In this issue:

• Are Your "Computer Professionals" Really Exempt?
• California Supreme Court Makes It Easier for Employers to Recover Attorneys' Fees in Labor Commissioner Appeals

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Are Your "Computer Professionals" Really Exempt?

By Kathryn Davis

Both California and federal law recognize exemptions for "hourly computer professionals" from the statutory obligation to pay overtime for hours in excess of 40 hours a week (state and federal) and 8 hours a day (state only). While these exemptions are written broadly, e.g., the federal computer professional exemption purports to include such common job titles as computer programmer, systems analyst, and software specialist, the application of the exemptions has been narrowly construed under federal law and has not been tested under California law. To avoid misclassification of employees and costly claims for back overtime wages[fn1], employers should look past job titles and closely examine the work performed by their computer professionals to determine whether the exemptions apply.

This Commentary is meant to provide a basic overview of the "computer professional" exemption and to suggest guidelines for a proper determination of the exempt or nonexempt status of employees in computer-related fields. Moreover, whether persons occupying those jobs qualify under the administrative exemption will also be examined. Although the dot-com industry may be in temporary decline, these issues have not lost their importance and may even receive increasing focus in an economy where compensation issues are coming to the forefront of employment disputes.

Hourly Computer Professional Exemptions

The California and federal hourly computer professional exemptions are largely overlapping. See Cal. Labor Code § 515.5; 29 U.S.C. § 213(a)(17). Both cover hourly employees engaged in work that (i) is intellectual or creative, (ii) requires the exercise of discretion and independent judgement, and (iii) primarily consists of one or more of the following:

• the application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software, or system functional specifications;
• the design, development, documentation, analysis, creation, testing, or modification of computer systems or programs, including prototypes, based on and related to, user or system design specifications; and
• the documentation, testing, creation, or modification of computer programs related to the design of software or hardware for computer operating systems.

In addition, to qualify, the employee must be highly skilled and proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering, and make more than $43.58 per hour[fn2], effective January 1, 2003, (California) or $27.63 per hour (federal). Both exemptions expressly exclude:

• trainees and employees learning to become proficient in the theoretical and practical application of highly specialized information to computer systems analysis, programming, and software engineering; or
• employees in a computer-related occupation who have not attained the level of skill and expertise necessary to work independently and without close supervision; or
• employees engaged in the operation of computers or in the manufacture, repair, or maintenance of computer hardware and related equipment; or
• employees whose work is highly dependent upon or facilitated by the use of computer software programs and who are skilled in computer-aided design software, including CAD/CAM, but who are not in a computer systems analysis or programming occupation.

Further, California's hourly computer professional exemption also excludes: (a) writers engaged in preparing material, such as box labels, documentation, setup and installation instructions, or other similar written information, or content material intended to be read by customers, subscribers, or visitors to computer-related media such as the World Wide Web or CD-ROMs; and (b) employees engaged in any of the otherwise exempt activities for the purpose of creating imagery for effects used in the motion picture, television, or theatrical industry. See Cal. Lab. Code § 515.5; 29 U.S.C. § 213(a)(17); 29 C.F.R. 541.303; Wage Order 4-2001 (updated as of January 1, 2002).

The fact that these required duties and exclusions are broadly and loosely defined makes the application of the exemptions to a diverse professional population difficult. Given that computer professionals are generally well compensated, misclassification can result in costly overtime claims, and pose the potential for large class action wage and hour suits. Accordingly, while the advantages of classifying highly compensated computer professionals as exempt are obvious, the employer should take great care in evaluating the employee's exempt status.

Applying the Hourly Computer Professional Exemption

While the California hourly computer professional exemption has yet to generate either case law or Labor Commissioner opinion letters, the federal exemption has been the subject of some explication. Given the similarity between the two exemptions, it is possible to make some generalizations on the application of both exemptions, assuming the minimum pay requirement is met, based on federal case law and Department of Labor ("DOL") opinion letters. However, it is important to remember that (i) in California, where the two hourly computer professional exemptions differ, e.g., with respect to the minimum hourly salary or California's additional exclusions, the employee must satisfy both exemptions; (ii) the employer bears the burden of defending the classification as exempt; and (iii) all exemptions from overtime will be narrowly construed.

