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Schaefer-LaRose v. Eli Lilly & Co.
This case was before the Seventh Circuit on the consolidated appeals of two different summary judgment orders in two different cases. In one case, the trial court had granted the plaintiffs’ motion for summary judgment holding that, as a matter of law, pharmaceutical reps were not administratively exempt employees. In the other case, the trial court held that the pharmaceutical reps were subject to the administrative exemption, and granted the defendant’s motion for summary judgment. Resolving this issue, at least in the Seventh Circuit, the court agreed with the latter and held that pharma reps do in fact meet both of the duties prongs of the administrative exemption. In so doing, the court joined the Third Circuit and furthered the split with the Second Circuit which had previously held that pharma reps with virtually identical duties are not subject to the administrative exemption.
Initially, the court examined the first duties prong of the administrative exemption and held that the reps’ primary duty as pharmaceutical sales representatives was performance of office work directly related to their employers’ general business operations. In so doing, the Seventh Circuit seems to have taken a particularly broad view of the first prong, in line with other recent Seventh Circuit authority, but in contrast to other circuits such as the Second and Eleventh, which typically require that an administrative employee “run of service” the employer’s business or at least some aspect of it in order to fall under the exemption.
In holding that they exercised the requisite independent judgment and discretion, the court cited the arguments raised by the defendants that:
the pharmaceutical companies assert that the representatives had a host of core duties committed to their discretion, including determining how best to gain access to particular physicians and managing their limited discretionary budgets. Their primary argument, however, focuses on the discretion that an individual representative must employ in the course of an individual sales call with a physician to communicate effectively his employer’s core message to the specific audience and to address a physician’s particular concerns.
As in other recent cases regarding the administrative exemption, the Seventh Circuit seems to have lowered the bar for the level of discretion that an employee must exercise in order to qualify for the exemption. Whereas § 541.202(b) explains:
The phrase “discretion and independent judgment” must be applied in the light of all the facts involved in the particular employment situation in which the question arises. Factors to consider when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives; whether the employee investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances.
the court seemed to simply conclude that the plaintiffs’ duties were sufficient because they exercised some level of discretion, a fact that the parties did not dispute. Discussing the discretion exercised by the plaintiffs, the court reasoned:
Beyond these physician interactions, which we consider to be the critical function of the job and the place in which discretion is most evident, the representatives’ other duties related to the actual call on the physician also manifest a substantial measure of judgment. Although representatives are given specific call plans identifying the physicians to be visited and the degree of frequency or priority category for each physician, several representatives testified that they apply a measure of strategic analysis to their work, choosing to see physicians not on their call plans or non-physicians who may influence prescribing patterns. See supra note 14 (describing discretion applied to call plans). They work collaboratively with one another, proposing comprehensive visit plans for the territories and checking in regularly by phone to keep each other abreast of developments in particular visits with physicians. Representatives also spend the vast majority of their time entirely unsupervised. Although they keep extensive records, through which management can and does monitor their progress, neither the fact that management reviews their work nor that they are required to keep such records detracts from the discretion they exercise in the core of their workday.
The court also rejected the plaintiffs’ contention that the plaintiffs’ principal duties involved the application of skill, rather than the judgment required for application of the exemption:
Finally, the plaintiffs and the Secretary briefly contend that the work of the representatives principally involves the application of skill, rather than judgment. Although they are correct that the regulations draw this distinction and caution that skill is insufficient to warrant the exemption, skill and judgment are not mutually exclusive. The records clearly demonstrate that the representatives receive extensive skills training, particularly on sales techniques. They most certainly employ this skill, and, indeed, many others in the course of their daily duties. Nevertheless, applying these skills entails a great deal of judgment. The job requires far more than “applying well-established techniques, procedures or specific standards described in manuals.”
With the issue of whether pharmaceutical reps are subject to the outside sales exemption notwithstanding the fact that they technically do not make such sales currently before the Supreme Court, the conflict between the circuits may or may not continue to be significant in a few weeks time. Regardless of the effects of this decision on the ongoing pharma rep overtime battles, it is becoming more and more clear that the Seventh Circuit is the place employers want to be if they are arguing that any type of employee is administratively exempt.
Click Schaefer-LaRose v. Eli Lilly & Co. to read the entire Order.
Kesselman v. Sanofi-Aventis U.S. LLC
Continuing a split with virtually every other circuit, another court within the Third Circuit has held that a pharmaceutical representative, performing typical duties is administratively exempt under the FLSA (and PMWA, which requires exercise of discetion and independent judgment, but not that same be exercised with regard to matters of significance) is exempt from overtime under the administrative exemption.
Discussing the Third Circuit precedent, the court stated:
The Third Circuit has recently found pharmaceutical sales representatives exempt as administrative employees under the FLSA and the PMWA. In Smith v. Johnson & Johnson, the Court held a sales representative was engaged in work directly related to the management or general business operations of the employer because the “position required her to form a strategic plan designed to maximize sales in her territory,” which “involved a high level of planning and foresight.” Because Smith “executed nearly all of her duties without direct oversight” and considered herself “the manager of her own business who could run her own territory as she saw fit [,]” the Court concluded that Smith was subject to the administrative employee exemption under the FLSA.
