District Court Erred in Granting Employee’s Motion for Summary Judgment in Class Action Alleging Failure to Pay Overtime under Federal Fair Labor Standards Act (FLSA) because Auto Damage Adjusters Exercise Sufficient Discretion and Independent Judgment to Fall Within FLSA’s Administrative Exemption District of Columbia Circuit Holds
Plaintiffs filed a putative class action against their employer, Government Employees Insurance Corporation (GEICO) alleging violations of the federal Fair Labor Standards Act (FLSA); specifically, the class action complaint alleged that defendant misclassified its automobile insurance policy damage adjusters as “exempt” and therefore failed to pay them overtime wages due under the FLSA. Robinson-Smith v. Government Employees Ins. Co., 590 F.3d 886, 887-88 (D.C. Cir. 2010). According to the allegations underlying the class action complaint, “GEICO employs at least three categories of personnel at varying levels of responsibility who may service a given automobile claim: the liability adjuster, the auto damage adjuster and the auto damage appraiser.” Id., at 888. The liability adjuster is at the “high” end of the responsibility scale, and the damage appraiser is at the “low” end of the responsibility scale. Id. “GEICO considers the former exempt as an administrative employee under the FLSA (and thus not entitled to overtime wages) but not the latter.” Id. The issue in this class action concerned the middle group of employees. The parties filed cross-motions for summary judgment on the issue of whether the damage adjusters were administrative employees exempt from overtime pay under the FLSA; the district court used the Department of Labor’s “short test” and “held that GEICO’s auto damage adjusters do not exercise ‘sufficient’ discretion and independent judgment to qualify for the exemption[.]” Id. Accordingly, the district court ruled in favor of plaintiffs, id. GEICO appealed – “arguing that the undisputed fact that the adjusters exercise ‘some discretion’ means that they are exempt from overtime pay as administrative employees under the FLSA” – and the District of Columbia Circuit reversed. Id.
The Circuit Court explained that a GEICO damage adjuster, on average, “handles more than 1,000 claims per year, totaling over $2.5 million.” Robinson-Smith, at 888. We do not here summarize the detail outlined in the court’s opinion concerning the job responsibilities of damage adjusters. Briefly, we note that while GEICO’s damage adjusters utilize software to assist them in estimating repair costs, they are also responsible for determining when to declare a vehicle a total loss. Id., at 888-89. Additionally, the adjuster “makes decisions that are not dictated by the software…, such as interviewing insureds about pre-existing damage, determining whether damage was caused by a covered event and recommending that payment be withheld on a claim if the damage did not result from a covered loss.” Id., at 889. Further, total loss determinations may account for 20-30% of an adjuster’s workload, and “can involve thousands of dollars in additional liability for GEICO.” Id. In fact, about 30% of the total loss claims involve further negotiation between the adjuster and the insured, and “the adjuster generally has full authority to settle a claim within his limits ($10,000 for a Level I adjuster or $15,000 for a Level II adjuster) if he can justify his decision within GEICO guidelines and based on his experience.” Id.
In holding that the damage adjusters did not fall within the FLSA’s administrative exemption, the district court concluded that their daily work did not sufficiently involve “the exercise of discretion and independent judgment.” Robinson-Smith, at 890. In reaching this conclusion, it relied heavily on the district court decision in In re Farmers Ins. Exch. Claims Representatives’ Overtime Pay Litig., 300 F.Supp.2d 1020 (D.Or. 2003), but the Ninth Circuit subsequently reversed the Farmers decision “in an opinion that rejected the precise language the district court had relied on here.” Robinson-Smith, at 890 (citing In re Farmers Ins. Exch., Claims Representatives’ Overtime Pay Litig., 466 F.3d 853 (9th Cir. 2006), as amended, 481 F.3d 1119 (9th Cir. 2007)). Because the district court’s determination of whether the FLSA administrative employee exemption applied is a question of law, the Circuit Court reviewed the decision de novo. Id., at 891. In this regard, the Court noted that the “only issue” before it was “whether the district court correctly held that the primary duty of the GEICO auto damage adjuster does not include ‘discretion and independent judgment.’” Id., at 893. The D.C. Circuit noted, “An employee satisfies this requirement only if he ‘has the authority or power to make an independent choice, free from immediate direction or supervision and with respect to matters of significance.’” Id. (citation omitted). The Court held that GEICO met its burden of establishing that the primary duty of damage adjusters involves exercising such discretion and independent judgment. Id.
In the Circuit Court’s view, “the undisputed record shows that the primary duty of a GEICO auto damage adjuster, which consists of the assessment, negotiation and settlement of automobile damage claims, includes the exercise of discretion and independent judgment.” Robinson-Smith, at 893. Also, damage adjusters have “the power to make independent choices ‘free from immediate direction or supervision.’” Id., at 894 (citation omitted). And finally, “the adjuster makes choices ‘with respect to matters of significance.’” Id., at 895 (citation omitted). Accordingly, the D.C. Circuit reversed the district court order and directed the lower court to enter judgment in favor of GEICO. Id., at 897.