Decided: December 23, 2015
GEICO is in the business of supplying insurance for its customers. The plaintiffs are employees or former employees of GEICO that worked in the capacity of security investigators (Investigators). The Investigators work in GEICO’s Claims Department primarily investigating claims that are suspected of being fraudulent. Under the Fair Labor Standards Act (FLSA) employers are required to pay overtime for each hour their employees work in excess of 40 hours per week; however, the Act exempts “any employee employed in a bona fide executive, administrative, or professional capacity.” 29 U.S.C. § 213(a)(1). GEICO has been classifying its Investigators as exempt from the FLSA’s requirement to pay overtime. This case primarily concerns the validity of that classification and the damages that would be due if GEICO had violated the FLSA.
In FLSA exemption cases, “the question of how [employees] spen[d] their working time…is a question of fact,” but the important question of whether the exemption applies is a question of law. FLSA exemptions are narrowly construed against the employers. Specifically, the Act exempts “any employee employed in a bona fide executive, administrative, or professional capacity.” Congress did not define this phrase but delegated authority to the Labor Department to issue regulations to define these terms. The regulations provide that the administrative exemption covers employees: (1) who are compensated at a rate of not less than $455 per week; (2) whose primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and (3) whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. The parties stipulated at the district court that the first element has been satisfied. The district court also determined the second element was likely satisfied. However, the district court ruled that the plaintiffs were entitled to partial summary judgment because GEICO failed to establish the third element. Determination of an employee’s primary duty must be based on all the facts of the case, with a major emphasis on the character of the employee’s job as a whole.
The Fourth Circuit determined that the Investigator’s conducting of factual investigations, regardless of how important they were to the employer, was not directly related to the management of general business operations of GEICO. Regardless of how the Investigators’ work product was used or who the Investigators were assisting, whether their work was directly related to management policies or general business operations depend on what their primary duty consists of. The primary duty of the Investigators, conducting factual investigations and reporting the results, is not analogous to the work in the “functional areas” that the regulations identify as exempt. The Fourth Circuit concluded that although the issue presented a very close legal question, GEICO did not show that the Investigator’s primary duty was directly related to GEICO’s management or general business operations. Therefore, the district court properly granted partial summary judgment to the plaintiffs on the issue of whether GEICO improperly classified the plaintiffs as exempt.
Further, the plaintiffs argued in their cross-appeal that the district court erred in granting partial summary judgment to GEICO on the issue of willfulness under the FLSA. Under the Portal-to-Portal Act, the length of the FLSA’s statute of limitations depends on whether the violation was willful. If it willful, then the limitations period is three years, and if it is not willful, the statute of limitations is two years. Negligence is insufficient to establish willfulness. Only employers who either knew or showed reckless disregard for the matter has willfully violated the FLSA. GEICO addressed the determination for exemption several times by bringing in high level officers, and the district court determined the decision to continue to classify the Investigators as exempt was a reasonable one. The Fourth Circuit determined that the district court was correct, and there was no basis upon which a reasonable factfinder could conclude that GEICO’s decision to classify its investigators as exempt was knowingly incorrect or reckless.
Additionally, the plaintiffs argued that the district court erred in the calculation of the compensation they were due for unpaid overtime and the denial of their request for liquidated damages. However, the Fourth Circuit concluded that the district court was correct in its calculation of compensation and its denial for liquidated damages. Lastly, the plaintiffs argue that, in the absence of an award of liquidated damages, the district court erred in declining to award prejudgment interest on the basis that GEICO acted in good faith in treating its Investigators as exempt. Under the FLSA, normally, prejudgment interest is necessary in the absence of liquidated damages, to make the plaintiff whole. Because the prejudgment interest on an FLSA overtime claim is compensatory and not punitive, the fact that the defendant’s decision not to treat the plaintiffs as exempt was reasonable or in good faith is not a valid basis for the denial of the award. Accordingly, regarding the New York Labor Law claims, the Fourth Circuit determined the district court did not have the discretion to decline to award prejudgment interest.
Austin T. Reed