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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION ONE

ROSE M. BELL et al.,
Plaintiffs and Appellants,
v.
FARMERS INSURANCE EXCHANGE,
Defendant and Appellant.

A091134

(Alameda County Super. Ct. No. 774013-0)


In this class action lawsuit to recover for nonpayment of overtime compensation, the defendant, Farmers Insurance Exchange (hereafter FIE), appeals an interim order awarding attorney fees, which was entered following an order granting summary adjudication in favor of plaintiffs on defendant's fourth affirmative defense. We find no error in the decisional underpinning of the award but reverse it on statutory grounds.

PROCEDURAL BACKGROUND

FIE is one of a group of affiliated insurance companies doing business under the service name of Farmers Insurance Group of Companies. The "Personal Lines Division" of the company issues automobile insurance policies and homeowner policies to private individuals in California. Claims arising in California from these policies, as well as from
similar policies issued by other affiliated companies, are normally processed by claims representatives working in some 70 branch claims offices in the state. Employees in these branch claims offices, including clerical and supervisory employees as well as claims
representatives, constitute the majority of FIE's workforce in California. Though claims representatives regularly work over 40 hours a week, FIE does not pay overtime on the ground that these employees are exempt from the wage and hour laws.

Plaintiffs are former and current FIE claims representatives who worked in the California branch claims offices of the "Personal Lines Division" from October 1, 1993, to the present. They brought this class action on behalf of themselves and other California claims representatives, seeking damages for unpaid overtime compensation and other relief.
Accepting their request for class certification, the trial court certified three subclasses of employees who worked for FIE during the relevant period and were assigned to handle property, automobile physical damage and liability claims.

Following completion of discovery, the plaintiffs filed a motion for summary adjudication of FIE's fourth affirmative defense to the first amended complaint. That motion sought a ruling on the plaintiffs' exempt status under California wage and hour law. In an order entered April 21, 1999, the trial court granted the motion for summary adjudication, which
it described as presenting the issue whether personal lines claims representatives are "administrators" exempt from overtime pay. The court found: "that there is no triable controversy and that claims adjusting is a product or service which FIE's operation exists to provide. It is further found that the Personal Lines Claims Representatives devote
their time to carrying out FIE's claims adjusting product/service as opposed to its 'administrative' functions. Therefore, as a matter of law, these Personal Lines Claims representatives . . . do not fall within the ambit of the 'administrative' exemption from overtime . . .."

Plaintiffs subsequently moved for an interim award of attorney fees and costs pursuant to Labor Code sections 218.5 and 1194, subdivision (a). Granting the plaintiffs' motion, the trial court awarded interim attorney fees of $1,238,116.50, finding that the plaintiffs "prevailed on liability issues." FIE now appeals from the order awarding attorney fees as a collateral final order (In re Marriage of Skelley (1976) 18 Cal.3d 365, 369) and asks us to review the summary adjudication order pursuant to Code of Civil Procedure section 906.

DISCUSSION

A. Administrative Employee Exemption

FIE first attacks the interim order awarding attorney fees on the ground that its decisional underpinning-the order of summary adjudication on its fourth affirmative defense-was erroneous. The affirmative defense was predicated on the claim that plaintiffs come within an exemption from the overtime compensation requirements of the Industrial Welfare
Commission (IWC) applying to "persons employed in administrative . . . capacities." As applied to the insurance industry, the pertinent exemption appears in subdivision 1(A) of the IWC's wage order No. 4, codified in California Code of Regulations,1 title 8, section 11040, subdivision 1(A). We will first consider issues relating to the statutory context of subdivision 1(A) and then examine the relevance of federal law in its interpretation.

