Wednesday, February 9, 2011

Court Holds WC Claims Adjusters Are Exempt Employees

A recently released but (as of yet) unpublished California Appellate decision upheld a trial court finding that workers’ compensation claims adjusters are exempt employees, and therefore not entitled to overtime.

In Hodge v. Aon Insurance Services (Second Appellate District, 2/2/11), the appellate court differentiated the jobs performed by adjusters working for Cambridge Integrated Services Group from those performed by Farmers Insurance.  In doing so, the court determined that the job duties of the Cambridge adjusters meet the requirements for the administrative exception as detailed in Wage Order 4 (available online athttp://www.dir.ca.gov/IWC/IWCArticle4.pdf).  The upshot for employers is that the job title alone is insufficient to determine whether someone qualifies as an administrative employee.  Instead, the court took a close look at the adjusters’ actual job duties and how they related to the general business operations of both Cambridge and Cambridge’s clients in making their determination that the Cambridge adjusters were found to be exempt from the various overtime laws.


There are several requirements that must be met in order to properly classify an employee as exempt under the administrative exemption. The requirement at issue in Hodge was whether the duties involved the “performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his/her employer’s customers.”  There are several ways to evaluate this.  The plaintiff argued for application of the “administrative/production worker dichotomy” as espoused in Bell v. Farmers Ins. Exhchange (2001 87 Cal.App.4th 805 (Bell II).  Bell II was a class-action suit brought by the claims representatives for Farmers Insurance.  In analyzing the job duties, the court in Bell II determined that the claim representatives’ responsibilities were restricted to “the routine and unimportant.”  They dealt with routine handling of mostly small value claims.  For more important or complex matters, the claims representatives served as a conduit for information to supervisors, who made the decisions, something that was found to be a “routine and unimportant” role.  In this instance, it was determined that the claims representatives were production, not administrative, employees.

The administrative/production dichotomy looks at whether an employee is involved in the everyday production aspect of a company, or alternatively, serves as a more important administrative employee doing work directly related to management policies or general business operations.  For example, a production worker for, say, K-Mart, would perform work related to selling consumer goods.  An employee involved in selecting which goods to carry, and in what amounts, would likely not be a production worker.

As described on pages 15-16 of Hodge,

Former 29 Code of Federal Regulations part 541.205(c) also provides illustrations of the types of work satisfying the “substantial importance” requirement. For example, the “cashier” of a bank is exempt, but a “teller” of the bank is not. Bookkeepers, secretaries, and “clerks of various kinds hold[ing] the run-of-the-mine [sic] positions in any ordinary business” are not exempt. A “tax consultant” for a company or for a “firm of consultants” is exempt. A “messenger boy,” even when he or she is “entrusted with carrying large sums of money,” is not exempt. A person “operating very expensive equipment” is not exempt. An “inspector,” including an “inspector for an insurance company,” is not exempt. A “statistician” who merely “tabulate[s] data” is not exempt, but a person who tabulates and “makes analyses of data and draws conclusions” that are “important” to a business is exempt. A “buyer” of equipment for an industrial plant or a retail establishment is exempt. (Former 29 C.F.R. § 541.205(c)(1), (2), (3), effective as of January 2001.)

In the end, “[t]he test of [the phrase] ‘directly related to management policies or general business operations’ is also met by many persons employed [in positions] as advisory specialists and consultants of various kinds, [including] credit managers, safety directors, claim agents and adjusters, wage-rate analysts, tax experts, account executives of advertising agencies, customers’ brokers in stock exchange firms, promotion men, and many others.” (Former 29 C.F.R. § 541.205(c)(5), effective as of January 2001.)

In Hodge, it was noted that the Cambridge claims adjusters’ duties and responsibilities in handling a claim from start to finish, overseeing discovery, retaining and overseeing outside counsel, determining and implementing litigation strategies, negotiating settlements, and setting reserves that averaged about $75,000 per case constituted activities “of substantial importance to the general business operations of the insurance-related entities.”  The court really focused on the claims adjusters’ ability to set reserves, noting that one five-person unit handled cases with aggregate reserves of $60 to $70 million.  The court noted testimony that the “adjusters’ decisions in setting reserves affect the finances of a client ‘dollar for dollar’ and affect a client’s business operations insofar as ‘committing of cash to one function takes it away from another.’  In short, the adjusters’ authority to set reserves is essentially equivalent to the authority to allocate and spend a company’s funds.”  (Hodge, p. 13)

Applying the language of Wage Order No. 4, the court found that “the claims adjusters were performing ‘office or non-manual work directly related to management policies or general business operations of his/her employer or his employer’s customers.’ The evidence developed at trial belies a conclusion that the adjusters’ duties and responsibilities are ‘restricted to the routine and unimportant’ as in Bell II.”  The appellate court agreed “with the trial court’s conclusion that the adjusters’ duties and responsibilities in setting reserves is of substantial importance to the general business operations of the insurance-related entities.  The court concluded that just because the plaintiffs might label themselves as working in unimportant roles does not necessarily mean that is so.  (Hodge, p. 18) Once again, this case demonstrates how important proper classification of employees is for employers. Further, in determining whether or not an employee is exempt, the courts will focus on the duties actually performed by the employee; job titles are essentially inconsequential in deciding whether or not an employee is exempt.

JAllan

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