As the volume of FLSA lawsuits remains high, the frequency of collective action trials – once unheard of – has correspondingly increased. On January 5, 2012, following a bench trial, Judge Edmund Sargus, Jr. of the United States District Court for the Southern District of Ohio ruled that 91 current and former “special investigators” for defendant Nationwide Mutual Insurance Company were exempt from minimum wage and overtime under the FLSA’s administrative exemption. Foster, et al. v. Nationwide Mutual Insurance Company, 2012 U.S. Dist. LEXIS 1384 (S.D. Ohio Jan. 5, 2012).
In the Court’s lengthy Order, the Court summarized the evidence presented at trial and applied it to the most commonly disputed component of the administrative exemption test - whether the investigators’ work required the exercise of discretion and independent judgment with respect to matters of significance. In making such determination, the Court first sought, consistent with FLSA jurisprudence and guidance, to define the investigators’ “primary duty” in their work for Nationwide. The Court ultimately identified the primary duty “conduct[ing] investigations into suspicious claims with the purpose or goal of resolving indicators of fraud present in those claims.” In coming to this conclusion, the Court rejected Plaintiffs’ assertion that their primary duty was to “investigate suspicious claims by gathering and reporting facts” as too “narrow”, since it failed to account for the resolution of fraud indicators in the conduct of an investigation.
This distinction made all the difference to the Court’s ultimate determination, namely that the investigators exercise discretion and judgment because they were “tasked with resolving indicators of fraud” and had “nearly unilateral discretion in referring claims to law enforcement and the [National Insurance Crime Bureau].” In regard to resolving fraud indicators, the Court noted that “‘truth’ is not an entirely objective concept” and the investigator’s decision required factual determinations, the reaching of which “necessarily requires judgment and discretion.” This discretion was “significant” because in making factual determinations the investigators had “undisputed influence on Nationwide's decisions to pay or deny insurance claims.” These investigators were thus unlike the investigators addressed in other recent FLSA opinions.
The insurance industry has a decade-long history of misclassification claims involving investigators, adjusters and other “white collar” employees, as exemplified by Foster (a complaint from 2008). Misclassification litigation continues to weigh on employers, and the risks of such litigation should be considered by all counsel, business leaders and risk managers in determining classifications and formulating and refining underlying business models.