1. Statutory Context of term "Administrative Capacities"

The IWC has promulgated 15 wage orders, applying to separate industries, which each follow a similar format. Wage order No. 4 applies broadly to "Professional, Technical, Clerical, Mechanical, and Similar Occupations." As in the case of other wage orders, subdivision 1 addresses the coverage of the wage order and sets forth the exemption at
issue here in subdivision 1(A):

"1. Applicability of Order. This Order shall apply to all persons employed in professional, technical, clerical, mechanical, and similar occupations whether paid on a time, piece rate, commission, or other basis, unless such occupation is performed in an industry covered by an industry order of this Commission, except that:

"(A) Provisions of sections 3 through 12 shall not apply to persons employed in administrative, executive, or professional capacities. No person shall be considered to be employed in an administrative, executive, or professional capacity unless one of the following conditions prevails:

"(1) The employee is engaged in work which is primarily intellectual, managerial, or creative, and which requires exercise of discretion and independent judgment, and for which the remuneration is not less than $1150.00 per month; or

"(2) The employee is licensed or certified by the State of California and is engaged in [the practice of a profession such as law or medicine]."

We begin by noting that wage order No. 4 is a quasi-legislative regulation subject to normal principles of statutory interpretation. It was promulgated by the IWC under the authority of 1913 legislation directing it to provide for a "minimum wage" for women and children. (Stats. 1913, ch. 324, 6, pp. 632-635; Cal. Const., former art. XX, 17-1/2.) In the early 1970's, the federal courts invalidated a substantial portion of IWC regulations on the ground that the limited application to adult women workers violated the prohibition on sex discrimination in title VII of the federal Civil Rights Act of 1964.2 In response, the Legislature enacted new enabling legislation in 1973. (See Labor Code 1173 and 1178.) The constitutionality of this legislation was confirmed by enactment of California Constitution, article XIV, section 1. Our high court observed that "the 1973 legislation did not alter the basic nature of the IWC's decision-making authority . . . ." (Industrial Welfare Com. v. Superior Court, supra, 27 Cal.3d at p. 701.) In particular, "[j]udicial authorities have repeatedly emphasized that in fulfilling its broad statutory mandate, the IWC engages in a quasi-legislative endeavor, a task which necessarily and properly requires the commission's exercise of a considerable degree of policy-making judgment and discretion." (Id. at p. 702.)

FIE maintains that our analysis of the administrative exemption should be governed by the rule that, " 'if statutory language is "clear and unambiguous there is no need for construction, and courts should not indulge in it." [Citation.]' [Citation.]" (Birbrower, Montalbano, Condon & Frank v. Superior Court (1998) 17 Cal.4th 119, 131-132.) In its view, the scope of the administrative exemption in subdivision 1(A) is clearly and comprehensively defined in subparts (1) and (2). Only subpart (1) applies to the present case. Focusing on the word "unless" in subdivision 1(A), FIE argues that the interpretation of subpart (1) is governed by the principle of expressio unius est exclusio alterius. (See
People v. Anzalone (1999) 19 Cal.4th 1074, 1078.) Under this principle of statutory interpretation, it reasons that, if the conditions of subpart (1) are necessary conditions to subdivision 1(A) (as the word "unless" implies), it may be inferred that they are the only conditions to the exemption. We disagree.

The substantive import of subpart (1) does not suggest that it is intended to provide the sole criteria for determining if an employee is in an administrative, executive, or professional capacity. The very brief description of duties ["primarily intellectual, managerial, or creative, and which requires exercise of discretion and independent
judgment"] and the standard of remuneration ["not less than $1150.00 per month"] cannot reasonably be considered to be an adequate definition of the phrase "administrative, executive, or professional capacities." But they do make sense as establishing particular limitations on the scope of the phrase. Thus, the standard of remuneration does not contribute meaningfully to a definition of "administrative, executive, or professional capacities," but does serve as an outside parameter; an employee earning less than this amount, despite whatever other job duties he/she may have, will not qualify as an exempt employee. Also, the terms "intellectual, managerial, or creative" lack any direct defining relationship to the phrase "administrative, executive, or professional capacities," or any particular term in the phrase, but a job lacking any of these characteristics will fall outside the scope of the phrase.

