Can Recruiters Be Exempt From Overtime Under The Administrative Exemption?

Most recruiters working in California should be classified as non-exempt employees who are paid overtime and receive daily meal and rest periods.  In practice, however, the opposite is true.  Most recruiters are classified as exempt and therefore denied overtime for the hours they work in excess of eight.  Whether a company has correctly classified a recruiter as an exempt employee turns on three issues:

(i) which law is applied — the California Labor Code or the federal Fair Labor Standards Act (“FLSA”);

(ii) whether the recruiter works for a staffing company that provides candidates to many different customers or does internal recruiting for a single, large employer; and

(iii) how much of the recruiter’s time is spent on clerical and routine tasks compared to how much time is spent exercising discretion with respect to important matters.

Administrative Exemption – California Labor Code vs. FLSA

Employers that classify recruiters as exempt from overtime usually cite the administrative exemption.  A chart, which is available here, illustrates how the administrative exemption varies under California law and the FLSA.[i]

In certain key respects, the exemptions under California law are more difficult to satisfy than the corresponding FLSA exemptions.  First, under California law, the employer must realistically expect that the recruiter will actually spend 50% of their time engaged in work that is of substantial importance to the business. For example, negotiating employment terms with potential candidates or exercising authority to make decisions about whether a candidate should advance to the next step in the hiring process would be of substantial importance.  Also, the California Labor Code states that the recruiter may not spend more than 20% of her working time engaged in work that is not directly and closely related to work that is of substantial importance to the business.  Thus, a recruiter should be non-exempt if more than 20% of her time is spent engaged in clerical work like assembling lists of candidates, preparing information about those candidates according to standard forms, and making cold calls.  Unlike the California Labor Code, the FLSA does not contain a strict 50% threshold for administratively exempt work or a strict 20% disqualification for non-essential, clerical work.

Second, the regulations applicable in California explicitly state that merely applying skills and knowledge does not constitute an exercise of discretion or judgment sufficient to satisfy the administrative exemption.  Rather, the employee must engage in work “along specialized or technical lines” for the tasks to be considered administrative in nature.  The FLSA does not have a similar, explicit carve-out from the exemption for merely applying skills and knowledge. [ii]

Third, in California the recruiter must have autonomy.  Thus, the recruiter must work under “general supervision” and must perform work that requires “special training, experience or knowledge.”  The FLSA does not contain similar requirements.

Fourth, California law sets a much higher salary threshold than the FLSA ($37,740 vs. $23,660 annualized) which could render non-exempt some entry-level recruiters who are paid primarily with incentive compensation which does not count toward the salary threshold even if it is regularly paid to the recruiter.

Internal vs. External Recruiting Position

There are two basic kinds of recruiter positions: internal and external. An internal recruiter is employed by a large company and has a primary duty of locating candidates for open positions within their employer’s organization.  An external recruiter is employed by a company whose core business is locating and providing permanent job candidates and temporary employees to third parties.

External recruiters are less likely than internal recruiters to qualify for the administrative exemption for two reasons.  First, external recruiters may fall on the “production” side of the “administrative/production dichotomy” which holds that one who is involved in producing an employer’s product is not generally performing administrative work.  Many would argue that employees — both temporary and permanent — are the product of a staffing firm and recruiters are “producing” that product by placing employees with clients.

The leading case in California adopts this view.  See, Pellegrino v. Robert Half International, Inc., 182 Cal. App. 4th 87 (2010) (applying the California Labor Code).  There, the California Court of Appeal concluded that “account executives” at the staffing company Robert Half did not satisfy the administrative exemption because those recruiters produced Robert Half’s key product (temporary employees) by identifying candidates and selling them to companies that might have been interested in hiring them.[iii]  But, some courts, particularly when applying the FLSA, have disagreed.  Andrade v. Aerotek, 700 F.Supp.3d 738, fn. 7 (D. Md. 2000) (applying the FLSA and concluding external recruiter was exempt under administrative exemption because the services of Aerotek’s contractors were the product of its business, not the contractor themselves, and therefore the recruiter was on the “administrative” side of the dichotomy).

In addition, many external recruiters spend significant time “placing” or “sourcing” candidates with third-parties in what is essentially telephone and online sales work.  These selling activities are generally not considered “qualitatively administrative” in California or under the FLSA.  See 29 C.F.R. § 541.205 (2000); 29 C.F.R. § 541.201(a)-(b) (2004).  Thus, a court may conclude that the recruiter is primarily engaged in sales (i.e. speaking with potential candidates).  And, therefore, the recruiter has a primary duty that is not administrative and/or California’s 20% disqualification applies.

