California Supreme Court Grants Review Of Court Of Appeal Decision Holding That Staffing Agency Account Executives Do Not Qualify As Exempt Employees

As we previously reported here, on January 28, 2010, the California Court of Appeal issued its decision in Pellegrino v. Robert Half International, Inc., ("Pellegrino II") holding that employment agreements shortening to six months the deadline for employees to bring claims arising out of their employment violate public policy and are therefore unenforceable. The court held also that the staffing agency's account executives did not qualify as exempt administrative employees.

The plaintiff employees were employed by RHI as account executives. Their duties involved recruiting candidates to be placed as temporary employees, placing candidates with RHI clients, and new business development. The account executives filed suit against RHI alleging RHI violated wage and hour laws applicable to non-exempt employees, such as the requirements for paying overtime and for providing meal periods.

In a lengthy opinion, the Court of Appeal held the 6 month limitation period of the employment agreements violates Labor Code section 219 and violates public policy and are unenforceable because, according to the court, the 6 month limitation period is tantamount to an unenforceable waiver of non-waivable rights. The court held also the account executives did not qualify as exempt employees because, in the court's view, their duties were not sufficiently related to the administrative operations of RHI but were in the nature of "production" work or sales.

On April 28, 2010, the California Supreme Court granted RHI's petition for review of the Court of Appeal's decision in Pellegrino II by way of what is known as a "grant and hold" order "pending consideration and disposition of a related issue in Harris v. Superior Court." The California Supreme Court granted review of that case quite some time ago on November 28, 2007, and has identified the issue to be decided as follows:

Do claims adjusters employed by insurance companies fall within the administrative exemption (Cal. Code Regs. tit. 8, section 11040) to the requirement that employees are entitled to overtime compensation?

The Supreme Court's decision to grant review is good news for employers at least temporarily because the Court of Appeal's January 28, 2010 decision in Pellegrino II is no longer binding on lower courts and may not be cited as precedent.

We note the Court of Appeal's January 28, 2010 decision in Pellegrino v. Robert Half International, Inc., certified for publication on February 24, 2010, ("Pellegrino I") we previously reported on here remains undisturbed. In that case, the Court of Appeal addressed certain issues about how awards of attorney's fees are to be determined:

1. The court reiterated that an award of attorney's fees is not available to plaintiffs who prevail on claims for alleged violation of California's Unfair Competition Law codified at California Business and Professions Code Section 17200, et seq., which forbids business practices that are unlawful, unfair, or fraudulent. Plaintiffs alleging violations of the Labor Code nearly always allege also violations of the Unfair Competition Law because a four-year statute of limitations period applies to the Unfair Competition Law instead of the three-year statute of limitations that applies to many alleged violations of the Labor Code.

2. The court held, however, that when alleged violations of the Labor Code and of the Unfair Competition Law are sufficiently interrelated, a court is not required to allocate between fees "incurred" to pursue alleged violation(s) of the Labor Code and fees "incurred" to pursue alleged violations of the Unfair Competition Law. The court held the trial court made no error when it reduced the fee award by 15% to account for fees "incurred" to pursue the plaintiffs' claims for alleged violation of the Unfair Competition law.

3. The court affirmed the trial court's use of a 1.75 multiplier to enhance the award of attorney's fees to the plaintiffs' attorneys for fees "incurred" to pursue the plaintiffs' substantive claims, which effectively increased the award from $558,926.85 to $978,121.98.

4. The court held the trial court erred when it applied a multiplier to the fees "incurred" to pursue the plaintiffs' claims for an award of attorney's fees. The court reasoned that the factors that support applying a multiplier to an award of attorney's fees to the plaintiffs for their substantive claims does not apply to attorney's fees "incurred" to pursue an award of attorney's fees.

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