In our view, it is more reasonable to give the term "administrative capacity" in subdivision 1(A) an independent meaning, defining the breadth of the exemption in conjunction with the criteria of subparts (1) and (2) of the subdivision. This interpretation is favored by
authority holding that, "under California law, exemptions from statutory mandatory overtime provisions are narrowly construed." (Ramirez v. Yosemite Water Co. (1999) 20 Cal.4th 785, 794; Nordquist v. McGraw-Hill Broadcasting Co. (1995) 32 Cal.App.4th 555, 562.) Such a narrow construction would give effect to any limitations implied by the term "administrative capacity" in subdivision 1(A) in addition to those limitations imposed by subparts (1) and (2) of the subdivision.

This reading is most consistent with the principle that, " ' "[i]n analyzing statutory language, we seek to give meaning to every word and phrase in the statute to accomplish a result consistent with the legislative purpose . . . ." ' [Citation.]" (Hughes v. Board of
Architectural Examiners (1998) 17 Cal.4th 763, 775; Briggs v. Eden Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1118.)

The principle of giving meaning to every word in the statute acquires a compelling logic in the present case because the reference to "administrative, executive, or professional capacities" in subdivision 1(A) was added to wage order No. 4 ••after•• the provisions of subpart (1) of the subdivision. As we will explain in our examination of the regulatory history, the conditions in subpart (1) may be traced to a 1947 amendment, but the first sentence in subdivision (1)(A) adding the reference to "women employed in administrative, executive, or professional capacities" was added in a 1957 amendment.3 Whatever may
have been the legislative intent behind the 1957 amendment, it is clear that the IWC assigned significance to the terms "administrative, executive, or professional capacities." The legislative history does not permit us to adopt an interpretation of the exemption that effectively reduces these terms to surplusage. (Grupe Development Co. v. Superior
Court (1993) 4 Cal.4th 911, 921; Dyna-Med, Inc. v. Fair Employment & Housing Com. (1987) 43 Cal.3d 1379, 1387.)

These principles of interpretation persuade us that we may properly inquire whether, and in what manner, the scope of the exemption is affected by the meaning of the term "administrative capacity."4

2. Relevance of Federal Law

Having concluded that the principles of statutory interpretation allow us to give the term "administrative" in subdivision 1(A) a meaning, independent of the limitations of subparts (1) and (2) of the subdivision, we turn next to the relevance of federal law in construing
the term. The question, we think, may be best approached by first reviewing the evolution of wage order No. 4 and its federal counterparts.

Prior to 1947, the IWC wage orders, including wage order No. 4, contained no exemption from overtime requirements for administrative employees.5 The minutes of an IWC meeting on March 7, 1947, record that the commission received testimony "that the inclusion of executive, administrative and professional women within the coverage of the orders prevented these employees from having the necessary freedom of action required for advancement in such positions. Therefore the Commission concluded that women holding such positions be exempted from coverage and standards were set for the determination of bona fide executive, administrative, or professional employment, ••using Federal criteria as a guide••." [Emphasis added.]6

Following the meeting, the IWC adopted amendments to wage orders applying to nine industries that specifically exempted "women employed in administrative, executive, or professional capacities" and described the duties of such women employees in language drawn from federal regulations.7 The amendment to wage order No. 4, however, did not
contain the reference to "administrative, executive, or professional capacities" found in the other nine wage orders, perhaps because the industrial class, "[p]rofessional, technical, clerical and similar occupations," was then defined by CCR, title 8, section 11346,
subdivision (c), in a way that appeared to exclude these categories of employees. Nevertheless, the pertinent provision in wage order No. 4, section 11345, was amended to include the same description of the duties of exempt employees, drawn from federal regulations, as that of the other nine wage orders. Effective June 1, 1947, section 11345 provided: "the provisions of this Order shall not apply to women employed where one of the following conditions prevails: [] (a) The employee is engaged in work which is ••predominantly intellectual, managerial, or creative; which requires exercise of discretion and independent judgment••; and for which the remuneration is not less than $250 per
month; or [] (b) The employee is . . . [licensed in a designated profession] . . . ."8 (Italics added.)

