Singer; Spiro, Moss, Barness & Harrison, Spiro Moss
Barness, Dennis F. Moss, Ira Spiro; Law Offices of Michael I. Carver and Michael I. Carver for Petitioners and Real
Parties in Interest Frances Harris, Dwayne Garner, Marion Brenish-Smith, Steven Brickman, Kelly Gray, Adell
Butler-Mitchell and Lisa McCauley.

Arbogast & Berns and David M. Arbogast for Consumer Attorneys of California as Amicus Curiae on behalf of
Petitioners and Real Parties in Interest Frances Harris, Dwayne Garner, Marion Brenish-Smith, Steven Brickman,
Kelly Gray, Adell Butler-Mitchell and Lisa McCauley.

Hud Collins as Amicus Curiae on behalf of Petitioners and Real Parties in Interest Frances Harris, Dwayne Garner,
Marion Brenish-Smith, Steven Brickman, Kelly Gray, Adell Butler-Mitchell and Lisa McCauley.

Rudy, Exelrod & Zieff, Rudy, Exelrod, Zieff & Lowe and Kenneth J. Sugarman for California Employment
Lawyers Association as Amicus Curiae on behalf of Petitioners and Real Parties in Interest Frances Harris, Dwayne
Garner, Marion Brenish-Smith, Steven Brickman, Kelly Gray, Adell Butler-Mitchell and Lisa McCauley.

Sidley Austin, Douglas R. Hart, Geoffrey D. Deboskey; Sheppard Mullin Richter & Hampton, Robert J. Stumpf,
William V. Whelan and Karin Dougan Vogel for Petitioners and Real Parties in Interest Liberty Mutual Insurance
Company and Golden Eagle Insurance Corporation.

Leland Chan for California Bankers Association as Amicus Curiae on behalf of Petitioners and Real Parties in
Interest Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation.

Winston & Strawn, Lee T. Paterson and Audrey Shen Chui for Employers Group as Amicus Curiae on behalf of
Petitioners and Real Parties in Interest Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation.
Page 2 – S15655 – counsel continued:

Counsel:

Gregory F. Jacob, Steven J. Mandel, Paul L. Frieden and Joanna Hull for the Secretary of Labor, U.S. Department of
Labor as Amicus Curiae on behalf of Petitioners and Real Parties in Interest Liberty Mutual Insurance Company and
Golden Eagle Insurance Corporation.

Sonnenschein Nath & Rosenthal, Paul E. B. Glad, Gayle M. Athanacio and Virginia K. Young for Association of
California Insurance Companies, Personal Insurance Federation of California and Pacific Association of Domestic
Insurance Companies as Amici Curiae on behalf of Petitioners and Real Parties in Interest Liberty Mutual Insurance
Company and Golden Eagle Insurance Corporation.

National Chamber Litigation Center Inc., Robin S. Conrad; Mayer Brown and Donald M. Falk for Chamber of
Commerce of the United States of America as Amicus Curiae on behalf of Petitioners and Real Parties in Interest
Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation.

Berger Kahn and Teresa R. Tracy for Progressive Casualty Insurance Company as Amicus Curiae on behalf of
Petitioners and Real Parties in Interest Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation.

Bien & Summers, Elliot L. Bien and Catherine S. Meulemans for American Insurance Association as Amicus Curiae
on behalf of Petitioners and Real Parties in Interest Liberty Mutual Insurance Company and Golden Eagle Insurance
Corporation.

Seyfarth Shaw, George Preonas, Michael D. Mandel and Gilmore F. Diekmann, Jr., for California Employment Law
Council as Amicus Curiae on behalf of Petitioners and Real Parties in Interest Liberty Mutual Insurance Company
and Golden Eagle Insurance Corporation.

No appearance for Respondent.
Counsel who argued in Supreme Court (not intended for publication with opinion):

Patrick J. Coughlin
Coughlin Stoia Gellar Rudman & Robbins
655 West Broadway, Suite 1900
San Diego, CA 92101
(619) 231-1058

Douglas R. Hart
Sidley Austin
555 West Fifth Street, Suite 4000
Los Angeles, CA 90013
(213) 896-6122