Mischaracterization of Account Executives-Expensive Mistake
Both state and federal wage and hour statutes restrict the types of employees who are properly characterized as exempt from overtime. One of the exemptions recognized under both laws provides that "administrative employees" need not be paid overtime.
A recent California appellate decision known as Pelligrino vs. Robert Half International ruled that the employer had improperly characterized a group of account executives as exempt under the administrative exemption.
Like many staffing companies, the Robert Half International relied on account executives to conduct business. The company treated these executives as exempt under state and federal law. As a general rule, it order to qualify for the administrative exemption, on which the Robert Half company relied, the employees in question must meet both (1) a salary test and (2) a duties test.
The salary component of the exemption simply requires that any exempt employee be paid on a fixed salary basis at the equivalent of at least two times the state’s minimum wage. The salary may not be subject to change based on the employee’s quality or quantity of work. Currently this component of the exemption requires that the employee make $33, 280 per year, regardless of the quality of work or the number of hours actually worked.
The other prong of the exemption involves the "duties" performed by the employee. Under the administrative exemption at issue in this case, the regulations state that an employee must, among other criteria, perform office or non-manual work that is directly related to the management policies or general business operations of the employer or the employer’s customers. Employers often mistakenly apply the administrative exemption to situations in which employees exercise independence and discretion in their positions (for example, insurance underwriters or brokers), but are not performing “administrative” work relating to the employer’s policies or operations. These employees fulfill a “production” function in the organization because the duties directly relate to the generation of revenue.
The Robert Half case was decided on the basis of the duties test. The court analyzed whether the employees in question performed responsibilities such as recruiting, interviewing, and evaluating candidates to be placed as temporary employees; selecting and placing candidates on job orders and assisting clients with their call-in business needs; and new business development. The court noted that although they did perform these functions, the account executives did so by following a “recipe” established by corporate headquarters. Account executives were expected to perform the three major functions of their position on a three-week rotating basis broken down into a “sales week” or marketing week, “desk week,” and “recruiting week.”
Account executives were evaluated based on how well they met sales production minimum requirements and the number of hours that were billed to clients for services provided by candidates. A direct sale involved placing a candidate with a client. Account executives did not usually make recommendations to a client regarding how to staff projects.
The account executive’s job was to fill the orders as they came in. After placing a candidate, account executives had no role in supervising the candidate in his or her performance of services for the client. If a client wanted to terminate a candidate’s services, the client would inform the account executive and the account executive would relay the message to the candidate and attempt to provide a replacement candidate. Account executives did not have the authority to hire or fire other account executives and did not supervise administrative support staff in the offices.
A number of account executives filed suit against the staffing company, alleging that they were non-exempt employees and that they had not been paid overtime or given meal and rest breaks.
The appellate court ruled that Robert Half had misclassified the account executives as exempt. It found that the employees performed no work related to management policies or general operations. They had no role in supervising the temporary employees after they were placed and no responsibility for the administrative support staff in the account executives' offices. Account executives did not form policy but followed the company “recipe” . Therefore, the court ruled that the company had improperly characterized these employees as exempt and upheld a judgment in the amount of $615,000 in favor of the six employees.
The moral of this story is that improper classification of employees is easy to do and expensive to rectify if the analysis is done before a court rather than as a preventative measure.
