The Exempt and Non-Exempt Conundrum for Physical Therapists in California

In recent years, the requirements and standards necessary to qualify physical therapist employees as exempt under California and federal law have been a topic of conversation amongst the physical therapy community. In examining this issue, both federal law and California law contain requirements for exempt employees.

Tests for Exempt Employees

In order to avoid the serious consequences of misclassifying an employee as exempt, we first examine the Strict Duties Test under the Fair Labor Standards Act¹ (“FLSA”) which protects the rights of employees in regard to fair pay practices by establishing protections such as minimum wage and overtime pay.

The Strict Duties Test sets forth the positions that may qualify employees as exempt and applies to the following position categories:

• Administrative: Managing the company’s business operations requiring a level of discretion and independent judgment;
• Computer: Including computer systems analysts, computer programmers, software engineers, or a role with similar skills;
• Executive: Primary duties must involve managing the company or a recognized department directing at least two (2) or more full-time employees with the power to hire, fire, and offer advancement opportunities;
• Outside Sales: Engagement away from the employer’s place of business involving making sales or obtaining orders for services from clients;
• Professionals: Requires advanced knowledge in work that is intellectual in a field of science and learning acquired from a specialized source.²

Many aspects of California and federal wage and hour law such as overtime, meal periods, and rest breaks, do not apply to employees who are truly exempt. With that being said, the Labor Commissioner for the State of California analyzes cases individually on a factual basis and does not implement a blanket judgment on all physical therapists. This means that practice owners must carefully examine each and every physical therapist whom they seek to classify as an exempt employee.

Analysis of Physical Therapist Duties and Judgment

The following requirements are considered when determining if an employee is exempt:

Professional, Administrative or Executive Duties –

At least 50% of the employee’s time must be spent (1) in the management of the enterprise or of a recognized department or subdivision (executive); (2) the performance of office or non-manual work related to management policies or general business operations (administrative); or (3) is licensed or certified by the State of California and is primarily engaged in law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting (professional).³

As you can see, there are many factors that must be present to qualify as an exempt employee in California. Understandably, these qualifications seem illusory and ambiguous. However, a physical therapist may qualify as a professional under this exemption as long as their job duties are clearly defined in a written job description or Employment Agreement and they:

1. Are Licensed or Certified in the State of California;
2. Regularly exercise discretion and independent judgment which is explained in greater detail below;
3. Practice work requiring advanced knowledge or training; and
4. Meet the salary threshold requirements which is explained in further detail below as well.

Minimum Salary Threshold –

To be classified as exempt, any employee must make a salary of at least twice the state’s minimum wage for full-time employment. In 2022, the minimum salary threshold is $58,240 per annum for an employer with 25 employees or less, and $62,400 per annum if the employer has 26 or more employees. When California raises its minimum wage, this threshold also goes up and can render previously exempt employees non-exempt.

It is important to note however that pursuant to Labor Code section 515(a) California Code of Regulations, Title 9, section 11040(1)(A) provides:

The Industrial Welfare Commission may establish exemptions from the requirement that an overtime rate of compensation be paid pursuant to Sections 510 and 511 for executive, administrative, and professional employees. . . .”⁴

Please note the Labor Commissioner reviews these exemptions on a case by case basis depending on the application of the independent judgment requirement below.

Independent Judgment –

An exempt employee uses discretion and independent judgment while carrying out employment-related tasks. This generally occurs when they are absent a direct supervisor or chain of command for their daily duties.

This can occur in an administrative setting, when someone runs their own department and uses their own decision making to meet the office’s needs. Medical professionals typically have no problem meeting this bar, as their decisions in treatment and prescription are based of their knowledge training, experience and not supervisor recommendations.

Physical therapists can meet this requirement. However, physical therapist assistants fall short as they are under direct supervision. Physical therapist decision-making and independence present the most difficult hurdle to clear in order to qualify for a professional exemption, as these elements are not present in all physical therapy positions.

To make clear that a physical therapist routinely utilizes their own discretion and autonomy in their decision making, a written job description is essential. But if a physical therapist must receive and abide by the instruction from a superior, they will likely fall short of this threshold requirement. Below we provide an example to show the application of this principle.