In Baum v. AstraZeneca, the Court, relying on Smith, held that plaintiff’s work related to her employer’s general operation because she marketed and advertised its pharmaceutical products. The plaintiff also had “significant discretion in how she would approach physicians, whether it be through access meals, peer-to-peer meetings, or other means,” “spent the majority of her time in the field, unsupervised,” “decided how much time she would spend with a given physician …. [and] whether she would use a detail aid,” such that her “day-to-day activities involved making numerous independent judgments on how best to promote [her employer’s] products.” The Third Circuit therefore held that plaintiff was subject to the administrative employee exception to the PMWA.
The court rejected plaintiff’s contention that her duties were distinguishable from prior cases within the Third Circuit:
Having carefully considered the undisputed and stipulated facts of this case, Kesselman’s deposition testimony, and record documents reflecting Kesselman’s own assessment of her job responsibilities and accomplishments, the Court finds Smith and Baum controlling. Like the plaintiffs in Smith and Baum, Kesselman spent most of her working hours unsupervised and was responsible for developing her own target list of physicians, daily and monthly sales call itineraries, and a business plan for her territory based on her extensive knowledge of clients and sales data. Although, like Smith and Baum, she often worked from company-approved materials and was expected to convey certain product information during calls, she otherwise had discretion as to how to organize and conduct the calls. In general, she considered herself the “boss” of her territory.
These activities, which closely parallel the activities of Smith and Baum, “reflect [her] ability to develop strategies; to approach, communicate, and cultivate relationships with physicians; and to operate without constant supervision in the field.” Furthermore, they “are consistent with relevant definitions of exempt administrative work because they affect Defendant’s business operations to a substantial… work on behalf of Defendant that reflect the exercise of discretion and independent judgment with respect to matters of significance….”
While the issue of whether the outside sales exemption applies to pharmaceutical representatives has reached the Supreme Court, with a resolution to be forthcoming shortly, it is not clear whether the administrative exemption issue will have the same fate. Whereas the outside sales exemption issue hinges on the legal definition of the term “sale,” the administrative exemption requires a more fact specific inquiry. Thus, for the foreseeable future, pharmaceutical representatives whose cases are decided in New Jersey, Delaware and Pennsylvania may be exempt from the FLSA under the administrative exemption, while those whose cases are adjudicated in the other 47 states are not. Of course, to the extent that the Supreme Court holds that their positions are outside sales exempt, the whole issue will be rendered moot.
Click Kesselman v. Sanofi-Aventis U.S. LLC to read the entire Memorandum Opinion and Order.
D.N.J.: Absent Exercise of Discretion in Loading Trucks, Loader Not Subject to Motor Carrier Act (MCA) Exemption
Chellis v. New Century Transp., Inc.
This case was before the court on the defendant’s motion to dismiss the complaint for failure to state a claim. Defendant asserted that, on its face, plaintiff’s complaint demonstrated that plaintiff was exempt under the motor carrier act, because plaintiff pled that he was a truck loader. However, the court disagreed, citing plaintiff’s additional allegation that he did not exercise any discretion in loading the trucks.
Significantly, the Complaint alleged the following:
“(1) Plaintiff worked as a truck loader for Defendant. (Compl.¶ 16) Plaintiff’s duties consisted of executing load plans developed by his superiors. (Id. at ¶¶ 19–20) Plaintiff did not have responsibility for exercising his own discretion or judgment when loading. (Id. at ¶¶ 22–24) Despite working in excess of forty fours a week, Plaintiff was not paid overtime.”
Holding that Plaintiff’s allegations were sufficient, the court reasoned:
“To fall within the exemption, a loader’s duties must include “the proper loading of his employer’s motor vehicles so that they may be safely operated on the highways of the country.” 29 C.F.R. § 782.5(a). An employee has safety of operation duties when:
he has responsibility when such motor vehicles are being loaded, for exercising judgment and discretion in planning and building a balanced load or in placing, distributing, or securing the pieces of freight in such a manner that the safe operation of the vehicles on the highways in interstate or foreign commerce will not be jeopardized.
The parties’ disagreement stems principally from statutory construction. Defendant argues that the regulation is disjunctive. Therefore, Plaintiff need only have duties “in placing, distributing, or securing the pieces of freight” to fall within the exemption. Id.
Plaintiff argues that “for exercising judgment and discretion in planning” modifies subsequent clauses. Id. Merely placing freight on a truck does not fall within the exemption absent the responsibility for using discretion and judgment for such placement. Because Plaintiff alleges that he could not exercise discretion, he was not a loader as defined by the regulation.
Considering the staggering use of disjunctives and conjunctives in the same sentence, the disagreement is understandable. Although this Circuit has not addressed the issue, the balance of courts around the country tend to agree with Plaintiff. See, e.g., Lewis v. Eskridge Trucking Co., 2011 WL 4598189, *1 (11th Cir.2011) (emphasizing discretion and responsibility in analyzing the loader exemption); Vaughn v. Watkins Motor Lines, Inc., 291 F.3d 900, 904 (6th Cir.2002) (“the plaintiffs and [defendant] disagree as to whether these two dockworkers exercised the judgment and discretion necessary to be considered loaders.”); Shultz v. Kelley, 431 F.2d 1364, 1368 (10th Cir.1970) (a loader must “exercis[e] judgment and discretion in (1) planning and building a balanced load or (2) placing, (3) distributing, or (4) securing the pieces of freight.”). The Court agrees with this analysis.
