Santa did not bring GEICO the gift it was hoping for this Christmas. On December 23, the Fourth Circuit issued its decision in Calderon v. GEICO Gen. Ins. Co., No. 14-2111, deciding that the insurance company’s fraud investigators perform non-exempt work under the Fair Labor Standards Act and, therefore, are entitled to overtime pay.
The FLSA requires that employers pay overtime for each hour an employee works beyond 40 in a week. An employee “employed in a bona fide executive, administrative, or professional capacity” is exempt from the FLSA’s overtime requirement. GEICO has historically classified its fraud investigators as exempt administrative employees.
The fraud investigators work in GEICO’s Special Investigations Unit, which is part of the company’s Claims department. In the unit’s chain of command, the fraud investigators report to a supervisor who reports to a manager. The chain continues to the company’s assistant vice president of claims.
Investigators typically become involved in a claim upon referral from another Claims Department employee. Ninety percent of an investigator’s time is spent investigating whether a claim is fraudulent. GEICO has established procedures governing investigation of claims. Nonetheless, investigators also use independent judgment to determine how to conduct an investigation, the inference to draw from the evidence, and determining the credibility of witnesses. Investigators submit regular reports to their supervisor. GEICO prohibits speculation in investigators’ reports and requires that fraud investigators support their conclusions with facts and evidence. Claims adjusters base their decisions on the information the investigator provides.
Relying heavily on United States Department of Labor regulations and opinion letters, the court concluded that the investigators’ “primary” duty was to resolve “narrow factual questions” about whether claims were fraudulent. GEICO argued that the fraud investigators’ work overlapped with claims adjusters’ work, which is exempt. But the adjusters’ authority is more significant and their role more independent. Additionally, the fraud investigators lacked supervisory authority, thereby making the executive exemption inapplicable.
While the investigators’ work is important to GEICO, their work is not “directly related” to the company’s management or general business operations and, therefore, the administrative exemption does not apply. The Fourth Circuit concluded that the “[i]nvestigators’ primary duty was the investigation of suspected fraud, including reporting their findings.” This was not directly related to GEICO’s general business operations. The investigators work is more “production-type” and “too far removed from their employer’s management or general business operations to satisfy the directly related element.” Instead, the fraud investigators primary duty — investigation of suspected fraudulent claims — is nothing more than “the day-to-day carrying out of [GEICO’s] affairs to the public.”
The bottom line is that the mere fact that work done by an employee is important to the business and may require some independent judgment does not make it exempt under the FLSA. Unless the rather stringent standards of the administrative or executive exemption are satisfied, the employed is entitled to overtime pay.