Courts disagree whether overtime exemption applies
Posted May 26, 2016
Employers sometimes struggle to determine whether a white-collar exemption from overtime may be applied to a particular occupation. Even courts sometimes disagree, as recently happened in two cases examining whether insurance fraud investigators could qualify for the administrative exemption. These cases created a “split” among the courts, meaning that each court reached a different conclusion.
To qualify for the administrative exemption, an employee must be paid a salary of at least $455 per week. Also, the employee’s primary duty must:
- Consist of office or non-manual work directly related to the management or general business operations, and
- Include the exercise of discretion and independent judgment on matters of significance.
Yes they can
A number of insurance fraud investigators sued their employer, claiming they did not qualify for the exemption and should have been paid overtime. In 2013, the Sixth Circuit Court of Appeals (covering Kentucky, Michigan, Ohio, and Tennessee) ruled that the investigators could qualify for the exemption.
The court found that the investigators’ duties consisted of non-manual work that was directly related to management or general business operations, and that they exercised discretion and independent judgment by resolving indicators of fraud and deciding when to refer claims to law enforcement and to the National Insurance Crime Bureau. Therefore, their primary duties could satisfy the exemption criteria (Foster v. Nationwide Mutual Insurance Company).
No they can’t
In 2015, the Fourth Circuit Court of Appeals (covering Maryland, Virginia, West Virginia, North Carolina, and South Carolina) ruled on a nearly identical lawsuit involving a different insurance company. The court noted that the underlying facts were “essentially identical” to the earlier ruling, but nevertheless held that the investigators failed to meet the exemption criteria and were entitled to overtime.
According to the Fourth Circuit, the investigator’s duties were not directly related to management or general business operations. The court noted that investigators reported their findings to claims adjusters, who then decided whether to pay a claim. The court determined that fraud investigations were therefore related to processing claims, which is a customer service, not related to managing business operations as required for the administrative exemption (Calderon vs. Geico General Insurance Company).
The Fourth Circuit did, however, find that the error was not a willful violation, noting that the issues were complex and there was no evidence that company executives “made anything other than their best attempts to resolve this difficult exemption question.”
Even courts may disagree on whether an exemption could be applied to a particular occupation, so it should not be surprising that employers sometimes wrongly classify employees as exempt. These cases also highlight the risk of relying on court rulings from other jurisdictions. For example, if an employer in one of the states covered by the Fourth Circuit had relied on the earlier ruling from the Sixth Circuit, the decision would not apply (although such reliance might help in showing good-faith efforts to comply).
Unless the United States Supreme Court rules on such as case, the split may continue to exist, with different standards being applied in different states.
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