Here, Plaintiff clearly alleges that he did not have responsibility for exercising judgment or discretion when loading the trucks. (See Compl. ¶¶ 22–26) Therefore, the exemption does not apply and the Motion will be denied.”
Click Chellis v. New Century Transportation, Inc. to read the entire Order Denying Defendant’s Motion to Dismiss.
D.Minn.: “Insurance Investigators” Were Non-Exempt, Because Their Duties Lacked Independent Judgment and Discretion
Ahle v. Veracity Research Co.
Among other motions, the case was before the Court on the parties’ cross-motions for summary judgment. Of note here, the parties asked the Court to determine whether Plaintiffs, who were “Insurance Investigators” qualified as Administrative Exempt or not. Holding that their duties did not require the independent judgment and discretion necessary, the Court held that Plaintiffs were non-exempt under the FLSA.
Examining the Plaintiffs’ duties the Court explained:
“Veracity is a full-service investigative firm specializing in insurance defense investigations. Answer to Compl., Defenses and Am. Counterclaim (Counterclaim) [Docket No. 29] ¶ 5. Named Plaintiffs Ahle, Jordan, and Wiseman formerly worked as investigators for Veracity. Id. ¶¶ 6-8; Collective Action Compl. [Docket No. 1] ¶¶ 4-6. Approximately 150 other individuals have opted into this litigation. The plaintiff class members are current or former investigators for Veracity.
Veracity is hired by insurance companies, third-party administrators, and law firms to investigate suspect claims. Morgan Decl., May 13, 2010 [Docket No. 186], Ex. 1 (Foster Dep.) 45:22-46:8. Veracity categorizes its investigators by title and level; the titles and levels that are at issue in this litigation are surveillance investigators (levels 1-3), claims investigators (level 4), and senior field investigators (level 5). Morgan Decl., May 13, 2010, Ex. 2 (Doyle Dep.) 60:10-19. Surveillance investigators primarily work in the field conducting surveillance, undercover investigations, and background checks. Id. 50:15-21; Foster Aff ., July 7, 2009 [Docket No. 59], ¶ 7. Claims investigators generally perform the same duties as surveillance investigators, but they also interview witnesses, obtain statements, take photographs, and, occasionally, perform sales functions. Foster Aff., July 7, 2009, ¶¶ 8, 10-11. Senior field investigators supervise and manage surveillance and claims investigators in the field, train new investigators, and perform occasional promotion and sales duties. Id. ¶ 13. Thus, all of the titles and levels of investigators at issue have in common some surveillance duties, although the parties dispute whether the primary duty of investigators in each of these titles and levels is surveillance.
After receiving an assignment from Veracity but before driving to the surveillance site, the investigator typically completes several tasks including reviewing the assignment sheet, performing a background check on the subject, matching the name of the subject to an address, mapping out directions to the surveillance site, and ensuring that the investigator’s camera, laptop computer, and cellular phones are fully charged. Morgan Decl., May 13, 2010, Ex. 8 at VRC001063-64. According to Plaintiffs, investigators also are required to perform maintenance including cleaning the windows and filling the fuel tank on their vehicles before leaving for a surveillance site. Morgan Decl., May 13, 2010, Exs. 13, 14, ¶ 6. At the surveillance site, investigators monitor and video record the subject and take notes of their observations. Morgan Decl., May 13, 2010, Ex. 13, ¶ 5. Claims investigators may also interview witnesses, obtain statements, and collect documents. Foster Dep. 149:7-23.
Investigators record their activities in a daily investigative report (“DIR”). Morgan Decl., May 13, 2010, Exs. 13, 14 ¶ 7. An investigator’s DIR discloses when the investigator left home for the surveillance site, the drive time, the arrival time, observation notes, the departure time from the site, and the arrival time back at the investigator’s home. Id. Once completed, the investigator sends the DIR online to Veracity. Id. Investigators send any video recording taken during the day to their managers by depositing the tapes at a FedEx drop-off location. Id .
The dispute in this action centers on whether Plaintiffs, given their daily duties, were properly classified as FLSA “exempt” employees who are not required to be paid overtime for work in excess of forty hours per week. Based on Veracity’s founders’ view of the “industry standard,” Veracity classified its investigators as exempt when it began business in 1995. Doyle Dep. 15:10-17:6. Plaintiffs initiated this action on January 8, 2009, claiming that they were improperly classified as exempt and, therefore, were wrongfully denied compensation for overtime hours allegedly worked while employed by Veracity as investigators.”
After concluding that it lacked information sufficient to determine whether the second prong of the Administrative Exemption was met or not here, the Court held that Defendant could not, as a matter of law, establish that Plaintiffs’ activities required the independent judgment and discretion required for application of the exemption:
“Discretion and Independent Judgment
Although claims investigations is directly related to the management or general business operations of Veracity’s clients, such a primary duty must also involve the exercise of discretion and independent judgment with respect to matters of significance for claims investigators to meet the final element of the definition of administrative employees. DOL regulations explain that “the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.” 29 C.F.R. § 541.202(a).
