OCTOBER 2007

JUDICIAL UPDATES

Insurance Adjusters Not Exempt From Overtime Compensation Requirements Under CA Law

In Harris v. Superior Court, the plaintiffs were claims adjusters for Liberty Mutual Insurance Company and Golden Eagle Insurance Company. They sought damages based on overtime work for which they alleged they were not properly paid. Defendants claimed that the administrative exemption to the overtime compensation requirements applied to the adjusters. This dispute turned on the relationship between the administrative exemption and a legal distinction known in case law as the “administrative/production worker dichotomy.”

Wage Order 4-2001 provides that in order to qualify for the administrative exemption, an employee must be “primarily engaged in... office or non-manual work directly related to management policies or general business operations of his/her employer.” The Court looked to the federal regulations in the FLSA for guidance in interpreting the exemption. The Court held that the phrase “directly related to management policies or general business operations” encompasses two distinct requirements: (1) the work must be of a particular type, i.e., administrative, as opposed to production work, and (2) the work must be of substantial importance to the management or operation of the business.

The Court then distinguished between work performed at the level of policy or the running of a business, which is administrative, versus the day-to-day operations of the business, which is production. The Court held that the adjusters were primarily engaged in work that falls on the production side of the dichotomy, namely the day-to-day tasks involved in adjusting individual claims. The adjusters investigate and estimate claims, make coverage determinations, set reserves, negotiate settlements, make settlement recommendations, identify potential fraud, and so forth. None of that work is carried on at the level of management policy or general operations. Accordingly, the plaintiffs were not exempt administrative employees under either Wage Order 4 or Wage Order 4-2001. (California Court of Appeal Case Number B195121; August 16, 2007.)

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