Given the high level of independent judgment and discretion and highly specialized knowledge these hourly exemptions require, only a small subset of computer professionals will actually qualify for the exemptions. A computer professional is more likely to qualify if he or she is engaged in the actual design or creation of the logic of a system of programs or documenting the internal processes involved in programming or systems analysis. For example:

• Technical Writer primarily engaged in work consisting of documenting complex computer software life cycle programs and functions, based on and related to user and system design specifications, was exempt under the computer professional exemption because her technical writing was directly related to software engineering, systems analysis, and computer programming, even though she was not a computer systems analyst, computer programmer, or software engineer herself. Morgan-Chandler v. Consortium of Maryland, Inc., 3 WH Cases 2d (BNA) 880 (Md. Cir. Ct. 1996).
• Customer Training Consultants providing training to customers' employees in specialized computer software; manipulating and modifying software settings and specifications (e.g., toolbars and set-up) to meet customer needs (not including program writing or software development); installing, debugging, troubleshooting, and converting data; and testing customers' equipment were not exempt because their duties did not involve determining hardware, software, or systems functional specifications or designing, developing, analyzing, testing, or modifying computer systems or programs. DOL Op. Ltr. WHM 99:8273 (August 19, 1999); see also DOL Op. Ltr. WHM 99:8202 (December 4, 1998).
• Systems Engineers providing support services to customers and designing computer solutions to fit clients needs, including analyzing current equipment and software and identifying needs and devising implementation of and conversion to new systems, were not exempt because they did not design, create, or modify the systems or programs. DOL Op. Ltr. WHM 99:8373 (May 11, 2001).

What If Your Computer Professionals Are Salaried?

Computer professionals paid on salary may still be exempt under both California and federal law. Under federal law, the computer professional exemption applies to salaried workers.[fn3] Additionally, under both California and federal law, salaried computer professionals might also qualify for the traditional overtime exemptions: executive, professional, and administrative. Because of the management duties required under the executive exemption (e.g., employee must be involved in the management of the enterprise), generally salaried computer professionals will more likely meet the administrative and professional exemptions tests.

Professional Exemption

Employers have had mixed success under the professional exemption. A primary requirement of this exemption under both California and federal law is that the work performed must require knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study, as distinguished from (i) a general academic education; (ii) an apprenticeship; or (iii) training in the performance of routine mental, annual, or physical processes. Wage Order 4-2001 (updated as of January 1, 2002); 29 C.F.R. §§ 541.3, 541.301-315.

While two federal courts have found computer programmers meet this threshold requirement, they did so relying largely on the particular individuals' educational background and work experience (one employee had knowledge of complicated computer languages and a B.S. in mathematics; the other had an aeronautical engineering degree and approximately ten years' experience in the programming field). In contrast, where a federal district court examined whether the field of computer programming itself required a prolonged course of study sufficient to meet the professional exemption, it found it did not. Compare Zacek v. Automated Systems Corp., 541 S.W.2d 516, 518-19 (Tex. Ct. Civ. App. 1976), and Lawrence v. Carte Blanche Corp., No. CV-76-1094-LTL, 1979 U.S. Dist. LEXIS 12224 (C.D. Cal. May 22, 1979), with Gorman v. Continental Can Co., No. 76 C 908, 1986 U.S. Dist. LEXIS 30856 (N.D. Ill. January 3, 1986). Guidance from the California Labor Commissioner suggests that in California an advanced degree, above a B.A. or B.S., is necessary to meet the learned profession exemption. 2002 Update of the DLSE Enforcement Policies and Interpretations Manual at Section 54.8.1 (http://www.dir.ca.gov/dlse/DLSEManual/dlse_enfcmanual.pdf). Accordingly, it is unlikely that a significant number of employees working in computer-related fields would qualify for the professional exemption exception.

Administrative Exemption

As with the computer professional exemptions, the California and federal exemptions for administrative employees largely overlap. Wage Order 4-2001 (updated as of January 1, 2002); 29 C.F.R. § 541.2. Indeed, California has incorporated a number of the federal standards governing the exemption in an effort to narrow the differences perceived to exist between the two. However, what constitutes a bona fide administrative employee under California and federal law does differ in both the level of salary ($2,340/month (two times the current minimum wage ($6.75) for fulltime work (40 hours/week)) and California's requirement that employees be "primarily engaged in" (i.e., more than one half of the employee's work time) duties that meet the test for the administrative exemption. Accordingly, it is possible that a salaried computer professional might qualify for the exemption under federal law but not California law.