Factors to be considered when determining whether an employee exercises discretion and independent judgment with respect to matters of significance include, but are not limited to: whether the employee has authority to formulate, affect, interpret, or implement management policies or operating practices; whether the employee carries out major assignments in conducting the operations of the business; whether the employee performs work that affects business operations to a substantial degree, even if the employee’s assignments are related to operation of a particular segment of the business; whether the employee has authority to commit the employer in matters that have significant financial impact; whether the employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant matters; whether the employee provides consultation or expert advice to management; whether the employee is involved in planning long- or short-term business objectives; whether the employee investigates and resolves matters of significance on behalf of management; and whether the employee represents the company in handling complaints, arbitrating disputes or resolving grievances. Id. § 541.202(b). “The exercise of discretion and independent judgment implies that the employee has the authority to make an independent choice, free from immediate direction or supervision,” but “employees can exercise discretion and independent judgment even if their decisions or recommendations are reviewed at a higher level,” and discretion and independent judgment can “consist of recommendations for action rather than the actual taking of action.” Id. § 541.202(c). However, “[t]he exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.” Id . § 541.202(e).
In support of their argument that the duties of the claims investigators do not involve the exercise of discretion and independent judgment regarding matters of significance, Plaintiffs again cite Gusdonovich, as well as Fenton v. Farmers Insurance Exchange, 663 F.Supp.2d 718 (D.Minn.2009), a case from this district. In Gusdonovich, the court concluded that the insurance “investigators were merely applying their knowledge and skill in determining what procedure to follow, which … is not the exercise of discretion and independent judgment contemplated by the [DOL] regulation[s].” 705 F.Supp. at 265.
The plaintiffs in Fenton were insurance investigators employed by a company to investigate potentially fraudulent insurance claims. 663 F.Supp.2d at 721. The court held that the job duties of such “special investigators” did not involve a sufficient exercise of discretion and independent judgment to qualify for the administrative exemption. Id. at 726. Instead, the special investigators’ job duties were “sufficiently aligned with the employment circumstances” of (1) the insurance investigators who were the plaintiffs in Gusdonovich, (2) the employees performing background investigations discussed in the 2005 DOL Opinion Letter, and (3) the police investigations addressed in DOL regulation 29 C.F.R. § 541.3(b)(1). Id. at 726. In reaching that conclusion, the court noted that the employer’s written guidelines explained in great detail how the investigators should approach issues that often arise in conducting and documenting an investigation, there was “nothing in the residual discretion available to investigators that [was] sufficient to justify exemption,” and there was no dispute that the investigator’s subjective opinions and conclusions were excluded from their written reports. Id. at 726-27. In addition, written guidelines instructed the investigators to include, with equal detail and emphasis, all inculpating and exculpating information in their reports, and investigators had no authority to determine whether a claim should be denied or whether the insurance company should seek to negotiate a settlement. Id. at 727.
Like in Gusdonovich and Fenton, Plaintiffs’ duties as claims investigators for Veracity do not involve a sufficient degree of discretion and independent judgement with respect to matters of significance. Claims investigators do not have the discretion to decide when to conduct an investigation, where to conduct it, or the length of time to spend on it. Morgan Decl., May 13, 2010, Ex. 13, ¶ 6. In addition, Veracity does not allow claims investigators to (1) make any recommendations or give their opinions as to whether fraud occurred when submitting their DIRs or (2) recommend or participate in the decision whether to deny or pay a claim or whether to conduct further investigation. Id. ¶ 8. Furthermore, Plaintiffs’ declarations state that they received guidelines and manuals describing how claims investigations are conducted and that they are “expected to follow such guidelines and manuals when conducting day-to-day investigations.” Id. ¶ 11. For example, a Veracity document entitled “Introduction to Claims Investigation and Responsibilities” informs claims investigators as follows:
Your job will be to obtain facts that relate to a specific claim. This will include, but is not limited to, taking recorded statements from the person making the claim …, witnesses to the specific incident, [and] persons that may have direct knowledge about the incident…. Your responsibility is to get the facts of the case by means of questioning or research. At times you will be called upon to obtain needed documentation to include medical records, receipts …, employment information, and police reports. You will have to develop comprehensive investigative and communication skills, and you must be able to decide which leads must be followed, and which ones should be reported but need no further effort.
One of the most challenging areas of [your job as a claims investigator] will be your ability to transfer the information that you gather into a coherent and informative report…. [I]n most cases you will not have the opportunity to speak directly with the client and therefore your report must be accurate, concise, easily understood, and complete. Morgan Decl., May 13, 2010, Ex. 9 at VRC001154.
The manual includes outlines to follow when taking a recorded statement in all investigations and in particular types of investigations (e.g., employment injuries, motor vehicle accidents resulting in deaths, products liability, property loss or theft, vehicle or property damage). Id. at VRC001167, 1176, 1216, 1230, 1233, 1240. Although claims investigators are not required to follow the outlines verbatim, the outlines do command, in several instances, that some specific information is not optional, employing language such as, “must be on every recorded statement,” “must be covered,” or “must be asked.” Id. at VRC001167, 1176, 1216, 1230, 1233, 1240. Furthermore, the outlines instruct investigators to “obtain all of the facts,” and remind the claims investigators that it is Veractiy’s responsibility to “obtain the information and then let the [client] and their legal department make the determination.” Id. at VRC001230.
