Harris v. Superior Court: Court of Appeal Holds Insurance Adjusters Not Exempt

On remand from the California Supreme Court, the Second Appellate District has directed the trial court to recertify a class of Liberty Mutual insurance claims adjusters and has held that they are not exempt from overtime pay under California’s “administrative exemption.”  See Harris v. Super. Ct., ___ Cal. App. 4th ___ (Cal. Ct. App. 2012) (available here).  Defendants had presented an affirmative defense based on the administrative exemption, which the court rejected because the adjusters’ primary work duties were not directly related to either management policies or general business operations.  The decision is viewed as a clear victory for workers, and a sign that overtime exemption analysis is being revitalized to make it more difficult for employers to argue that they have no obligation to pay purportedly “exempt” employees for overtime work.

The ruling was preceded by a complex procedural history.  The trial court certified the class, whereupon Liberty Mutual put forth the affirmative defense that the adjusters were exempt under Wage Order No 4’s administrative exemption, and the plaintiffs moved for summary adjudication of the affirmative defense.  In addition to opposing the summary adjudication motion, Liberty Mutual also moved to decertify the class.  In a mixed ruling, the trial court decertified the class as to all claims arising after October 1, 2000, the effective date of the new Wage Order 4-2001, insofar as the adjusters were only exempt under an earlier version of Wage Order 4 (Wage Order 4-1998).  Liberty Mutual then sought decertification of the part of the class that remained certified, but the trial court denied the motion.  Subsequently, Liberty Mutual filed a Writ of Mandate Petition, which the Court of Appeal denied, holding the adjusters to be non-exempt.  Thereafter, the California Supreme Court reversed, holding that the Court of Appeal’s analysis of the amended wage order was flawed, since the court relied on case law that predated the most recent amendment to the applicable wage order and failed to consider the language of the amended order.

The matter was remanded to the Court of Appeal, which again denied the defendants’ writ petition, but with more thorough reasoning, per the direction of the Supreme Court.  In particular, the court further clarified the “directly related” requirement of the administrative exemption.  Harris at 25-26.  The court found that the primary responsibility of the Harris employees was adjusting individual insurance claims, a task which is not at the level of management policy or general operations.  Id.  Thus, their work was not directly related to administering the business and, as such, the administrative exemption did not apply.  Id. at 26. The Court of Appeal ordered the trial court to vacate its prior orders and deny defendants’ motion to decertify the post-2000 class, since the adjusters would be non-exempt under either Wage Order 4-1998 or Wage Order 4-2001.  Id.  The Court of Appeal’s reasoning is expected to be influential in other misclassification cases.