In 1957, as part of a recodification of wage order No. 4, the description of industrial occupations included within the category of "professional, technical, clerical and similar occupations" was greatly expanded, and CCR, title 8, section 11345 was amended to insert the phrase "administrative, executive, or professional capacities"9 in front of the description of the duties of exempt employees added by the 1947 amendment. The triad of terms, "administrative, executive, or professional," now included in wage order No. 4 as well as other wage orders, plainly borrowed from parallel language in section 13(a) of the federal Fair Labor Standards Act of 1938 (29 U.S.C. 201 et seq.(FLSA)), which then provided that the act "shall not apply with respect to-(1) any employee employed in a bona fide executive, administrative, or professional capacity . . . ." The minor variation in language-the change in the order of the terms and omission of the adjective "bona fide"-does not appear to signify a difference of substance.

CCR, title 8, section 11345 was amended in 1973 to apply to all employees rather than only to women and children and was later recodified as CCR, title 8, section 11040, but, in other respects, it underwent only minor changes in the decades after 1957. It was not until after summary judgment was granted in this case that section 11040 was again revised in a more significant way through an amendment, effective June 30, 2000, which we will consider later in this opinion.

In our view, this regulatory history supports the use of federal authorities as an aid to interpretation of the administrative exemption of CCR, title 8, section 11040, subdivision 1(A). A distinct degree of modeling after federal regulations is apparent in language describing the duties of exempt employees introduced in the 1947 amendments to wage
order No. 4 and corresponding provisions of other wage orders. A more obvious modeling is manifest in the use of the expression "administrative, executive, and professional capacities" added to nine wage orders by the 1947 amendment and included in wage order No. 4 by the 1957 amendment. To the extent that the language of these amendments is patterned after federal statutes and regulations, federal law becomes
relevant to interpretation.

The relevance of federal law in construing IWC wage orders finds further confirmation in the interpretative letters of the Department of Labor Standards Enforcement (DLSE). "As a general rule, the courts defer to the agency charged with enforcing a regulation when interpreting a regulation because the agency possesses expertise in the subject area."
(Aguilar v. Association for Retarded Citizens (1991) 234 Cal.App.3d 21, 28; Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 21.) The DLSE " 'is the state agency empowered to enforce California's labor laws, including IWC wage orders.' [Citation.]" (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 581.) In fact,
"Labor Code sections 61 and 1193.5 specifically empower the DLSE to interpret and enforce IWC Orders with the primary objective of protecting workers." (Bono Enterprises, Inc. v. Bradshaw (1995) 32 Cal.App.4th 968, 974, disapproved on another point in Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 574.) Thus, it is clear that "DLSE's interpretation of an IWC order is entitled to great weight
. . . ." (Monzon v. Schaefer Ambulance Service, Inc. (1990) 224 Cal.App.3d 16, 30.)

The DLSE has interpreted the exemption for administrative employees in CCR, title 8, section 11040, subdivision 1(A), in two advice letters issued on October 5, 1998, and January 7, 1993. Advisory opinions of this sort, " 'while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to
which courts and litigants may properly resort for guidance.' [Citation.]" (Yamaha Corp. of America v. State Bd. of Equalization, supra, 19 Cal.4th at p. 14.) Thus, in Morillion v. Royal Packing Co., supra, 22 Cal.4th at page 584, the court reviewed two DLSE advice
letters and found support in the fact that the DLSE interpretation was consistent with its independent analysis.10 (See also Tidewater Marine Western, Inc. v. Bradshaw, supra, 14 Cal.4th at p. 571.)

In the advice letter dated October 5, 1998, the DLSE noted that, despite certain differences between state and federal law, "the Division of Labor Standards Enforcement has traditionally followed federal cases and federal regulations, to the extent that such cases and regulations are not inconsistent with state wage and hour provisions, in interpreting and enforcing the various IWC wage orders . . . ." (Cal. Dept. Industrial Relations, DLSE Chief Counsel Miles E. Locker, advice letter, Applicability of the Administrative Exemption to Insurance Company Claims Representatives (Oct. 5, 1998) p. 7.) An earlier advice letter dated January 7, 1993, went further to suggest that the federal regulations are directly applicable to the administrative exemption under state law: "The Department of Labor's regulations discuss the administrative exemption in detail at 29 C.F.R. 541.201 through 541.208 and the DLSE ••adopts•• those definitions." (Cal. Dept. Industrial Relations, DLSE Chief Counsel H. Thomas Cadell, Jr., advice letter, Exempt Employees - "Salary Basis Test" (Jan. 7, 1993) p. 8, emphasis added.)

