Monday, March 25, 2013

6th Circuit holds that an insurer’s “special investigators” are exempt administrative employees

One of the most difficult issues employers face under the wage and hour laws is properly classifying employees under the “administrative” exemption. Much of a difficulty comes from the FLSA’s use of the word “administrative.” Many employers confuse the exemption with the performance of administrative tasks.

The mere performance of administrative tasks, however, will not qualify an employee for this exemption. Instead, the exemption only covers salaried employees whose primary duties (1) are the performance of office or non-manual work directly related to the management or general business operations of the employer or its customers, and (2) include the exercise of discretion and independent judgment on matters of significance.

Last week, the 6th Circuit opined on the application of this exemption to an insurance company’s “special investigators” (SIs). In Foster v. Nationwide Mutual Ins. Co. (6th Cir. 3/21/13) [pdf], the court concluded that Nationwide properly classified this group as exempt administrative employee.

Nationwide’s SI investigate claims that the company’s adjusters flag as presenting certain indicators of fraud. The SIs are generally experienced investigators with prior background in law enforcement or insurance claims. The SIs work with the claims adjusters to develop a plan for the investigation, which the SIs then conduct free from any supervision. They spend most of their time investigating suspicious claims, but are not allowed to adjust claims or make any decisions on whether to pay or deny a claim.

The 6th Circuit concluded that these employees are fall under the administrative exemption:

  1. The SIs’ investigative work is directly related to Nationwide’s business, as it “drives the claims adjusting decisions with respect to suspicious claims.”
  2. The SIs use discretion and independent judgment on matters of significance, as they are not merely fact-gatherers, but are charged with applying those facts to resolve the indicators of fraud, and to determine whether to refer fraudulent claims to law enforcement.

The holding of this case is narrow. Unless you are an insurer or similar company employing similar Special Investigators, Foster likely will not impact your business.

This case, however, has a broader lesson to teach. FLSA exemptions are highly fact specific. Before classifying an employee, or group of employees, as exempt, you must engage in a careful analysis of all of the facts and circumstances of your business, their jobs, and how the latter impacts the former. It’s also a good idea to run your exemptions past an employment lawyer knowledgeable on these issues. Because courts give employees the benefit of any doubt with exemptions, you should not classify an employee an exempt unless it is a reasonably clear case. You may think you are saving a few pennies in overtime, but you will spend a whole lot more defending your decision in court if challenged.