Recovering OT and Attorney’s Fees

I came across this case this morning and was really excited to post it, particularly since it brings the administrative exemption up for discussion (among other things). In doing some research, I came across the site for the law firm Thelen Reid Brown Raysman & Steiner LLP.

Normally I don’t favor one law firm over another, but they explain it really, really well:

The Facts

Advanced Business Integrators, Inc. (ABI) owns software used in sports and entertainment venues to manage personnel and cost functions. Its primary business is to sell the software to customers, implement it, and provide training and technical support. Michael Eicher was employed by ABI as a salaried consultant. His basic duties were to provide customer service and training on the software. He spent about half of his time in the office and the other half on-site at customers’ venues.

Eicher filed an administrative claim with the California Labor Commissioner for unpaid overtime compensation. After a hearing, the Labor Commissioner found for ABI, concluding that Eicher was an exempt administrative employee and not entitled to overtime pay. Pursuant to Labor Code § 98.2, Eicher appealed to the superior court for a trial de novo. After a court trial, the superior court entered judgment in Eicher’s favor for $56,353 in overtime pay. On Eicher’s motion, the superior court also awarded him $40,000 in attorney’s fees, plus prejudgment interest and costs. ABI appealed from the judgment and order, claiming Eicher was overtime-exempt, the trial court’s award was excessive, and the court erred in awarding attorney’s fees.

The Eicher Decision

The California Court of Appeal, Third Appellate District, first analyzed whether ABI met its burden to establish the affirmative defense to Eicher’s overtime claim that he was an exempt administrative employee. Under the test for the administrative exemption in Industrial Welfare Commission Wage Order 4-2001, the court considered whether Eicher performed “work directly related to management policies or general business operations of the employer or its customers.” Citing the distinction analyzed in Bell v. Farmers Ins. Exchange (2001) 87 Cal.App.4th 805, between exempt administrative and non-exempt “production” employees, the court found that Eicher’s duties fell on the “production” side. The court found that Eicher regularly engaged in ABI’s core day-to-day business of implementing its software and supporting its customers. While he had to learn the customers’ management policies and operations to perform his work, he did not have any personal role in making policy or altering the general business operations of ABI or its customers. Thus, the court concluded that Eicher did not qualify for the administrative exemption and was entitled to overtime pay.

The court next determined that the trial court’s damages award was excessive because it improperly included paid time off (PTO) taken by Eicher as “hours worked” for purposes of calculating his entitlement to overtime wages. The court reduced the award by the wage amount corresponding to the PTO hours included.

Finally, addressing a novel issue, the court concluded that the attorney’s fees award to Eicher was authorized under Labor Code § 1194. This statute allows an employee who prevails in a “civil action” for unpaid overtime to recover reasonable attorney’s fees and costs. Labor Code § 98.2 provides for a trial de novo “appeal” from a decision of the Labor Commissioner. The plain language of that statute, however, does not authorize a fee award to a successful “appellant,” such as Eicher; rather, it seeks to discourage unwarranted or frivolous appeals by assessing fees and costs against unsuccessful appellants. Thus, ABI argued the trial court lacked authority to award Eicher his fees because Section 1194 does not apply to appeals from Labor Commissioner rulings, and Section 98.2 does not authorize attorney’s fees for employees who prevail on such appeals. The Court of Appeal disagreed.

Examining the language and legislative intent of both statutes, the court concluded that to allow an employee to recover attorney’s fees incurred in a successful appeal does not conflict with or render superfluous Labor Code § 98.2. The court reasoned that an employee who files such an appeal is effectively pursuing a new trial, and thus the appeal falls within the broad definition of “action” for purposes of Section 1194. Further, the court reasoned that denying fees to employees who prevail on these appeals would be inconsistent with the legislative intent behind the “Berman” administrative hearing procedure, which is “to provide a speedy, informal, and affordable method of resolving wage claims.” Because attorney’s fees in a trial de novo appeal may often exceed the employee’s wage recovery, the court concluded that denying fees to prevailing employees would discourage them from pursuing valid claims and would be inconsistent with the purpose of Section 1194, which is “to provide ‘a needed disincentive to violation of minimum wage laws.'”

The Impact of Eicher

The Eicher decision offers employees an extra incentive to hire legal counsel to appeal adverse Labor Commissioner rulings denying their claims for overtime pay. Not only may employees have such claims heard anew in superior court, but they can recover their attorney’s fees incurred in the trial court if they prevail. Employers must take this factor into account in evaluating whether the benefits outweigh the risks of appealing to superior court a Labor Commissioner award of overtime pay in an employee’s favor.

From the employers’ perspective, Eicher does have a silver lining. California courts are flooding with wage and hour class actions, many of which include claims for overtime pay. To overcome the important hurdle of class certification, the plaintiffs in such cases must show that a class action is the “superior” method of adjudicating their claims. Plaintiffs have argued class treatment is superior to the Labor Commissioner procedure because, unlike in civil actions where attorney’s fees are recoverable under Labor Code §1194, fees are not available to prevailing claimants in the administrative forum. After Eicher, however, employers now may argue that the availability of attorney’s fees for employees who prevail on a trial de novo appeal from a Labor Commissioner ruling, regardless of the amount of overtime wages at issue, renders the administrative procedure a more even-handed, beneficial, and affordable method for employees to resolve such claims.

Finally, Eicher is notable as one of a limited number of published California appellate court decisions in recent years to analyze the administrative exemption from overtime pay. This case is another reminder for employers to carefully review the actual duties and responsibilities of their salaried positions, particularly in the computer technology area, to ensure these jobs satisfy all elements under one or more of the exemptions recognized by California law.