To qualify for the administrative exemption:

(a) the employee's duties and responsibilities must involve either:

(i) 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

(ii) the performance of functions in the administration of a school system, or educational establishment or institution, or of a department or subdivision thereof; in work directly related to the academic instruction or training carried on therein; and

(b) the employee must customarily and regularly exercise discretion and independent judgment; and

(c) the employee must:

(i) regularly and directly assist a proprietor, or an employee employed in a bona fide executive or administrative capacity, or

(ii) perform under only general supervision work along specialized or technical lines requiring special training, experience, or knowledge, or

(iii) execute under only general supervision special assignments and tasks.

Applying the Administrative Exemption

Employers have generally enjoyed success in defending their computer professionals under the administrative exemption. Employees in computer-related fields have been found to have exercised the requisite independent judgment and discretion in office work related to management policies or general business operations of their employers or their employers' customers in the following instances:

• Computer Programmer/Systems Analyst who consulted with his employer's customers to determine their specific needs then modified computer programs -- and occasionally devised systems -- to meet those needs; debugged customers' computers; and trained the customer's employees was found to be exempt, Horne v. Singer Business Machine, Inc., 413 F. Supp. 52 (W.D. Tenn. 1976);
• Staff Assistant in Information Systems Unit who participated in the design, development, and implementation of an advanced computerized information system, which processed and organized advertising information by the amount and nature of the ads, for the New York Times Advertising Department was found to be exempt, Massaro v. New York Times, 28 WH Cases (BNA) 1449 (S.D. N.Y. 1988);
• Senior Programmer/Analyst who primarily programmed and designed modifications to computer programs, including modifications to computer programs to be used by customers in running their maintenance operations at industrial facilities, was found to be exempt, Shillinglaw v. Systems Works, 1 WH Cases 2d (BNA) 1362 (N.D. Ga. 1993);
• Operations Manager who was almost exclusively responsible for overseeing the operation and maintenance of all computer hardware and computer support systems, including the supervision of other employees, and responsible for ordering supplies, determining what work should be done "in house" and what work should be contracted to outside contractors, and determining what maintenance work had to be done immediately and what could be deferred until it could be performed at a lower cost, was found to be exempt, McKeever v. J.E. Stowers & Co., 29 WH Cases (BNA) 603 (W.D. Mi. 1989);
• Network Coordinator who was responsible for the repair and installation of the majority of the employer-hospital's computer equipment, software programming and modifications, negotiations with computer vendors, and conducting computer-related employee training was found to be exempt, Grevemberg v. North Oaks Medical Center, 3 WH Cases 2d (BNA) 507 (E.D. La. 1996); and
• Field Engineer who consulted with internal clients (e.g., departments within the employer's organization) and designed plans, including determining equipment needs, for connecting those clients to the employer's network, oversaw the implementation of those plans, configured data communications equipment, trouble-shot problems on the data network, and installed routers and computer software, was found to be exempt. Lutz v. Ameritech Corp., No. 97-74937, 1998 U.S. Dist. LEXIS 18981 (E.D. Mich. November 10, 1998); but see Bothell v. Phase Metrics, Inc., 299 F.3d 1120 (9th Cir. 2002) (summary judgment for employer reversed because, if -- as plaintiff maintains -- his Field Engineer position consisted primarily of on-site installation, troubleshooting, and maintenance of robotic test and inspection equipment for client in the data storage industry, the work would not qualify for the administrative exemption).

In contrast, employees who only engage in the testing or debugging of a computer system (as opposed to the design or development) or who primarily follow established standards for the setup, maintenance, and troubleshooting of computers and networks, do not exercise the necessary independent judgement and discretion under the administrative exemption. Lang v. Midwest Advanced Computer Servs. Inc., 506 F. Supp. 595 (E.D. Mich. 1981); Pezzillo v. General Telephone and Electronics Information Syst., Inc., 414 F. Supp. 1257 (M.D. Tenn. 1976); Burke v. County of Monroe, No. 01-CV-6281 CJS, 2002 U.S. Dist. LEXIS 18597 (W.D. N.Y. September 18, 2002). Accordingly, such employees would not qualify as administratively exempt.

