Appellate Court Clarifies Correct California Sick Pay Calculation for Exempt Employees, Including Outside Sales Employees

In Hirdman v. Charter Commc’ns, LLC, 113 Cal. App. 5th 376 (August 4, 2025), the California Court of Appeal for the Fourth Appellate District considered the appropriate calculation for sick pay pursuant to the Healthy Workplaces Healthy Families Act of 2014 (the “HWHFA” or the “Act”) for employees classified under the outside sales exemption, and concluded that such pay should be calculated in the same manner that applies to employees classified under other exemptions, including the administrative, executive, or professional exemptions. In doing so, the court disagreed with a prior opinion letter issued by the California Division of Labor Standards Enforcement (“DLSE”) in October 2016, which had concluded that sick pay for outside sales employees should be calculated as if they were nonexempt employees.

Since July 1, 2015, the HWHFA, codified at Labor Code section 245 et seq., has required employers to provide California employees with paid sick leave annually. Since January 1, 2024, employers have been required to provide the greater of 40 hours or five work days of sick leave per year, though they may also satisfy this requirement by allowing sick leave to accrue at a rate of one or more hours for every 30 hours worked. All employees who work at least 30 days in California for the same employer within a year, including part-time, per diem, and temporary employees, are entitled to paid sick leave with limited exceptions. However, employers may require new employees to be employed for 90 days before using paid sick leave.

Employers must pay sick leave pursuant to Labor Code section 246(l), which sets forth the following calculations:

1.      For nonexempt employees, sick leave may be calculated using one of the two following calculations:

a.      By using the same calculation used to determine the regular rate of pay for the workweek in which the employee uses paid sick time, whether or not the employee actually works overtime in that workweek, e.g., by using the same calculation to determine the regular rate of pay for purposes of calculating the overtime/double time premium; or

b.     By dividing the employee’s total wages, not including overtime premium pay, by the employee’s total hours worked in the full pay periods of the prior 90 days of employment

2.      For exempt employees, sick leave must be calculated in the same manner as the employer calculates wages for other forms of paid leave time.

Bradley Hirdman (“Hirdman”) was the plaintiff in Hirdman v. Charter Commc’ns, LLC, and was a sales representative who sued his employer, Charter Communications, LLC (“Charter”). Hirdman alleged that Charter improperly paid him as an exempt employee for purposes of calculating paid sick leave. Specifically, Hirdman argued Charter should have calculated his sick pay as a nonexempt employee, factoring in his commissions to determine his hourly rate. Hirdman asserted that the calculation of paid sick leave for exempt employees was reserved for those classified under the administrative, executive, or professional exemptions, and claimed that method should not have been applied to outside sales employees like him, even if they are classified as exempt for other purposes.

The trial court disagreed with Hirdman and the appellate court affirmed.

Reviewing the statutory language of the HWHFA, the court noted that the Act does not define the terms “exempt employes” and “nonexempt employees” but California courts have consistently used the phrase “exempt employees” to mean “those not entitled to overtime wages under California wage and hour law.”

The court went on to explain that, had the Legislature intended, in drafting the HWHFA, to limit the definition of “exempt employees” under Labor Code section 246(l) to only specified exempt employees such as those who fall under the administrative, executive, or professional exemptions, “it would have said so” as it did in Labor Code section 246(b)(2) regarding computation of hours in a workweek. See Labor Code § 246(b)(2) (“An 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.”) (emphasis added).

Hirdman pointed to the same language In Labor Code section 246(b)(2) to argue its inclusion in that subsection was intended to similarly limit interpretation of the term “exempt employees” for purposes of calculating sick leave under Labor Code section 246(l). The court disagreed and concluded that the use of different phrases in two subsections of the same statute—“exempt from overtime requirements as an administrative, executive, or professional employee” within subsection (b)(2) versus “exempt employees” within subsection (l)—indicated the Legislature intended different meanings in those two subsections.

After concluding that the statutory language of Labor Code section 246(l) was unambiguous and that the calculation of sick pay for exempt employees included employees classified under the outside sales exemption, the court went on to address the HWHFA’s legislative history, which had been relied upon by the DLSE in an October 2016 opinion letter in which the agency concluded that outside sales employees paid commissions should be compensated for paid sick leave using the methods permitted for nonexempt employees.

The court disagreed with both Hirdman’s and the DLSE’s interpretation of the legislative history—specifically an analysis by the Senate Committee on Labor and Industrial Relations—for several reasons. First, the court explained, the cited committee report was subject to conflicting interpretations, particularly when read with other committee reports. Second, while helpful in understanding legislative intent, committee reports “are certainly not conclusive” and the language relied upon in the committee report was limited to “a single ambiguous parenthetical in a single committee report.”

The court also noted that, while the DLSE’s opinions may be persuasive when interpreting Industrial Welfare Commission (“IWC”) Wage Orders, DLSE opinion letters do not provide guidance on the Legislature’s intent in drafting legislation. Moreover, the DLSE had expressly limited its opinion letter to “the facts and circumstances described” in the letter and noted that the “existence of any other factual or historical background” might compel a different conclusion.

Accordingly, the court concluded, the calculation of sick pay set forth under Labor Code section 246(l) for exempt employees applies to exempt employees, including those classified pursuant to the outside sales exemption.

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