Employment Law Alert: California Court of Appeal Announces Insurance Adjusters Are Not Exempt Employees

Harris v. Superior Court, Case No. B195121

On July 23, 2012, the California Court of Appeal held in Harris that non-management claims adjusters employed by insurance companies do not fall within the administrative exemption (Cal. Code Regs, Title 8, ยง 11040) to the overtime compensation requirements.

The court analyzed Wage Orders 4-1998 and 4-2001 to ascertain whether the job duties of the plaintiff claims adjusters fall within the administrative exemption. The court affirmed the general rule that persons are employed in an exempt administrative capacity if their duties and responsibilities involve office or manual work “directly related to management policies or general business operations.” It further acknowledged that the “directly related” requirement has both qualitative and quantitative components.

Focusing its inquiry on whether the qualitative component was satisfied, the court looked to analogous federal case law and the Fair Labor Standards Act of 1938 for guidance. Relying on such authorities, the court endorsed a distinction between “work duties that merely carry out the particular day-to-day operations of the business,” which will not satisfy the component, and those that include “running the business itself or determining its overall course or policies.” Using this framework, the court concluded the duties of the insurance adjusters at issue do not satisfy the qualitative component.

The court acknowledged the difficulty in defining the “directly related” requirement. Thus, it circumscribed its holding to the facts presented, and refused to acknowledge a generally applicable rule for insurance adjusters. The court emphatically stated that job titles alone are non-determinative.

Harris demonstrates the potentially difficult decisions which confront employers when determining whether an employee qualifies for the administrative exemption for wage purposes. By seeking guidance about such issues, employers can reduce the risk of adverse consequences when faced with such circumstances.

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July 25, 2012