- Good News, At Last, From the Department of Labor: Insurance Adjusters May Qualify for Administrative Exemption from Overtime Requirements
- June 27, 2003
- Law Firm: Thompson, Coe, Cousins & Irons, L.L.P. - Austin Office
After the recent barrage of doom and gloom wage and hour decisions, there has recently been a glimmer of good news from the Wage and Hour Division of the Department of Labor ("DOL"), the entity that regulates the Fair Labor Standards Act ("FLSA"). A recent DOL opinion letter held that insurance adjusters may qualify for the administrative exemption. This determination follows on the heels of an adverse jury verdict against Farmers Insurance Group of Companies in the amount of $90 million for its failure to pay overtime to approximately 2400 of its claims adjusters who were allegedly misclassified as exempt.
The FLSA exempts certain categories of employees from its overtime requirements, including those who meet an administrative exemption, the focus of the recent DOL opinion letter. In order to classify an employee as exempt, the employer must prove that the employee meets both a salary test and a duties test. In its recent opinion letter, DOL focused its attention on the duties test, assuming that the insurance adjusters met the $250/per week salary test. Employers, however, should never assume that simply because an employee is paid a salary that he or she is automatically exempt from overtime.
The duties test for determining whether the administrative exemption applies requires that the employee's primary duties:
- consist of the performance of office or non-manual work "directly related to management policies;" and
- requires the "exercise of discretion and independent judgment."
The job duties of the insurance adjusters at issue included the investigation and evaluation of insurance claims. The adjusters basically processed a claim from the beginning to the end, whether the claim was easily and quickly resolved or proceeded to litigation. In this regard, the adjusters gathered facts by interviewing insureds, witnesses and physicians; visited accident scenes; inspected property damage; analyzed and weighed evidence; prepared damage and loss estimates; evaluated coverage issues; set reserves; and negotiated settlements.
DOL found the above duties to be administrative in nature. DOL also concluded the adjusters' work was of "substantial importance to the management" of the insurer's business. Because the adjusters had full authority to settle claims within their established authority, DOL found they were not "mere conduits" in providing information to their supervisors, but had a real impact on company management.
Finally, DOL analyzed whether the adjusters exercised discretion and independent judgment. Specifically, DOL examined whether the adjusters' duties included "the analysis and evaluation of possible courses of conduct" with the authority to make an independent choice free from supervision. DOL determined the adjusters did exercise such discretion and the fact that the adjuster may not have final unlimited authority did not necessarily negate this element of the administrative exemption.
While this opinion is unquestionably good news for employers, remember that these letters are based exclusively on the facts submitted and are extremely fact-specific. Remember also that a determination of exempt status is never based upon job title alone and that this case might be decided differently under DOL's proposed regulations.