Labor and Employment Law Blog

Schwarzenegger Terminates Overtime for Many Computer Programmers

On October 11, 2007, Governor Arnold Schwarzenegger signed a law that eliminates the right to overtime for many computer programmers in California effective January 1, 2008.  Historically, California has always provided overtime pay to computer programmers.  During this time of overtime pay, the computer industry in California grew far more than other states and drove the economy in Silicon Valley. 

The first time that computer programmers were exempted from overtime was under the 2001 law. However, this law required a very high wage to be paid to programmers in order for them to be exempt from overtime. 

This year, a bill sponsored by the National Association of Computer Consultant Businesses puts an end to computer overtime for many programmers.  The proponents of the law stated that the current law was putting California businesses at a "competitive disadvantage."  Interestingly, there was no explanation about why so many companies would locate their computer programmers in California despite this alleged "competitive disadvantage."

What the law does is reset the minimum pay required in order to be exempt from overtime from $49.77 to $36 per hour.  Under the old rate, only highly compensated individuals were exempt from overtime.  Now, even entry level computer programmers will be able to be exempt from overtime. 

Fortunately, the law still retains the requirement that $36 per hour be paid for every hour worked.  Thus, it is not the case that simply earning a salary of $74,880 per year will automatically make you exempt.  This salary would only make you exempt if you never worked more than 40 hours in a single week (essentially, you would just be exempt from daily overtime -- that is, you would work more than 8 hours in one day, as long as you worked less hours the next day).  If you worked 45 hours in any week, you would need a salary of $84,240 in order to keep you above the $36/hour limit.  I have a complete breakdown of the salary required for different work weeks on my California Computer Professional Exemption page.

It will be interesting to see how this new law plays out. Previously, many computer programmers were reluctant to sue for unpaid overtime.  However, with the law now taking it away, I would predict that it will cause even more lawsuits as employees want to receive the money they are entitled to while they still can.  Given that employees can still go back four years for past unpaid overtime, I doubt the law will have the desired affect.

Court Overturns DLSE on Administrative Exemption for Computer Professionals

In the case of Eicher v. Advanced Business Integrators, Inc. (ABI), a California Court of Appeals helped to define what types of positions are covered under California's Administrative Exemption.  There are very few cases that cover computer professionals that reach the appellate court level, which makes this case very important. 

The case is also interesting because it shows the problems with taking such a case to the Division of Labor Standards Enforcement, also known as the California Labor Board. The employee, Eicher, worked as a  "Senior Consultant" for ABI in which he regularly visited customer sites to help them implement and troubleshoot ABI's automated payroll software.  He also trained people on how to use the software, once it was installed.

The Labor Board ruled against the employee.  There is a common misconception that the Labor Board is "pro employee."  This is simply not the case.  Especially in complex cases involving the technology field, the Labor Board is anything but "pro employee."  The problem created by a loss at the DLSE is that if the employee appeals an unfavorable decision and looses, he will be required to pay the other side's attorney fees.  Fortunately, the employee won in this case, and the employer had to pay his $40,000 attorney fee bill.  However, had he lost, he likely would have been devastated by having to pay their bill.

In any case, the court held that the Administrative Exemption was not applicable in this case because the employee was not engaged in "non-manual work directly related to management policies or general business operations of ABI or its customers."  In an important part of the analysis, the court held :

While he was required to learn of the customers’ management policies and business operations in the course of his work, in order to ensure that the product met the needs of the customers, he did so only to implement the software in the most beneficial way for the customers and not to participate in policy-making or alter the general operation of the business.

This is a crucial determination, as defense attorneys have been using this mis-interpretation of the exemption for years.  The court clearly ruled that the administratively exempt employee must participate in policy-making or alter the general business operations -- not simply install and configure software.

The court went on to specifically reject that the "[i]nstallation and troubleshooting are also exempt administrative activities." 

The court concluded: "Eicher was an employee who engaged in the core day-to-day business of ABI. He had no personal effect on the policy or general business operations of ABI or its customers."  Which has been my position on the Administrative Exemption for Computer Professionals for some time.