Conclusion

Under either category of exemptions, hourly computer professionals or the traditional administrative or professional exemptions, conscientious employers who want to make sure they are in compliance with California and federal overtime requirements will want to perform yearly audits to make sure that employees believed to be exempt are indeed performing exempt duties and that their pay is keeping pace with the required minimum remuneration. Job descriptions should also be reviewed periodically to ensure that they continue to accurately reflect the duties of a continually changing and evolving position.

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California Supreme Court Makes It Easier for Employers to Recover Attorneys' Fees in Labor Commissioner Appeals

By Kendra F. Barnes,

In a recent decision, the California Supreme Court leveled the playing field for employees and employers seeking judicial review of Labor Commissioner decisions. Smith v. Rae-Venter Law Group, 02 C.D.O.S. 11553 (Dec. 2, 2002). As of December 2, 2002, employees who file an appeal from a Labor Commissioner's decision will be at greater risk of having to pay the employer's attorneys' fees and costs.

If an employer fails to pay wages in the amount, time, or manner required by contract or statute, an employee may either file a civil action against the employer or seek administrative relief by filing a wage claim with the California Labor Commissioner, which results in a so-called "Berman hearing." Where the administrative remedy is pursued, both parties have the opportunity to seek review of the decision in a trial court, where all evidence is heard again in a trial de novo. However, California Labor Code Section 98.2(c) provides for the assessment of attorneys' fees and costs against an appellant who is "unsuccessful on appeal." The purpose of this fee-shifting provision is to discourage frivolous and meritless appeals and promote finality of Labor Commissioner decisions.

Prior to Smith, there was considerable uncertainty about the meaning of the term "unsuccessful." Two California Court of Appeals cases concluded that the fee-shifting provision only applied when the trial court judgment completely eliminated the Commissioner's award. See Cardenas v. Mission Indus., 226 Cal. App. 3d 952 (1991); see also Triad Data Servs. Inc. v. Jackson, 153 Cal. App. 3d Supp. 1 (1985). In practice, this resulted in unequal treatment of employees and employers. If an employer appealed an award, the employee would be entitled to attorneys' fees and costs so long as the employee recovered any amount in the trial court. Even if a large award was reduced to only $1, the employer was still an "unsuccessful" appellant and the employee was entitled to attorneys' fees. In contrast, if an employee appealed an award, the employer would receive attorneys' fees only if the employee recovered absolutely nothing at trial. So long as the employee received some award at trial, the employee was not "unsuccessful on appeal" and, accordingly, the employer was not entitled to attorneys' fees. Because many employees receive some award on appeal, even if reduced in amount, the Cardenas/Triad rule effectively penalized employers for meritorious appeals while shielding employees from almost all risk of fee- and cost-shifting. See Smith, 02 C.D.O.S. at 11579.

In Smith, the California Supreme Court noted this irony and concluded that Section 98.2 is intended to apply evenhandedly to employers and employees alike. Therefore, the court disapproved of Triad and Cardenas and affirmed the interpretation of "unsuccessful" offered by the court of appeals below in Smith. The court concluded that success can only be determined by comparing the trial court's judgment with the Commissioner's decision. Whether an employee or an employer, a party is now "unsuccessful in the appeal" and liable for the other party's fees and costs unless the trial court judgment is more favorable to the appealing party than was the administrative award from which the appeal was taken. Id. In other words, if an employee appeals and the Commissioner's decision is reduced or remains the same, the employer is entitled to fees and costs. If the employer appeals and the decision is increased or remains the same, the employee is entitled to fees and costs. In all other situations, the fee-shifting statute does not apply.

The court's decision is not retroactive, however. It applies only to appeals from Commissioner decisions and awards filed in the trial court after the court's decision became final. Therefore, appeals that were filed prior to December 2, 2002 will still be subject to the Triad and Cardenas rule -- employers will only receive attorneys' fees and costs on appeal if the trial court completely eliminates the Commissioner's prior award.

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Footnotes

1: That is, the computer professional must spend more than half of his or her time on qualifying work.

2: As noted above, the current minimum rate of pay is $42.64 per hour. This minimum rate will increase to $43.58 per hour as of January 1, 2003.

3: For example, the exemption could apply to such common job titles as

computer programmer, systems analyst, computer systems analyst, computer programmer analyst, applications programmer, applications systems analysts, application systems analyst/programmer, software engineer, software specialist, systems engineer, and systems specialist.

29 C.F.R. 541.303(a).