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.