Employment-Court of Appeals For The District of Columbia Circuit Rules That Auto Damage Adjusters Are Exempt From FLSA Overtime Rules

In two consolidated cases, Robinson-Smith v. Government Employees Insurance Company, No. 08-7146 (Cir. Court D.C. 2010), and Lindsay v. Government Employees Insurance Company, No. 08-7147 (Cir. Court D.C. 2010), the plaintiffs had worked for the Government Employees Insurance Company (“GEICO”) as auto damage adjusters-employees who review, negotiate and settle a customer’s claim for insurance to cover damage to the customer’s automobile. They sued GEICO for overtime pay under the Fair Labor Standards Act (the “FLSA”). GEICO had treated the plaintiffs as being exempt “administrative” employees and therefore not entitled to overtime under the FLSA. The district court ruled against GEICO, and GEICO appealed that decision.

In analyzing the case, the Court noted that certain employees, including those who work in a “bona fide executive, administrative, or professional capacity,” are exempt from the overtime requirements of the FLSA. Under DOL regulations in effect at the time the suit was filed, whether an employee works in a “bona fide administrative capacity” can be determined using a “short test” when the employee makes more than $250 per week. Once the earnings requirement is met-which it is as to the plaintiffs in this case-the short test has two prongs: first, the employee’s primary duty must be administrative in nature, and second, his or her primary duty must include work requiring the exercise of discretion and independent judgment. The Court said that the first prong is met in this case, since the plaintiffs’ primary duty is administrative, that is, it consists of the performance of office or non-manual work directly related to GEICO’s management policies and business operations.

The Court further said that, to establish the second prong of the short test, GEICO must show that the plaintiffs’ primary duty includes work requiring the exercise of discretion and independent judgment (as distinguished from the mere use of skill in applying well established techniques) and that the discretion is exercised free from immediate supervision and with respect to matters of significance. The Court concluded that this prong was met as to the plaintiffs. The record shows that the primary duty of a GEICO auto damage adjuster, which-again- consists of the assessment, negotiation and settlement of automobile damage claims, includes the exercise of discretion and independent judgment. The auto damage adjuster exercises at least some discretion, in that he or she engages in negotiations with customers over the total amount of the customer’s losses as often as 60 times per year, and that is frequently enough to meet the “primary duty” requirement (even 20 times would be enough). Further, the auto damage adjuster has the power to make independent choices free from immediate direction or supervision. This is the case, even though the adjusters had to follow GEICO’s procedures and guidelines, and despite review at a higher level, since the adjusters usually worked without immediately supervision and made decisions that were reviewed only after their estimate of the loss was written and the customer’s claim paid. Finally, the auto damage adjusters made choices with respect to matters of significance, as they were empowered to negotiate with claimants and body shops and settle claims up to $10,000 or $15,000–all actions that bind GEICO financially.

As such, the Court found that the plaintiffs/auto damage adjusters were employed in a “bona fide administrative capacity”, and were therefore exempt from the FLSA’s overtime requirements. It therefore reversed the district court’s ruling against GEICO. The Court noted that the regulations in effect at the time the plaintiffs’ claims were filed were subsequently revised, but indicated that the same result-exemption from FLSA overtime requirements-would obtain under the revised regulations.

And yes, in a footnote the Court said “The district court had no occasion to decide whether the job of a GEICO auto damage adjuster is so easy a caveman could do it”. You knew that had to come in somewhere.