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Misclassfied As A Matter of Law?: Not So Fast Say the Supremes!

January 06, 2012

The California Supreme Court recently addressed whether insurance claims adjusters qualify for the administrative exemption under California law. (Harris v. Superior Court (Liberty Mutual Insurance Co.).) The Court’s decision in late December 2011, focused on the issue of the "administrative/production worker dichotomy." Here the Court was looking at whether employees who fall on the "production" side can ever qualify for the administrative exemption.

The lower court held the claims adjusters dealt with individual claims, as opposed to providing advice on general policies or operations of the company. As a result, the Court found the adjusters were production workers and could not qualify for the administrative exemption as a matter of law.

Thankfully, the California Supreme Court reversed, finding that the lower court was too simplistic in their application of the administrative/production worker dichotomy. This does not mean that the Court eliminated the administrative/ production worker analysis. The Court did not address whether the claims adjusters at issue actually qualified for the administrative exemption. However, the Court cited with approval several federal cases finding claims adjusters to be administratively exempt. In dicta, the Court noted that an employee may be exempt where the employee’s duties in "servicing" a company are sufficiently important and the employee’s duties involve the regular use of discretion and independent judgment.

This is a positive step in defending against misclassification lawsuits. However, employers should be mindful that a successful defense in this area takes planning well in advance of your first lawsuit. Employers should carefully analyze their employees’ job duties and then commit them to job descriptions in order to demonstrate that those duties are sufficient important and involve the use of discretion and independent judgment.