By T. Chase Samples on June 30, 2022 Jackson Lewis PC
While this decision is NOT binding in California as we are in the 9th Circuit of Federal Courts, it is an important decision and guide for how this issue is determined in California by state and federal courts.
Employees whose job it was to investigate and determine the likely cause of damage to the equipment of broadband service providers were misclassified as exempt by their employer, the Eleventh Circuit Court of Appeals recently held. Therefore, the employees’ overtime claims under the Fair Labor Standards Act (FLSA) were improperly dismissed by the trial court. Fowler v. OSP Prevention Group, Inc., 2022 U.S. App. LEXIS 17679 (11th Cir. June 27, 2022). The Eleventh Circuit has jurisdiction over the federal courts in Alabama, Georgia, and Florida.
The FLSA generally requires that employees be paid no less than minimum wage for all hours worked and overtime at one-and-a-half times their “regular rate” for all work in excess of 40 hours per workweek. However, the FLSA also includes a number of exemptions from overtime, including what is commonly referred to as the “administrative” exemption. To qualify for that exemption, an employee must earn at least $684 per week ($35,568 per year) and their primary duty must be “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers” and include “the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a).
In this case, the plaintiffs were employed by OSP Prevention Group (OSP) as property damage investigators, who were assigned to investigate and determine the likely cause (e.g., backhoe digging, rodent infestation, fallen tree branch) and cost of damage to property or equipment (such as fiber optic lines, overhead wires, and cable housings) belonging to broadband service providers. The investigators were not responsible for notifying the party liable for the damage (if any) about possible subrogation or for attempting to settle with that party, as those responsibilities were handled by other OSP employees. OSP billed the broadband service providers by the hour for the plaintiffs’ work but classified them as overtime-exempt under the FLSA’s administrative exemption.
The plaintiffs sued OSP, claiming they were improperly classified as exempt and therefore were entitled to overtime wages, liquidated damages, prejudgment interest, attorney’s fees, and costs. Following discovery, OSP moved for summary judgment, asserting that the plaintiffs were in fact administrative employees. The district court agreed with OSP that the plaintiffs were administrative employees and granted summary judgment to the company. The plaintiffs appealed and the Eleventh Circuit reversed.
The Court of Appeals concluded that the plaintiffs did not satisfy the first element of the FLSA’s administrative exemption because, “for all practical purposes[,] the liability determination was akin to plugging data into a formula. OSP’s Area Manager and Supervisor of Damage Investigators in Georgia testified that if a thousand different investigators each investigated the same damage, they should all reach the same conclusions and have roughly the same measurements, even though they might arrive at their answers by slightly different methods.” Moreover, the investigators used a cost sheet furnished by the broadband service provider to calculate the monetary value of the damages and had no discretion to determine how much a repair might cost.
To satisfy the administrative exemption, noted the Eleventh Circuit, in addition to meeting the salary requirement (undisputed in this case), OSP was required to demonstrate that the investigator’s “work directly related to [the company’s] management or general business operations” and (2) “include[d] the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a). “To meet [the first] requirement, an employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.” Id. at § 541.201(a). Examples of what the applicable Department of Labor (DOL) regulations consider to be such administrative support work include areas such as accounting, human resources, safety and health, and information technology.
“By contrast,” the Court of Appeals stated, “investigative duties primarily involve investigation (of course) and factfinding, compiling reports, and making calculations and recommendations about liability according to prescribed criteria.” Employees who perform such duties fall among the categories of jobs the DOL regulations cite as not qualifying for the administrative exemption — categories such as “[o]rdinary inspection work” using “well-established techniques and procedures” often derived from manuals, 29 C.F.R. § 541.203(g), and “inspectors or investigators of various types” whose work involves using “skills and technical abilities in gathering factual information.” Individuals performing these jobs typically are considered “production” employees because they “help the business run by following the standards that have been set for them,” as opposed to the administrative employees who develop those standards.
Here, the plaintiffs were performing one of the core products that the company sells: property damage investigation. The Eleventh Circuit concluded that the case involving insurance claims adjusters, on which the district court heavily relied in its summary judgment ruling, was inapposite because those employees had “significant, policy-infused, decision-making authority, including evaluating and making recommendations about coverage for claims, negotiating settlements, and making recommendations about litigation.” By contrast, the plaintiffs in this case only undertook factfinding and left decisions regarding the outcomes of their investigations to others. Thus, the plaintiffs were more akin to the insurance fraud investigators in Calderon v. GEICO General Insurance Co., 809 F.3d 111 (4th Cir. 2015), where the Fourth Circuit concluded that the investigators did not meet the requirements of the administrative exemption. (For further discussion of Calderon, see the Jackson Lewis article, Fourth Circuit Holds Insurance Fraud Investigators are Not Exempt from Overtime Pay, Creating Circuit Split).
Accordingly, the Eleventh Circuit concluded that the summary judgment ruling should be vacated and the case remanded to the district court. Because OSP could not establish the first “duties” element of the administrative exemption, the Court of Appeals elected not to address the second element, that is, whether the plaintiffs’ duties “include[ed] the exercise of discretion and independent judgment with respect to matters of significance.”