Example: Patient A presents with posterior knee pain due to a hamstring injury caused from muscle weakness and the next course of action for physical therapy is to strengthen the hamstring muscle. The physical therapist will need to utilize professional judgment in creating a physical therapy plan of care for Patient A, carrying out the treatment, and using their own professional judgment throughout the course of physical therapy to determine if the current plan is improving Patient A’s pain or if a change in treatment needs to occur. If this is the routine policy and procedure for your physical therapist(s), they could qualify as an exempt employee.

If, however, the physical therapist has to wait for another physical therapist or professional to assess Patient A, construct a treatment plan, and monitor Patient A to determine next steps for physical therapy, they do not pass this portion of the test.

This test is utilized with a number of health care professionals as discussed below.

Decisions Regarding Health Care Providers’ Use of Judgment

While the courts have not made a direct ruling on a physical therapist’s exemption under the FLSA, other medical professionals such as primary therapists in mental health have qualified as exempt under the FLSA. Primary therapists relate similarly to physical therapists in respect to their professional licensure, certifications, and use of independent judgment in the absence of a chain of command or other direct supervision.

The United States District Court in Levine v. Unity Health System⁵, provides the following on exemptions for primary therapists:

Here, plaintiffs’ duties as Primary Therapist (“PTs”) primarily consisted of making assessments of patients’ mental conditions, identifying specific clinical problems, devising plans of action specific to each patient based on those assessments, coordinating with therapists, specialists, and health care providers to identify and incorporate the resources required for the treatment plan, and individually leading group, individual, family, and/or crisis psychotherapy sessions. While the plaintiffs’ job duties also included administrative tasks, such as completing necessary paperwork, the primary duty and purpose of the PT position, as reflected by plaintiffs’ and Unity’s affidavits, and the plaintiffs’ written performance review forms, is to assess patients, help develop appropriate treatment plans, and administer therapy directly to patients. These tasks were performed with little oversight, and of necessity, required reliance on the PT’s own independent judgment.

When the primary therapist’s main practice was to “assess patients, help develop appropriate treatment plans, and administer therapy directly to patients,” they could be exempt. This is a very similar and workable application when applied to physical therapists. Similar cases and outcomes have also arisen with:

• Physician Assistants;
• Nurse Anesthetists;
• Certified Medical Technologists; and
• Registered Nurses

Moreover, opinion letters from the Department of Industrial Relations, Division of Labor Standards Enforcement (“DLSE”) provide further information on the above analysis of independent judgment. The DLSE provides that physical therapists and other medical positions such as nurses, shall be reviewed on an individual case basis to determine whether the positions qualify as exempt. And the determination will depend on job duties assigned to the physical therapist, training, and their specialty. One opinion letter from DSLE provides a workable framework applicable to physical therapists:

It seems apparent, then, that if the concerns which the [Industrial Welfare Commission (“IWC”)] voiced, i.e., consistent exercise of discretion and independent judgment, control over one’s practice, and full integration in the decision making process, were met, nurses, on an individual basis, could meet the requirements of the professional exemption.

DLSE does not opine on requests for blanket exemptions to the IWC Orders. Job qualifications and duties are considered by the DLSE personnel on a case-by-case basis and the decision as to whether an individual worker is exempt or not is based on an analysis of the facts submitted and the law. However, blanket exemptions are not provided.

When a physical therapist employer is faced with classifying physical therapists as exempt or non-exempt, these decisions and frameworks provide useful tools for this analysis.

Conclusion

When faced with the conundrum of whether a physical therapist can be classified as an exempt employee in California, employers should consult legal counsel for this complicated case-by-case analysis, using the tools discussed above. Misclassification can result in significant penalties for over time, missed meal periods and rest breaks, and unpaid wages.

This analysis ultimately boils down to whether or not the physical therapist utilizes their own autonomy and discretion in their practice. Again, this delineation in their job duties should be provided in an Employment Agreement or job description to ensure they meet this requirement to qualify as an exempt employee.