The record establishes that (1) Veracity’s written guidelines explain in great detail how claims investigators should conduct an investigation, (2) the claims investigators are required to obtain all the facts regardless of their impact, and (3) the claims investigators do not include their own opinions, conclusions, or recommendations regarding the decision whether to pay or deny the claim. Because the claims investigators do not provide opinions and conclusions about their investigative observations, they are significantly different than the insurance investigators in Foster v. Nationwide Mutual Insurance Co. See 695 F.Supp.2d 748, 761 (S .D.Ohio 2010) (concluding that genuine issues of material fact exist as to whether the plaintiffs, insurance investigators, exercised discretion and independent judgment because “[m]ost significantly, there is a factual dispute as to whether Special Investigators’ primary duty encompasses providing their opinions and conclusions regarding their investigative findings”). Admittedly, claims investigators do make decisions regarding the precise manner in which they conduct an investigation-creating action plans, deciding who to interview, what documents to review, what leads to follow, and whether to recommend hiring an expert-however, such decisions are more appropriately viewed as choices among “established techniques, procedures or specific standards described in manuals or other sources,” which do not amount to the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.202(a), (e); see also 2005 Opinion Letter at 4-5 (advising that “prioritizing the pursuit of particular leads, assessing whether the leads … have provided information that requires further investigation, determining which potential witnesses to see and which documents to review, and making similar decisions that promote effective and efficient use of … work time in performing assigned investigative activities” do not involve the exercise of discretion and independent judgment with respect to matters of significance); Auer v. Robbins, 519 U.S. 452, 461 (1997) (stating that the DOL’s interpretation of its own regulations are “controlling unless plainly erroneous or inconsistent with the regulation”).
The cases cited by Veracity are unavailing. In Stout v. Smolar, the court viewed evidence that a private investigator had the authority to make decisions as to how to “investigate the scene of an accident, including determining what materials to be preserved and whether expert witnesses would be required” as showing that the investigator exercised discretion and independent judgment. No. 1:05-CV-1202, 2007 WL 2765519, at *6 n. 2 (N.D.Ga. Sept. 18, 2007). The court also commented that treating insurance investigators as not qualifying for the administrative exemption “would appear contrary to the insurance claims adjuster example of administrative exemption cited by the [DOL].” Id. This Court finds more persuasive the reasoning in DOL regulations, cases such as Fenton, and the 2005 Opinion Letter, which suggest that having discretion over the types of matters discussed in Stout does not equate to having discretion and independent judgment with respect to matters of significance. See Foster, 695 F.Supp.2d at 761 (recognizing, in light of the 2005 Opinion Letter, that deciding who to interview, what documents to review, what leads to pursue, and “similar tactical matters” were “fact-finding logistics [that] do not necessarily rise to the level of discretion and independent judgment contemplated by DOL regulations, for they do not amount to matters of significance”).
Equating Veracity’s claims investigators to claims adjusters is not a fair comparison or particularly helpful. The core function of a claims adjuster is to decide whether and to what extent an insurance claim should be paid, a task that requires considerable exercise of discretion on a matter of significance. Inclusion of the term “adjuster” in the title of the job strongly suggests that conclusion. All employees exercise some discretion in deciding how to perform their jobs, and the way in which they exercise that discretion likely will affect matters of significance. In the case of claims investigators, how they exercise their discretion in conducting an investigation will impact or affect how a claims adjuster working for one of Veracity’s clients decides the significant matter of the value of the claim. But an exercise of discretion that impacts or affects a matter of significance is not exercising discretion with respect to a matter of significance. If the rule were otherwise, all employees would arguably meet the third element of the definition of administrative employees. Because the analogy to claims adjusters is not persuasive, Veracity’s reliance on cases such as Roe-Midgett, 512 F.3d at 874, where the Seventh Circuit held that claims adjusters routinely used their discretion and independent judgment to make choices that impact damage estimates, settlement, and other matters of significance, does not alter the result here.
The Court concludes that Veracity has failed to demonstrate a triable issue as to whether the duties of claims investigators include the exercise of discretion and independent judgment with respect to matters of significance. Because claims investigators do not meet the third element of the definition in 29 C.F.R. § 541.200(a), they do not qualify for the administrative exemption.”
Not discussed here, the Court also held that the Plaintiffs lacked the requisite duties to be deemed outside sales exempt. Further, the Court held that certain time claimed as compensable by the Plaintiffs was not and that the appropriate method for determining Plaintiffs damages–as “salaried misclassified” employees was the Fluctuating Workweek (“FWW”), adopting the reasoning in the recent Seventh Circuit decision discussed here. Lastly, the Court denied Defendant’s motion for decertification of the collective action.
To read the entire decision, click here.