Job Duties And Discretion

How a recruiter actually spends her time and whether she may make decisions that are real, substantial and consequential for her employer will ultimately determine whether an exemption applies. For example, entry-level recruiters often begin their job with no experience and little training or special knowledge. They spend their time assembling lists, cold calling and making few substantive choices.

These sorts of recruiter positions, whether internal or external, will not be exempt from overtime.  Rather, they are due overtime and must be provided with meal and rest periods.  Moreover, this conclusion can apply on a class-wide basis. See Lazarin v. Pro Unlimited, Inc., Case No. C11-03609 HRL (N.D. Cal., July 11, 2013) (approving a class action settlement agreement that paid class members an average of $18,347); Betancourt v. Maxim Healthcare Services, Inc., Case No 10 C 4763 (N.D. Ill., April 21, 2011) (granting conditional certification to class of recruiters).

To meet its burden of proving that a recruiter is exempt, the employer must show that the recruiter’s time is primarily spent on something other than clerical and sales work.  Moreover, the employer must show the recruiter is frequently exercising significant discretion and judgment regarding important matters for the employer’s business. A statement in the DOL opinion letter referenced below is instructive.  See, 2005 WL 3308616 (Oct. 25, 2005).  There, the DOL opined that whether the exemption applies will depend on “the amount of selectivity exercised in matching persons seeking employment with the requirements of the job opening and in deciding which employee to send to any particular employer for consideration, as opposed to referring to the employer several prospects who generally meet the qualifications for the job.”

Thus, the DOL would conclude that an external recruiter is not exempt from overtime unless her job requires detailed comparisons of an employer’s need and the skills of prospective employees.  Likewise, an internal recruiter must be doing more than simply assembling a database of prospective candidates who meet certain minimum qualifications and then attempting to bring all of them in for interviews.

Conclusion

Many recruiter positions involve very infrequent exercises of discretion with respect to matters of significance. These positions are not exempt from overtime under federal or California law.  However, some positions may be exempt, particularly those that serve as the primary liaison for recruiting high-level executives or filling positions with specific and nuanced needs. Recruiters who are improperly classified as exempt from overtime may recover substantial damages and penalties.  Some examples of potential recoveries are available via litigation are here.  Similar recoveries may be gained through the strategic negotiation of a separation agreement (see related post).

If you are a recruiter in California and believe you were improperly classified as an exempt employee, do not hesitate to contact Sebastian Miller Law for a no-fee consultation.

Disclaimer: All materials have been prepared for general information purposes only to permit you to learn more about Sebastian Miller Law, P.C, its services and experience.  The information presented is not legal advice, is not to be acted on as such, may not be current and is subject to change without notice.


[i] In addition to the administrative exemption, an external recruiter can, conceivably, qualify for the commission sales exemption. To commission sales exemption requires that more than half the recruiter’s compensation must come from commissions and their weekly salary paid them more than 1.5X the minimum wage. This exemption is discussed in more detail here and will apply to only the most highly compensated recruiters. An internal recruiter, however, cannot satisfy the commission sales exemption because they do not sell job candidates to their employer.

[ii] In addition, employees pursuing claims under the FLSA must reckon with an opinion letter from the Department of Labor that states staffing managers could qualify for the administrative exemption. Dep’t of Labor Opinion Ltr., Wage & Hour Div., 2005 WL 3308616 (Oct. 25, 2005). This letter is interprets regulations that were issued in 2004 and are not applicable in California. Further, courts have found it inapplicable to some recruiter positions. Odgen v. CDI Corp., Case No. CV08-2180 PHX DCG, 2010 WL 2662274, *5 (D. Ariz. June 30, 2010) (distinguishing opinion letter and finding issues of fact exist precluding summary judgment because there was no evidence the external recruiter managed employees who were on assignment, reviewed the employees, or administered any discipline).

[iii] This result is consistent with a July 26, 1999 Division of Labor Standards Enforcement opinion letter. But it may be undermined by the California Supreme Court’s opinion in Harris v. Superior Court, 53 Cal.4th 170, 190 (2011) which held that the administrative/production dichotomy was just one analytical tool and not a dispositive test.

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