On August 4, 2025, in Hirdman v. Charter Communications, a Court of Appeal of California agreed with the trial court that outside salespeople qualify as “exempt” employees under California Labor Code section 246(l)(3) and, therefore, can be paid “in the same manner as the employer calculates wages for other forms of paid leave time” when they use paid leave under the Healthy Workplaces Healthy Families Act (HWHFA), California’s statewide paid sick and safe time law.
The decision is notable because it takes a more expansive view of “exempt” than does the Division of Labor Standards Enforcement (DLSE), which, in an October 11, 2016 opinion letter, concluded that the term was limited to executive, administrative, and professional (EAP) employees, like in the HWHFA’s accrual presumption provision, California Labor Code section 246(b)(2).
In concluding that the definition of “exempt” was not as limited as the DLSE (and plaintiff’s counsel) argued, the court observed that “California courts [] consistently use the phrase ‘exempt employees’ in the private employment context to mean those not entitled to overtime wages under California wage and hour law.” Considering “exempt” a “term of art,” the panel next found that the legislature knew what it was doing when, in the rate of pay context, it did not limit its scope to only EAP employees:
Notably, the Legislature did carve out precisely such a limitation in a different subdivision of the same section—section 246, subdivision (b)(2) provides that “[a]n employee who is exempt from overtime requirements as an administrative, executive, or professional employee under a wage order of the Industrial Welfare Commission is deemed to work 40 hours per workweek for the purposes of this section, unless the employee’s normal workweek is less than 40 hours, in which case the employee shall accrue paid sick days based upon that normal workweek.” The Legislature thus knew how to carve out a subset of the commonly understood legal term “exempt employee” and chose not to do so in subdivision (l)(3).
The court also held that the DLSE and plaintiff placed too much importance on a single, inconclusive statement in legislative history materials:
Although we may properly rely on committee reports as indicia of legislative intent, “they are certainly not conclusive.” This is particularly true where only a single ambiguous parenthetical in a single committee report supports the interpretation urged by a party and other language in the same report and others does not.
Moreover, the panel ruled that it – rather than the DLSE – was the proper arbiter of what a statute meant, especially when an agency does not attempt to regulate the issue:
[Plaintiff] argues that the “DLSE’s conclusions carry persuasive weight and should be followed,” and that its “opinion letters ‘constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance.’ That may be true when courts are interpreting IWC wage orders, but neither Brinker nor any of the cases it cites for this proposition look to DLSE opinion letters for guidance on legislative intent. This is unsurprising, as it “is the function of the judiciary, not an administrative agency, to construe statutory language.” . . . Where, as here, the agency in question “does not have a long-standing interpretation of the statute and has not adopted a formal regulation interpreting the statute, the courts may simply disregard the opinion offered by the agency.”
The decision will be welcome news to any employer that has struggled to navigate HWHFA rate-of-pay calculations. Although those challenges remain for “nonexempt” employees, for employers whose workforce includes employees who are (properly classified as) overtime-exempt, the less-restrictive interpretation of who qualifies as “exempt” could help streamline the process of determining the rate of pay when an employee is not working because such employees can be paid in the same manner as the employer compensates them for use of other paid leave benefits like vacation or PTO. In most instances, this rate will likely be the employee’s “normal” hourly (equivalent) rate of pay.
Key Takeaways
- “Exempt” employees under California Labor Code section 246(l)(3) includes outside salespeople – not just EAP employees, as the DLSE had previously opined – and the decision could be read to include other employees properly classified as overtime-exempt.
- Although this is only one decision from a Court of Appeal, as a published decision, it could support a good-faith defense for either continuing to pay overtime-exempt employees (including EAP employees) “in the same manner as the employer calculates wages for other forms of paid leave time” or, going forward, paying such employees in that manner.
- Although the DLSE might be tasked with enforcing a law, courts might not defer to its interpretation of the law, particularly when that interpretation is not the product of the formal rulemaking process.