D.Minn.: “Special Investigators” For Insurance Company, Who Investigate Potentially Fraudulent Claims, Non-Exempt As Matter Of Law; Entitled To Overtime Pay
Fenton v. Farmers Ins. Exchange
Farmers Insurance Exchange (“FIE”) is an inter-insurance exchange, or reciprocal, organized in California. FIE employs special investigators who investigate potentially fraudulent insurance claims. Special investigator Michael Fenton alleges that he and other FIE special investigators routinely work more than forty hours per week, but are improperly classified as “exempt” from overtime pay under the Fair Labor Standards Act (“FLSA”). Fenton and twenty other named plaintiffs bring this collective action challenging this practice on behalf of themselves and all other similarly situated special investigators. See 29 U.S.C. § 216(b). Both Plaintiffs and Defendant moved for summary judgment. Both motions were granted in part and denied in part. Significantly, as discussed here though, Plaintiffs were found to be non-exempt based on their duties performed (and entitled to overtime).
The Court recited the following facts as pertinent to its decision regarding Plaintiffs’ non-exempt status, “FIE is a reciprocal or inter-insurance exchange that sells insurance policies throughout the county. As a reciprocal exchange company, FIE is owned by its policyholders, or “subscribers,” who exchange contracts with one another and, by pooling their resources, insure one another against certain losses. FIE, whether on its own or through its related companies, performs all the functions of a typical insurance company, including selling policies, contracting with individual agents who sell and service policies, procuring reinsurance, and adjusting claims.
FIE’s special investigators-the plaintiffs in this action-investigate the factual basis for subscribers’ insurance claims, to determine whether the claims should be paid. The claim investigation process and the job duties of the investigators are critical to this action, and are described in detail below.
The claims investigations process begins with FIE’s claims representatives, who work out of a different business unit than the investigators, and flag claims that exhibit potential signs of fraud. (Morgan Aff., Docket No. 94, at 127-28.) The claims representatives then use a shared electronic database to refer the flagged claims to an FIE unit staffed by the plaintiffs. ( Id. at 105.) Managers in this unit then assign the claims to specific investigators. ( Id. at 107.)
After an investigator receives an assignment, he or she is required to promptly contact the claims representative who referred the claim. ( Id. at 115-16.) The investigator is required to consider the specific issues flagged by the claims representative, and attempt to develop a plan to investigate those issues. ( Id.; Morgan Aff., Docket No. 94, Ex. F, at 74.) While investigators may occasionally suggest an additional fraud indicator to pursue, they do not reshape the scope of an investigation without first getting the approval of the claims representative or their supervisor. (Morgan Aff., Docket No. 116, Ex. 7, at 44 (“It’s [the claims representative’s] file.”); id. Ex. 2, at 38 (indicating that investigation plans are “always” sent to supervisors for approval).) In addition, while investigators may recommend that a claim does not require the work of an investigator, the final decision about whether to close an investigation is made by supervisors or claims representatives. (Ashbridge Decl., Docket No. 41, ¶ 18.)
Plaintiffs’ investigations often involve taking photographs of relevant materials; retrieving police or fire reports and other records; and interviewing the claimant and other witnesses. ( Id. ¶ 19.) Investigators also ensure that FIE complies with California’s requirement that suspected insurance fraud be reported to the state. See
Cal. Ins.Code § 1872.4. While plaintiffs may recommend that FIE use an expert to evaluate an incident, this determination is ultimately made by the claims representative. (Morgan Aff., Docket No. 116, Ex. 2, at 48.) In addition, while plaintiffs encounter new leads on occasion in the course of their investigations, they are not to pursue those leads without permission of the claims representative or a supervisor. (Morgan Aff., Docket No. 94, Ex. F, at 75.)
When an investigator believes that an investigation is complete, he or she contacts the claims representative to determine if the representative would like him or her to investigate further. (Morgan Aff., Docket No. 116, Ex. 12, at 158.) Once the claims representative approves the closing of the investigation, the investigators are required to submit an exhaustive file of their research materials, including “a list of all completed tasks (or an explanation of why a task was not completed), a report of any inconsistencies, discrepancies, and/or significant findings (both inculpating and exculpating); [and] a complete summary of the entire investigation.” (Ashbridge Decl., Docket No. 41, ¶ 22.) In addition, although investigators describe coming to credibility determinations after interviews with witnesses or claimants, and occasionally share these impressions in informal conversations with the assigning claims representatives, “the special investigator’s subjective opinions or conclusions are excluded from [these] written reports,” and investigators do not otherwise draft recommendations about whether a claim should be paid. ( Id. ¶ 21; Morgan Aff., Docket No. 94, Ex. A, at 146.)
Investigators are required to open new investigations at a rate of 12.5 per month, and must close each investigation within fourteen days. (Morgan Aff., Docket No. 94, Ex. 11, at 46.) These investigations are their primary job duty. (Ashbridge Decl., Docket No. 41, ¶ 6.) Investigators are also required to randomly review claim files to look for fraud indicators, an activity which accounts for 5% of their overall performance rating, (Morgan Aff., Docket No. 94, Ex. P, at 7), and occasionally conduct training for claims representatives about insurance fraud awareness.
