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7th Circuit: Damage Appraisers Are Exempt

By Meredith A. Rambousek   5/16/2008
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Administrative employees classified as exempt from overtime requirements under the Fair Labor Standards Act (FLSA) include claims adjusters employed at different levels of an employer’s claims-processing hierarchy, according to the 7th U.S. Circuit Court of Appeals.

CC Services Inc. (CCS), which processes insurance claims, categorizes its claims adjusters into four classes, including field claims representative (FCR) II and III, property specialist, and material damage appraiser (MDA). Each position fulfills certain duties and tasks as CCS requires.

MDAs’ responsibilities include such things as investigating auto accident damage, making repair or replacement determinations, drafting estimates, and settling claims of up to $12,000 where liability has been established and coverage approved. In addition, MDAs spend much of their time without direct supervision.

The FLSA requires employers to pay one and one-half times the regular rate for any hours worked in excess of 40 per week.

CCS classifies all four groups as administrative employees exempt from overtime wages mandated by the FLSA. Paula Roe-Midgett, an MDA at CCS, and Paul Decker, an FCR at CCS, disagreed with this assessment and sued individually and on behalf of all four classes of claims adjusters, alleging that CCS had improperly classified them as exempt administrative employees.

CCS filed a motion to dismiss the case. The district court granted CCS’ motion, concluding that the primary duties of all four categories involved matters directly related to management policies or general business operations and requiring the exercise of discretion and independent judgment.

On appeal, Roe-Midgett and Decker primarily challenged the classification of MDA as an exempt administrative position, but the 7th Circuit affirmed the lower court’s decision.

On review of the “directly related” requirement, the circuit court concluded that CCS customers—insurance companies—are in the business of selling policies. Therefore, CCS employees who process claims against those policies, as MDAs do, essentially perform administrative functions for CCS.

Further, as service providers, MDAs administer insurance claims, which is the main business of the CCS claims division. Taking this into account, the 7th Circuit found that MDAs’ duties directly related to CCS’ administrative operations.

The appeals court then analyzed whether MDAs had discretion and independent judgment and determined that MDAs routinely use their knowledge and experience to make choices that impact damage estimates, settlements and other matters of significance. The court went on to explain that although MDAs make coverage recommendations to their supervisors, the law allows for decisions made as a result of discretion to include recommendations for action.

Lastly, the 7th Circuit rejected the employees’ contention that MDAs do not use independent judgment, but rely on estimating software to perform their duties. These are tools that channel rather than eliminate the MDAs’ discretion, according to the 7th Circuit.

Roe-Midgett v. CC Services Inc ., 7th Cir., No. 06-3195 (Jan. 4, 2008).

Professional Pointer: The administrative exemption continues to plague employers. Employees often believe that their jobs do not directly affect the operations of the company and think that they maintain little to no discretion in performing their day-to-day duties. To avoid having to pay wages for time worked over 40 hours, employers should be sure to establish clear and distinct guidelines for what each position requires. In addition, this area is constantly changing, making it crucial for employers to remain updated on all of the recent “tests” and definitions under the law.

Meredith A. Rambousek is an attorney with the firm of Neel, Hooper & Banes PC , a Worklaw® Network firm in Houston.

Editor’s Note: This article should not be construed as legal advice.

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