Without examining the specific rulings of these advice letters or approving any theory of implied "adoption" by reference to the federal regulations, we view the advice letters as confirming the general conclusion that we earlier reached through a review of the state
regulatory history-federal authorities are relevant to interpretation of the term "administrative capacity."

FIE argues that the IWC has rejected "the federal test of exemption" on three occasions by declining to adopt proposals to amend the regulatory exemption along the lines of federal models.11 But our review of the regulatory history reveals no more than a sufficient degree of parallelism to justify looking to federal law for guidance. The fact
that the IWC has on certain occasions rejected proposals for closer patterning of state regulations after federal models does not affect the parallelism that does exist.

Somewhat inconsistently, FIE argues that an absence of parallelism between the exemption provisions of wage order No. 4 and federal law is shown by the fact that, during the pendency of this appeal, the wage order was revised comprehensively, effective June 30, 2000, to more closely conform to federal regulations.12 It invokes the principle that "any material change in the language of the original act is presumed to indicate a change in legal rights" (Dubins v. Regents of University of California (1994) 25 Cal.App.4th 77, 85, citations and internal quotation marks omitted), and reasons that, since the regulation is now modeled after federal regulations, it may be inferred that it was not so modeled before the recent amendment. The plaintiffs counter by arguing that the recent revision manifests an intention to clarify preexisting law. (See Kern v. County of Imperial (1990) 226 Cal.App.3d 391, 399.) In their view, the amendment confirms the relevance to previous orders of certain specific language in federal regulations ("work directly related to management policies or general business operations . . ."). (29 C.F.R. 541.2(a)(1).)

We are reluctant to draw any inference from the recent amendment that is any broader than the circumstances merit. The recent amendment, however, is unquestionably a further instance in which the IWC has drawn on federal law to enact a significant amendment to the exemption provisions of wage order No. 4, following earlier amendments in 1947 and 1957. To the extent that the amendment tends to reveal a continuing IWC policy,
it supports the relevance of federal law to interpretation of the administrative exemption.

Our conclusion affirming the relevance of federal law is consistent with a significant body of case law. In Building Material & Construction Teamsters' Union v. Farrell (1986) 41 Cal.3d 651, 658, our high court noted, "Federal decisions have frequently guided our interpretation of state labor provisions the language of which parallels that of federal
statutes." Court of Appeal decisions add: "Because the California wage and hour laws are modeled to some extent on federal laws, federal cases may provide persuasive guidance." (Nordquist v. McGraw-Hill Broadcasting Co., supra, 32 Cal.App.4th at p. 562.) "California courts have recognized that California's wage laws are patterned on federal statutes and that the authorities construing those federal statutes provide persuasive guidance to state courts." (Monzon v. Schaefer Ambulance Service, Inc., supra, 224 Cal.App.3d at p. 31; Hernandez v. Mendoza (1988) 199 Cal.App.3d 721, 726, fn. 1; Alcala v. Western Ag Enterprises (1986) 182 Cal.App.3d 546, 550.)

In Bono Enterprises, Inc. v. Bradshaw, supra, 32 Cal.App.4th at page 976, the court noted an important qualification on the relevance of federal authorities in this area: "the state is empowered to go beyond the federal regulations in adopting protective regulations for the benefit of workers. [Citation.] The federal authorities are of little if any assistance in construing state regulations which provide greater protection to workers."