FIE randomly subjects plaintiffs’ work product to Quality Assurance (“QA”) review. The results of QA reviews constitute 50% of FIE’s overall evaluation of an investigator’s performance. ( Id .) The guidelines for performing a QA review are nine pages long, and include dozens of specific criteria that are used to evaluate an investigation’s quality. (Moran Aff., Docket No. 94, Ex. O.) The QA guidelines give specific timelines for investigators’ work, state twenty-five separate steps that investigators should consider in the course of their investigations, and state nineteen requirements for investigators’ written reports. ( Id.) The QA guidelines add that the investigators’ “purpose is to provide … factual information that allows the Claims Professionals … to make good decisions, not tell them what decision to make, or provide conjecture on what really happened.” ( Id.)”
Discussing the relevant law the Court stated, “The FLSA delegates authority to define the scope of its exemptions to the Secretary of Labor (“Secretary”). 29 U.S.C. § 213(a)(1). In accordance with that authority, the Secretary has established the “short duties test,” which is used to determine whether an employee earning more than $455 per week qualifies for the administrative exemption. To qualify as exempt, an employee’s primary duty must (1) consist of the performance of office or non-manual work “directly related to the management or general business operations of the employer or the employer’s customers”; and (2) include “the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541 .200(a). The Secretary further explains:
The phrase ‘directly related to the management or general business operations’ refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting with the running or servicing of the business as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.29 C.F.R. § 541.201(a). In addition, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. The term “matters of significance” refers to the level of importance or consequence of the work performed.
29 C.F.R. § 541.202(a). The Secretary adds that whether an employee exercises sufficient discretion and independent judgment depends on factors such as “whether the employee has authority to waive or deviate from established policies and procedures without prior approval [and] whether the employee has authority to negotiate and bind the company on significant matters.” 29 C.F.R. § 541.202(b). In other words, “[t]he exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.” 29 C.F.R. § 541.202(e). The regulations go on to explain how these provisions apply to several specific jobs. For example, insurance claims adjusters generally are exempt where:
their duties include activities such as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation. 29 C.F.R. 541.203(a). In accordance with this standard, the Ninth Circuit has determined that FIE’s claims representatives-the employees to whom plaintiffs deliver their investigation results-are exempt. See In re Farmers Ins. Exch., 481 F.3d 1119 (9th Cir.2007). The Secretary clarifies, however, that “ordinary inspection work,” involving well-established techniques and procedures … catalogued and described in manuals or other sources” are not exempt. 29 C.F.R. § 541.203(g). Similarly, the Secretary has specifically indicated that investigators working in law enforcement are not exempt where they “perform work such as … conducting investigations or inspections for violations of law; performing surveillance … interviewing witnesses … preparing investigative reports; or other similar work.” 29 C.F.R. § 541.3(b)(1).
In arguing that plaintiffs are exempt from the FLSA’s overtime requirements, FIE relies heavily on the legal treatment of claims adjustors, both in the regulation quoted above, and in case law. See, e.g., McAllister, 325 F.3d at 999-1002 (finding an insurance claim “coordinator” exempt from the FLSA’s overtime requirements). Plaintiffs respond that their responsibilities are closer to those of mere investigators or inspectors, who are generally not exempt. In addition to the regulations quoted above, plaintiffs also point to an Opinion Letter issued by the Department of Labor, addressing employees who perform background investigations on federal employees seeking security clearances. See
Opinion Letter Fair Labor Standards Act, 2005 WL 3308592 (Dep’t of Labor Aug. 19, 2005); Auer v. Robbins, 519 U.S. 452, 461 (1997) (indicating that the Secretary’s interpretations of her own regulations are controlling unless they are plainly erroneous or inconsistent with the regulations). The Secretary confirmed that these investigators are not exempt from the FLSA’s overtime requirements, after noting a list of job responsibilities that are at least as significant as those at issue here. 2005 WL 3308592. Those responsibilities included (1) gathering and checking public records; (2) interviewing witnesses; (3) making decisions about whether to report security threats to the Defense Security Service (“DSS”); (4) determining what leads to follow; (5) resolving discrepancies in information with limited guidance; (6) stating whether a witness is credible; and (7) providing factual information to DSS so it can make a final determination about whether an individual should receive a security clearance. Id. The DOL explained:
[P]lanning one’s own workload, such as prioritizing the pursuit of particular leads, assessing whether the leads provided are in the Investigator’s area of responsibility, or have provided information that requires further investigation, determining which potential witnesses to see and which documents to review, and making similar decisions that promote effective and efficient use of that individual’s own work time in performing assigned investigative activities, do not constitute exercising discretion and independent judgment with respect to matters of significance. 2005 WL 3308592 (internal quotation marks omitted; emphasis original).
Plaintiffs also note that at least one federal case has dealt specifically with the classification of employees hired to investigate insurance claims. In Gusdonovich v. Business Information Co., the court considered the status of employees whose primary responsibilities were “the search of public records, the serving of subpoenas and orders, surveillance, [and] the interrogation of witnesses.” 705 F.Supp. 262, 263 (W.D.Pa.1985). The investigators’ work was subject to review by supervisors, who assessed whether the scope of their investigations stayed within appropriate parameters. Id. at 264. The court determined that in those circumstances, the employees did not exercise sufficient discretion and independent judgment to satisfy the short duties test. The court explained that in light of the extensive oversight over the investigators, their fact-gathering merely involved “applying their knowledge and skill in determining what procedure to follow,” as opposed to any bona fide exercise of discretion and independent judgment. Id. at 265.
