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Outside Salesperson Is ‘Exempt Employee’ for Purposes of Calculating Sick Pay—C.A.
Opinion Declines to Adopt Reading of Governing Labor Code Section That Would Limit Definition, Says Not Bound by Contrary Position Taken by State Agency
By a MetNews Staff Writer
Div. One of the Fourth District Court of Appeal held yesterday that an outside salesperson qualifies as an “exempt employee” under a Labor Code provision setting forth calculation methods for determining the appropriate sick leave compensation for different categories of workers, declining to adopt the contrary position taken by the Division of Labor Standards and Enforcement in an opinion letter dated October 2016.
At issue is Labor Code §246(l), which provides:
“[A]n employer shall calculate paid sick leave using any of the following calculations:
“(1) Paid sick time for nonexempt employees shall be calculated in the same manner as the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek.
“(2) Paid sick time for nonexempt employees shall be calculated by dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment.
“(3) Paid sick time for exempt employees shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.”
Plaintiff Bradley Hirdman argued that commissioned sales representatives are due payment for sick leave according to the first two subdivisions of the law, saying that the third category only applies to those administrative, executive, and professional workers who are classified as exempt elsewhere in the Labor Code.
He does not dispute that, as a commissioned salesperson, he qualifies as “exempt” from overtime pay under other provisions of the code.
In 2019, Hirdman filed a complaint against his former employer, Charter Communications LLC, asserting a single cause of action for civil penalties under the Private Attorneys General Act of 2004 based on allegations that the company improperly classified him and other sales representatives as “exempt employees” under Labor Code §246(l).
He alleged:
“In violation of Labor Code 246, Defendants compensated Plaintiff and other aggrieved employees at their straight time rate of pay or an hourly rate of pay excluding commissions and non-discretionary bonuses and any other required compensation legally required to calculate their regular rate.”
The parties filed cross-motions for summary adjudication on the issue of Charter’s alleged failure to compensate sick leave at the correct rate of pay. As support for his reading of the statute, Hirdman pointed to a legislative committee report on the section that noted:
“[P]aid sick time for exempt employees (exempt as an administrative, executive, or professional employee under a wage order of the Industrial Welfare Commission) shall be calculated in the same manner as the employer calculates wages for other forms of paid leave time.” He also cited an October 2016 opinion letter by the California Division of Labor Standards and Enforcement (“DLSE”)—a state board responsible for enforcing labor laws—which said that “employees who are paid by commissions must be paid” according to the methodology set forth in subdivisions (1) or (2) of §246(l), relying on the committee report’s parenthetical comment.
Charter pointed out that the plain language of the statute was clear and made no reference to administrative, executive, or professional workers. San Bernardino Superior Court Judge Jessica Morgan sided with the defendant and granted Charter’s motion.
Judgment was subsequently entered in favor of Charter after other issues were fully adjudicated.
Yesterday’s opinion, authored by Justice Martin N. Buchanan and joined in by Acting Presiding Justice Terry B. O’Rourke and Justice David M. Rubin, affirms the judgment.
Buchanan wrote:
“[W]e conclude that the trial court correctly determined that section 246, subdivision (l)(3) applies to outside salespersons like Hirdman and thus did not err in granting summary adjudication in favor of Charter.”
Consistent Use
The jurist noted that the statute does not define “exempt,” but remarked that the concept is a “term of art” as “California courts…consistently use the phrase…in the private employment context to mean those not entitled to overtime wages under California wage and hour law.”
He said that it was “undisputed” that “Charter employed Hirdman as a sales representative, and it classified him as exempt from overtime requirements under the outside salesperson exemption” found at Labor Code §1171.
Under those circumstances, he opined:
“We…presume that if the Legislature intended to limit the definition of ‘exempt employees’ in section 246, subdivision (l)(3) to only those persons exempt from overtime as administrative, executive, and professional employees, it would have said so….In construing a statute, courts are not authorized to insert qualifying language that is not included in its text.”
Buchanan pointed out that the Legislature “did carve out precisely such a limitation” in §246(b)(2), which excludes “administrative, executive, or professional employees” from an overtime payment structure. Buchanan said: “Hirdman asserts that we must read subdivisions (b) and (l) ‘in harmony,’ and that it is ‘apparent that the language found in section 246, subdivision (b)(2) expressly limiting “exempt” employees to the administrative, executive, or professional exemptions was intended to apply throughout all of Labor Code section 246.’ We agree with his premise but not his conclusion….We…infer from the Legislature’s use of different phrases within the same section….that it intended the phrases to mean different things.”
Not Ambiguous
Addressing the 2016 DLSE letter, he reasoned:
“In light of our conclusion that section 246, subdivision (l)(3) is not ambiguous, we could end our inquiry here, as there is no need to resort to other indications of legislative intent….But because the DLSE has issued an opinion letter relying on the legislative history to reach a contrary conclusion, we address it here.”
He commented that “the parenthetical language relied on by Hirdman is the only suggestion in any of the legislative committee reports that the term ‘exempt employees’ in relation to the calculation of paid sick leave may be limited to employees classified under the administrative, executive, or professional exemptions” and reasoned:
“Although we may properly rely on committee reports as indicia of legislative intent, ‘they are certainly not conclusive.’…This is particularly true where only a single ambiguous parenthetical in a single committee report supports the interpretation urged by a party and other language in the same report and others does not.”
Based on this scant support for the plaintiff’s characterization, he said that “the DLSE’s reliance on this single parenthetical from a single legislative committee report in an opinion letter does not persuade us otherwise.”
Acknowledging that courts may look to an agency’s conclusions as one of many interpretative tools, he wrote:
“Where, as here, the agency in question ‘does not have a long-standing interpretation of the statute and has not adopted a formal regulation interpreting the statute, the courts may simply disregard the opinion offered by the agency.’…Accordingly, we are not persuaded by Hirdman’s reliance on the DLSE opinion letter.”
The case is Hirdman v. Charter Communications LLC, D084304.
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