The recent decision in Ramirez v. Yosemite Water Co., supra, 20 Cal.4th 785, illustrates these principles. The court began by noting that "[t]he IWC's wage orders, although at times patterned after federal regulations, also sometimes provide greater protection than is provided under federal law in the Fair Labor Standards Act (FLSA) and accompanying federal regulations." (Id. at p. 795.) The issue on appeal concerned the definition of the exemption for "outside salesmen." With respect to this matter, state law did in fact provide greater protection for employees than its federal analog. (Compare Lab. Code, 1171 and CCR, tit. 8, 11070, subds. 1(B) and 2(I) with 29 C.F.R. 541.5 and 541.505.) Accordingly, the court held that the trial court erred in relying on federal authorities in construing the wage order: "where the language or intent of state and federal labor laws substantially differ, reliance on federal regulations or interpretations to construe state
regulations is misplaced." (Ramirez v. Yosemite Water Co., supra, at p. 798.)13

FIE argues that Morillion v. Royal Packing Co., supra, 22 Cal.4th 575 expands the holding of Ramirez into a rule of presumptive irrelevance of federal authorities in construing wage and hour laws, "[a]bsent convincing evidence of the IWC's intent to adopt the federal standard . . . ." (Morillion v. Royal Packing Co., supra, at p. 592.) We do not, however, read Morillion as being inconsistent with other precedents relying on the guidance of federal law. The decision concerned the compensable nature of travel time as part of hours worked by agricultural employees. The federal definition of hours worked differed from the state definition by expressly exempting travel time. The court held only that it was error to invoke a differing federal standard to restrict the broader protections available under state law. "In determining how much weight to give federal authority in interpreting a California wage order," the court cautioned, it is necessary first to make a comparative analysis of the two "statutory schemes." (Id. at p. 588.)

3. Administrative/production Worker Dichotomy

Our analysis thus far has established two very general propositions: first, the statutory context and applicable rules of interpretation suggest that the term "administrative capacities" in subdivision 1(A) of wage order No. 4 should be construed independently of the language in subpart (1) of the subdivision so as to form part of the definition of the administrative exemption, and, second, federal authorities construing parallel provisions of the FLSA are relevant to construing the exemption provisions of wage order No. 4.

Turning to federal interpretative regulations, we observe at the outset distinct criteria addressing the ••role•• of administrative employees in a business enterprise, the actual ••duties•• of the employees, and the employees' level of ••remuneration••. The so-called "short test" of administrative employee status-applying to the great majority of employees with weekly remuneration above $250 per week-effectively follows this analytical distinction by directing separate consideration of the employee role as described in 29 C.F.R. section 541.2(a), and the existence of duties "requiring the exercise of discretion and independent judgment."14 (29 C.F.R. 541.2(e)(2).) The "long test"-applying only to the extremely limited category of employees with remuneration between $155 and $250 per week-may also be broken into criteria pertaining to employee role and employee duty.15

The criteria of administrative capacity in subpart (1) of subdivision 1(A) address employee duties and level of remuneration. To the extent that the criteria relating to employee duties are parallel to those of federal law, we may look to federal authorities as an aid in their
interpretation. But our conclusion that the term "administrative capacities" should be given independent significance inevitably leads also to consideration of the employee role in the business enterprise. If we were not free to inquire into the employee role, the term
"administrative capacities" would add nothing significant to the criteria relating to employee duties in subpart (1) of subdivision 1(A); it is only to the extent that the term "administrative capacities" allows consideration of matters not covered by subpart (1) that it effectively assumes an independent significance. A close reading of the subdivision reveals that it is those matters relating to employee role that are not covered by subpart (1).

We wish to make clear that we do not perceive a degree of parallelism between federal and state law that would make the entire corpus of federal regulations construing the administrative exemption directly applicable to the exemption provision of wage order No. 4. We look to federal law only for insights and a general methodology in construing
the term "administrative capacities." With respect to the employee role in the business enterprise, we find such insight and methodology in the administrative/production worker dichotomy on which the plaintiffs chiefly relied in their motion for summary adjudication.

Drawing on 29 C.F.R. sections 541.2 and 541.205(a),16 federal authorities draw a distinction between administrative employees, who are usually described as employees performing work "directly related to management policies or general business operations of his employer or his employer's customers,"17 and production employees, who have been described as "those whose primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce." (Dalheim v. KDFW-TV (5th Cir. 1990) 918 F.2d 1220, 1230.)
 

 

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