In a recent court case, Pellegrino v. Robert Half International Inc., a California appeals court ruled that a staffing firm's recruiters were not subject to the state's administrative exemption from the requirement to pay overtime. After applying California's five-part test to determine whether the administrative exemption applies, the court held that the exemption did not apply.
Employers bear the burden to prove that an employee does not qualify for overtime of one and a half times the employee's regular hourly rate for all work performed over eight hours in one day and/or all hours over 40 in one week. Employees can qualify for a number of different exemptions, and in this case RHI argued that the plaintiffs were administrative employees.
The Administrative Exemption
In order to qualify for the administrative exemption, the court noted that the employer must prove that the employee must:
- Perform office or non-manual work directly related to management policies or general business operations of the employer or its customers;
- Customarily and regularly exercise discretion and independent judgment;
- Perform under only general supervision, work along specialized or technical lines requiring special training, or execute under only general supervision special assignments and tasks;
- Be engaged in the activities meeting the test for the exemption at least 50 percent of the time; and
- Earn twice the state's minimum wage.
An employee must meet all five elements in order to be an exempt administrative employee.
The court found that the plaintiffs did not qualify as exempt administrative employees. The account executives were trained in sales and evaluated on how well they met sales production numbers, which are not exempt duties. These executives were also primarily responsible for selling the services of RHI's temporary employees to its clients. And when they were not selling, they were recruiting more candidates for RHI's "inventory."
How does this ruling affect the end users of contingent labor? The results likely won't be visible to consumers. Some recruiters, based on their duties, are truly "exempt." Some are not (remember: titles really don't matter; it's the duties that count). For the recruiters that are not really exempt, there is overtime liability for the staffing firm. Therefore, this court decision could have an effect on internal staffing company overtime classification practices. If other courts adopt this rationale, staffing firms may have to reclassify some of their employees.
"This case is not a big event. Some recruiters are properly classified as exempt, some are not. It really depends on the duties of the recruiter," says Eric Rumbaugh, a partner with Michael Best & Friedrich in Milwaukee. For a company reclassifying workers as non-exempt, it simply has to pick an hourly rate so that, when the employee works expected number of hours, including overtime, the employee will be paid about what the company wants to pay for the job. "The company's clients should not feel any impact," says Rumbaugh.
Court decisions not withstanding, it's a good idea to make sure that you are appropriately classifying your own employees. Do your due diligence, and don't rely on job titles -- focus on what an employee actually does.