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Limited Discretion and Independent Judgment Enough to Claim Administrative FLSA Exemption

    Client Alerts
  • January 15, 2010

Insurance carriers have been prime targets of plaintiffs' collective action lawsuits under the Fair Labor Standards Act.  These suits often allege that employees who process insurance claims are non-exempt, and entitled to overtime payment.  Last week, the U.S. Circuit Court of Appeals for the District of Columbia concluded that automobile collision insurance adjustors working for GEICO meet the requirements for the Administrative exemption.

In Robinson-Smith v. Gov't Employees Ins. Co., the plaintiff represented a group of GEICO adjusters who are below the level of claims service adjusters, who make coverage and liability determinations.  The plaintiffs were field adjusters who assess, negotiate and settle automobile damage claims once liability and coverage issues have been decided.

The plaintiffs contended that this job largely involves the routine use of GEICO software systems to determine what repairs the insurer will pay.  The district court granted summary judgment to the plaintiffs, finding that the job does not involve the requisite degree of discretion and independent judgment to claim the Administrative exemption.  The D.C. Circuit disagreed, reversing the decision.  The appellate court determined that even though the field adjusters use software programs to guide their decisions, they still have occasional discretion over the negotiation and settlement of damage claims.

The D.C. Circuit interpreted the Administrative exemption to apply in cases where discretion and independent judgment are not a constant part of the employees' job duties.  If taken to its logical conclusion, this reasoning could make a broad class of employees who occasionally exercise independent judgment subject to the Administrative exemption.  However, the court in this case cited multiple examples of such discretion by the GEICO adjusters, and also noted a specific DOL interpretive guidance that uses similar adjusters as an example of exempt employees.  Unless other federal courts expand upon this reasoning, employers should limit Administrative exempt employees to those who regularly exercise discretion and independent judgment in performing their duties.