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Insurance claims adjusters are not entitled to overtime pay, according to an opinion letter by the U.S. Department of Labor that may have major impact on the glut of wage-and-hour class actions now in the courts. The opinion, issued at the behest of an insurance industry group, upholds earlier determinations by the labor department in finding that adjusters who exercise discretion and judgment on the job and whose duties relate to a business’s management policies are considered overtime-exempt, administrative employees under the Fair Labor Standards Act. The five-page letter, by Department of Labor Administrator Tammy McCutchen, is an important victory for employers who have been hit with an avalanche of class actions alleging that they misclassified their workers and illegally withheld overtime pay from them. The damages in these cases can stretch into the tens of millions, with a $90 million July 2001 verdict against Farmers Insurance currently holding the record. While not legally binding, the opinion letter will likely have an effect on pending and future litigation, say attorneys. “It sets the record straight as what federal law truly is on this issue, and that’s what will be its use for various parties in further litigation,” said Half Moon Bay attorney Ned Fine, who was involved in requesting the letter along with Akin, Gump, Strauss, Hauer & Feld attorney George Salem. The opinion letter finds that insurance claims adjusters “satisfy the standard for exemption as bona fide administrative employees,” based on job duty descriptions provided by the National Association of Mutual Insurance Companies. According to the letter, adjusters perform work of substantial importance to the management or operation of the business since they possess authority to settle claims and may recommend claims in excess of their established authority. And the letter found that adjusters exercise independent judgment because they “make all relevant decisions regarding coverage and liability, and they negotiate with full authority to achieve a settlement.” The opinion letter also cites a 1940 report which specifically identifies claim agents and adjusters as positions that are administrative in nature. Interestingly, the letter does not address the legal argument that’s been relied on in many of the recent high-profile wage-and hour cases, including Bell v. Farmers Insurance Exchange, 87 Cal. App. 4th 805. Under the production worker theory, insurance claims adjusters are not administrative employees because they produce the company’s chief product, claims, much as auto workers on an assembly line produce cars. “When there’s such a highly publicized and notorious case as the Farmers case out there, to do the analysis on the basis that completely ignores the legal theory that saddles Farmers with liability I think is repudiation by silence,” says Scott Witlin, a Proskauer Rose employment law partner. Some attorneys speculated that the opinion letter could be brandished by the defense in the Farmers case, which is currently on appeal. But Rudy, Exelrod & Zieff’s Steven Zieff, the plaintiff counsel in that case, played down the letter’s importance. “This is clearly just an opinion letter, not a court decision, not a federal regulation,” Zieff said. “It doesn’t purport to be anything other than that, and it was clearly something that the insurance industry had a large role in concocting.” Because the court has already determined the liability portion of the Farmers case, Zieff said he didn’t expect anything to change. “The opinion letter is predicated on facts that bear zero relationship, that are unrelated to the undisputed record in the [ Farmers] case,” he said. Some attorneys noted that while the opinion letter clarifies the federal law, it also re-enforces the conflict between California and federal law. A 1998 opinion letter by the California Division of Labor Standards Enforcement’s then-Chief Counsel Miles Locker takes the opposite position of the recent Department of Labor letter. “It further indicates how divergent the analysis of the administrative exemption is becoming under state and fed law,” said Kirby Wilcox, an employment law partner at Paul, Hastings, Janofsky & Walker. “It’s like two different worlds.”

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