The Court agrees that plaintiffs’ job duties and FIE’s constraints on their discretion are sufficiently aligned with the employment circumstances of (1) the insurance investigators discussed in Gusdonovich, and (2) the employees performing background investigations and police investigations addressed by the Secretary, for plaintiffs to be non-exempt from the FLSA’s overtime requirements as a matter of law. Specifically, the Court concludes that the record demonstrates as a matter of law that plaintiffs do not “exercise … discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a).
In reaching this conclusion, the Court begins with FIE’s extensive QA review guidelines, which explain in great detail how plaintiffs should approach dozens of issues that typically arise in the performance and documentation of investigations. ( See Morgan Aff., Docket No. 94, Ex. O.) Even though this document formally functions as guidance for how to evaluate investigators, rather than as guidance for how to perform investigations, deposition testimony demonstrates that investigators are well aware of it. ( See, e.g., Morgan Aff., Docket No. 94, Ex. H, at 92 (noting that one employee creates his own checklists to match the QA guidelines).) In light of the fact that QA reviews constitute 50% of an employee’s overall performance assessment, it is unsurprising that their detailed criteria attract investigators’ fixed attention, and it is clear that they are relevant to this Court’s application of the short duties test. ( See, e.g., Morgan Aff., Docket No. 94, Ex. H, at 92 (noting that one employee creates his own checklists to match the QA guidelines)); see also Gusdonovich, 705 F.Supp. at 265 (treating after-the-fact review as relevant to the scope of an employee’s discretion).
To be clear, FIE is correct that the mere fact that plaintiffs effectively operate in the shadow of an employment manual is not enough, on its own, to demonstrate that they are not exempt. See, e.g., McAllister, 325 F.3d at 1001 (“Just because McAllister was required to follow detailed manuals does not mean she did not exercise discretion and independent judgment.”); Cheatham v. Allstate Ins. Co., 465 F.3d 578, 585 (5th Cir.2006) (“[T]he requirement that Allstate adjusters must consult with manuals or guidelines does not preclude their exercise of discretion and independent judgment.”). Indeed, it is not difficult to conceive of circumstances where even extensive guidance could nonetheless leave employees with considerable discretion on matters of significance. See McAllister, 325 F.3d at 1001. Here, however, the Court finds nothing in the residual discretion available to investigators that is sufficient to justify exemption. Most significantly, FIE concedes that the investigators’ subjective opinions and conclusions are excluded from their written reports. (Ashbridge Decl., Docket No. 41, ¶ 21.) This is squarely confirmed in a passage from the QA review quoted above, which flatly states that the investigators’ “purpose is to provide … factual information that allows the Claims Professionals … to make good decisions, not tell them what decision to make, or provide conjecture on what really happened.” (Morgan Aff., Docket No. 94, Ex. O.) The guidelines add that “[a]ll inculpating and exculpating information must be reported in equal detail and emphasis,” and “[o]pinions and/or speculative ‘what if’ scenarios are not acceptable.” ( Id.) While employees do not necessarily need to make final decisions in order to be exempt, see
29 C.F.R. § 541.202(c), this explanation of the investigator’s responsibilities-in conjunction with the requirement that investigators provide the claims representatives with any and all documents that they gathered during their investigation ( id. (“All reports must be attached to the file, even if the result was no information available.”))-sufficiently demonstrates that their primary role is simply to gather facts and present them for someone else to analyze. They have no authority to determine whether a claim is covered or whether FIE should seek to negotiate a settlement, and-while their thoughts on these types of higher-level decisions may come up in informal conversation-any minor role they play in such discussions is plainly not among their “primary” duties. Cf. McAllister, 325 F.3d at 1001 (finding claims adjusters exempt despite their compliance with manuals where they had authority to settle claims of up to $250,000); Cheatham, 465 F.3d at 586 (finding insurance employees exempt despite their compliance with manuals and guidelines where they had discretion to determine liability and negotiate settlements). In short, as in Gusdonovich and the Secretary’s analysis of government background investigators, it is clear that plaintiffs are limited to “applying well-established techniques” in developing an evidentiary record for claims representatives, and do not exercise sufficient discretion and independent judgment to meet the short duties test. 29 C.F.R. § 541.202(e).
As to the Secretary’s assessment of claims adjustors, which is relied on heavily by FIE, the Court simply adds that although an employee need not perform all of the duties of claims adjusters listed by the Secretary in order to qualify as exempt, see In re Farmers, 481 F.3d at 1129, that list includes a variety of significant, discretion-laden activities that are undisputedly not present here, such as “negotiating settlements” and “making recommendations regarding litigation.” 29 C.F.R. § 541.203(a). In short, while the Ninth Circuit was correct to apply this regulation to FIE’s claims representatives, this Court finds nothing in federal law that would justify extending it to the employees who merely gather facts for those representatives, particularly when those employees are formally barred from presenting their opinions about how to handle claims in their written reports. Accordingly, as to the question of whether plaintiffs are exempt from the FLSA’s overtime requirements, plaintiffs’ motion is granted, and FIE’s motion is denied.”