Issue 3 - 2010

After employers purchase Employment Practices Liability Insurance (EPLI), can they choose their own attorneys in case of a lawsuit?  Often not.  EPLI policies commonly have provisions giving the insurance company the right to choose counsel.  Once an EPLI policy with such a provision is in place, an employer may not be able to convince the insurance company to use an attorney whom the Company knows and trusts.  The best time to address this issue is before purchasing/renewing EPLI.  Employers can often negotiate the right to use their attorneys as part of the insurance bargain.

What if you hire a new employee and then receive a letter from the new employee’s former employer demanding that she be terminated because she had signed a noncompete agreement with that company?  You do not want to face litigation costs to fight the prior employer; is it safe to terminate the employee?  A recent California Court of Appeals decision says “no.”  ( Silguero v. Creteguard, Inc.)

In the Silguero case, Silguero worked as an in-house sales representative for a company from 2003 to 2007.  In 2007, a few months before she was terminated, Silguero signed a confidentiality agreement which included a noncompetition provision prohibiting her from engaging in “all sales activities for 18 months following her departure or termination.”  The employee was hired by Creteguard Company shortly after her termination.  Creteguard was contacted by the employee’s prior employer, which requested “cooperation and participation” in enforcing the confidentiality agreement, including the noncompetition provision.  Creteguard then terminated the employee’s employment.

The employee then sued Creteguard claiming that the noncompetition provision violated California Business and Professions Code Section 16600 and that her termination violated public policy.  Although Creteguard was not enforcing its own noncompetition agreement, the Court decided that Silguero had stated a viable wrongful termination claim.  Creteguard should not have terminated the employee based upon an unlawful provision, even if that provision was drafted by a former employer.

If an employee performs administrative work, is s/he automatically exempt from overtime?  The California Wage Orders contain separate definitions for the three types of white-collar exemptions:  executive, administrative and professional personnel.  (In addition, under the California Labor Code, outside sales employees may also be exempt.)  The administrative exemption, in particular, is often misapplied by employers.  The exemption may not be as broad as you think.

A person employed in an exempt administrative capacity means any employee:

1. Whose duties and responsibilities involve either:
   1. The performance of office or non-manual work directly related to management policies or general business operations of his employer or his employer s customers, or
   2. The performance of functions in the administration of a school system, or educational establishment or institution, or of a department of subdivision thereof, in work directly related to the academic instruction or training carried on therein; and
2. Who customarily and regularly exercises discretion and independent judgment; and
3. 1. Who regularly and directly assists a proprietor, or an employee employed in a bona fide executive or administrative capacity, or
   2. Who performs under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge, or
   3. Who executes under only general supervision special assignments and tasks; and
4. Who is primarily engaged in duties which meet the test for the exemption.

An employee in an "administrative capacity" customarily and regularly exercises discretion and independent judgment in the performance of "intellectual" work, which, in the context of an administrative function, is office or non-manual work directly related to management policies or the general business operations of the employer or the employer's customers.  The employee also regularly and directly assists a proprietor or an exempt administrator or performs under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge, or executes special assignments and tasks under only general supervision, and devotes more than 50% of his work time to the activities described above.  They are also paid on a salary basis.

To exercise discretion and independent judgment one must compare and evaluate possible courses of conduct and act or make decisions after considering various possibilities.  This implies that the employee has the power to make an independent choice free from immediate supervision.  Furthermore, the decision should pertain to matters of significance.  Decisions may be in the form of a recommendation for action subject to the final authority of a superior; however, the employee must have sufficient authority for his recommendations to affect matters of consequence to the business or the employer's customers.

The term discretion and independent judgment must be applied in light of all the facts involved in the particular employment situation in which the question arises.  It has been frequently misunderstood and misapplied by employers and employees, who are often confused between the exercise of discretion and independent judgment, and the use of skill in applying techniques, procedures, or specific standards; and misapplication of the term to employees making decisions relating to matters of little consequence.  Generally, there are three types of administrative employees who qualify for the exemption if they meet the other tests described therein:

1. Executive and administrative assistants (persons who assist an executive in the performance of his duties without themselves having executive authority. Typical titles of persons in this group are Executive Assistant to the President, Confidential Assistant, Executive Secretary, Assistant to the General Manager, Administrative Assistant and other such assistants found in large establishments where the official assistant has duties of such scope and which require so much attention that the work of personal scrutiny, correspondence and interviews must be delegated) (Caution: this is not a secretary, it generally only exists in very large corporations, where the CEO has, for example, an individual working for him who as an administrative assistant who has an MBA. The White House Chief of Staff would also qualify under this exemption category.)
2. Staff employees (advisory specialists such as tax experts, insurance experts, sales research experts, wage-rate analysts, investment consultants, statisticians, credit managers, production planners, finance managers, purchasing agents, buyers, safety directors, personnel directors, and labor relations directors.)
3. Those who perform special assignments (field representatives, location managers, estimators (if there is a great deal of independent judgment and discretion in the estimating process), contract negotiators, etc.).

To fit within the administrative exemption, the work must be non-manual.  Employees who spend most of their time in using tools, instruments, machinery, or other equipment, or in performing repetitive operations with their hands, no matter how much skill is required, would not be bona fide administrative employees.

Work which is directly related to management policies or general business operations involves the administrative operations of the business, for example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.  Bookkeepers, secretaries, and clerks of various kinds are not performing work directly related to management policies or general business operations.

When in doubt about exemption status, an employer should consult with experienced employment counsel.