Insurance Claims Adjusters Are Not Administrative Employees And Are Not Exempt From Wage And Hours Regulations
Harris v. Superior Court
(Cal. Ct. of App., 2d Dist.), filed July 23, 2012
Frances Harris worked as a claims adjuster for an insurer. Harris and other claims adjusters were primarily involved in day-to-day tasks involved in adjusting individual claims made under insurance policies their employer issued. They investigated and estimated claims, made coverage determinations, set reserves, negotiated settlements, made settlement recommendations for claims beyond their settlement authority, identified potential fraud, and the like. However, they were not involved in the formulation of management practices or policies or in general business operations.
Harris brought a class action lawsuit for wage-and-hours violations based on the assertion that claims adjusters were not compensated for time spent in excess of regular work days and regular work weeks. As an affirmative defense, the insurer asserted that claims adjusters were administrative employees and thus exempt from the overtime compensation requirements.
Whether claims adjusters were exempt administrative employees was addressed via summary adjudication motion.
After a convoluted procedural history, the California Supreme Court remanded the matter to the Court of Appeal for consideration in light of various of its rulings.
HOLDING & REASONING
The Court of Appeal held that Harris was entitled to an adjudication that claims adjusters were not exempt administrative employees.
The court laid out the history of California and Federal wage and hour regulations and the exceptions to the minimum wages and maximum hours standards. In doing so, it looked at the exception for administrative employees. It noted that to qualify for the administrative exemption under the relevant wage orders, an employee must be primarily engaged in work that qualitatively is “directly related to management policies or general business operations.”
The court recognized that “In one sense, every type of work directly relates to management policy, because every employee does work that carries out, or is governed by, management policy.” That led it to conclude that any interpretation that would mean that all types of work meet the qualitative component of the “directly related” requirement is untenable. A proper interpretation would be that only duties performed at the level of policy or general operations can satisfy the qualitative component of the “directly related” requirement.
Looking at what it is the insurance claims adjusters do for an insurance company, the court said: “None of that work, or the similar work of the other class members, is carried on at the level of management policy or general operations. Rather, it is all part of the day-to-day operation of Employers’ business.”
Based on this, the court held that Harris and the class of claims adjusters were not exempt employees and that they were entitled to an adjudication to that effect.
The issue of whether insurance adjusters are exempt from overtime laws has been frequently litigated in recent years. Some courts have held that they are exempt. See, e.g., In re: Farmers Ins. Exchange Claim Representatives Overtime Pay Litigation, 481 F.2d 1119 (9th Cir. 2008).