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by Michelle Galbraith, J.D.; Employment Law Adviser, CalChamber
State and federal laws create two broad categories of employees: those subject to wage and hour requirements (such as meal and rest breaks and overtime) and those who are exempt. Those laws also place the burden of classification on employers, who must demonstrate that any given employee meets the standards to qualify as exempt.
In a recent case, an employee claimed that he could only be classified as exempt if his employer could demonstrate by “clear and convincing evidence” that he fit into one of the statutory exemptions. In a victory for the employer, the U.S. Supreme Court held that the employer needed only to prove the exemption by a lower standard of “preponderance of the evidence” (E.M.D. Sales, Inc. v. Carrera, 604 U.S. ___ (2024)).
“The Supreme Court’s decision is limited to evidentiary matters in litigation and doesn’t change the obligations of California employers,” said Matthew J. Roberts, CalChamber’s associate general counsel, labor and employment. “However, it serves as a reminder that employers still have a burden of proof to meet and should exercise caution before classifying employees as exempt, including periodically reviewing job duties to ensure classifications remain correct.”
E.M.D. Sales (EMD) employed sales representatives to manage inventory and take orders for international food products at grocery stores around Washington, D.C. Several of those representatives sued EMD, arguing the company failed to pay them overtime when they worked more than 40 hours per week. EMD responded that the workers were exempt and, therefore, not entitled to overtime pay.
As the case made its way to trial, the parties disagreed over what burden of proof EMD needed to meet to demonstrate that its employees were exempt. The employees argued, and a lower court agreed, that EMD had to show that an employee was exempt by clear and convincing evidence.
“Clear and convincing evidence is a much more challenging standard to meet compared to the usual preponderance of the evidence standard in employment cases,” Roberts said. “It is often applied in cases where an individual is at risk of losing a significant amount of liberty, such as in proceedings for civil commitment or termination of parental rights.” EMD, on the other hand, asserted that it need only prove that it correctly classified its employees by a preponderance of the evidence. Under this standard, EMD would win if the evidence tilted in their favor by any amount, regardless of how small. The only issue before the Supreme Court centered on the evidentiary standard to apply in cases of employee classification.
The Court agreed with EMD that the preponderance of the evidence standard should apply to exempt/nonexempt employee classification cases; it then ordered the case returned to the lower courts to use that standard to determine whether the employees were correctly classified.
“Although the issue in the EMD case was only related to the burden of proof, it’s a good reminder to California employers that correctly classifying employees remains crucial,” Roberts said. “We want our members to avoid litigating exemptions regardless of the evidentiary standard that a court might ultimately apply.” In California, employees are classified as nonexempt unless they fit into one of a few specified exemptions. Those exemptions require that they meet both a job duties test and a salary test.
There are six primary exempt categories: administrative, executive, professional, computer professional, inside sales and outside sales. Each category has its own requirements for job duties, and some may require that employees hold advanced degrees or professional licenses. Employers can learn more about the exempt classifications and how to demonstrate compliance with the job duties tests on HRCalifornia’s Determining Exempt or Nonexempt Employee Status.
To meet the second prong of exempt classification — the salary test — employers must pay most exempt employees at least twice the state minimum wage. For 2025, this amount is $68,640. Certain classifications have their own requirements, however, physicians, computer professionals and fast food workers each require higher minimum salaries to maintain exempt status. In addition, exempt health care workers must make 1.5 times the applicable health care worker minimum wage, or two times the general statewide minimum wage, whichever is greater.
Finally, inside and outside salespeople — the classifications at issue in the EMD case — have their own unique salary and job duty requirements. “Because employers may be able to pay those workers less than the standard minimum exempt salary, it’s particularly important that employers get their classifications correct,” Roberts said. “Failure to appropriately classify salespeople could result in significant underpayment of wages, subjecting employers to greater liability.”