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The federal Appeals Court of the Fourth Circuit found for several GEICO employees in an FLSA suit. The court ruled that the insurance company fell short of proving that the plaintiffs were an exempted class of worker for purposes of overtime pay.
Not "Directly Related"
In the case of Calderon v. GEICO Ins. Co., a number of employees charged with a very narrow band of responsibilities brought suit against GEICO, objecting to their classification as exempt employees under the Fair Labor Standards Act's overtime provisions.
The plaintiffs worked within GEICO's special operations unit which deals with the review of potentially fraudulent claims. Over 90 percent of the work is dedicated to investigating suspicious claim referrals. It can be fairly said, then, that the claim adjuster's decision to later pursue a case on fraud is largely dependent on the work of the investigators.
FLSA Exemptions Visited
GEICO had longed classed its investigators as exempt under the FLSA provisions, but it did revisit the issue in 2004 in response to a federal court ruling that had found that the companies auto-adjusters were exempt. In 2007, the company examined the issue again and continued to hold firm.
In 2010, however, the investigators brought suit and were granted partial summary judgment on some of the plaintiffs' claims.
Circuit Weighs In
GEICO's theory rested on the fact that the position of the investigators gave them no power to supervise or to develop business strategies -- admitting that while their work was important, it did not amount to management a generally accepted condition of exempt status in FLSA provisions. In GEICO's view, the investigators essentially performed the same functions as adjusters (who are exempt), and should also be exempted as well.
The gravamen of the defendants' theory is that the investigators' roles satisfy the so-called "directly related" element of FLSA exemption because they support the claims-adjustment mechanism. But the Circuit Court rejected this notion, responding that GEICO logic would allow for the run-of-the-mill secretarial work to be found as "directly related" to managerial or business operations.
In light of this improper exemption, the court imposed penalties but refused to twist the knife. This merciful move was in part due to the court's finding of good faith on GEICO's part. The "very close legal question" was decided for GEICO because the body of evidence supported the theory of GEICO making an honest attempt to resolve the legal question of whether or not the investigators properly qualified as exempt.