Appeals Court Vacates Summary Judgment in Misclassification Suit by GEICO “Telephone Claims Reps”

On October 10, 2014, the Second Circuit Court of Appeals revived a 2011 lawsuit by a potential class of “telephone claims representatives” (TCRs) from insurance giant GEICO, vacating an order of summary judgment and remanding the case back to the lower court. The district court for the Eastern District of New York had accepted the Defendant’s argument that the employees in question fell under the administrative exemption of the Fair Labor Standards Act (FLSA), but the appeals court found that there were genuine disputes of material fact to be decided by the court regarding whether the exempt status of these employees.

According to binding regulations issued by the the Secretary of Labor, in order to qualify as exempt under the FLSA’s administrative exemption an employee must satisfy several criteria. The relevant criterion here is that the exempt employee’s “primary duty incude(s) the exercise of discretion and independent judgment with respect to matters of significance.” In addition to these general criteria, the regulation contains specific provisions for insurance claims adjusters: “Insurance claims adjusters generally meet the duties requirements for the administrative exemption…if their duties include activities such as interviewing insureds, witnesses and physicicans; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation.”

Despite the presumption in favor of adjusters being exempt, however, the appeals court notes that the Secretary’s regulation goes on to state that the relevant section, § 541.203(a), “does not create a ‘blanket excemption for claims adjusters,’ but requires the courts to determine whether the claims adjusters “perform the listed tasks in a sufficiently discretionary way” to count as exempt.

The appeals court found “genuine disputes of material fact” concerning the applicability of these criteria to the class of plaintiffs. For one thing, several of the tasks enumerated in the relevant regulations do not apply–TCRs do not inspect property damage from their office cubicles, and do not appear to be involved in litigation. Also, the Court notes, there is conflicting testimony as to whether GEICO’s supervisors monitor the TCRs’ investigations, or whether GEICO’s claim-adjusting software, ClaimIQ, eliminated discretion on the part of TCRs by limiting the questions they could ask and applying an “algorithm to calculate the range of GEICO’s financial liability.” There was also conflicting testimony regarding the extent of supervisors’ control over the inputs that TCRs typed into ClaimIQ, or their involvement in negotiations about claims.

In the end, the court concluded that “the record could lead a reasonable jury to conclude that, to the extent that TCRs perform the tasks enumerated in § 541.203(a), they do so in too circumscribed and non-discretionary a manner to fall within that section’s vision of a presumptively ‘administrative’ employee…” If a jury ultimately decides that these employees are not exempt from the FLSA’s overtime requirement, GEICO might be liable for many hours of unpaid overtime by hundreds of its claims adjusters.

If you believe your rights to minimum wage or overtime pay under the Fair Labor Standards Act have been violated, please contact The Harman Firm, LLP.