Insurance fraud investigators are not exempt from the overtime pay requirements mandated by the Fair Labor Standards Act (FLSA), according to the 4th U.S. Circuit Court of Appeals.

As part of its insurance business, GEICO General Insurance Company hires security investigators to work in its claims department for the purpose of investigating claims that are suspected of being fraudulent. The FLSA requires employers to pay overtime for each hour their employees work in excess of 40 hours per week. However, individuals who are employed in a bona fide executive, administrative or professional capacity are exempt from the FLSA’s overtime pay requirements. The exemption requires, among other things, that the employee’s duties are performed in an office or in a nonmanual work setting, are directly related to the management of the company, and include the exercise of discretion and independent judgment.

GEICO classified its investigators as exempt from the FLSA’s overtime pay protections, citing the exercise of discretion by the investigators on an issue of significance to the company—the decision on whether to prosecute claims the investigators suspect of being fraudulent. As part of that decision, GEICO further points to the fact that the investigators are required to interview witnesses, collect evidence and evaluate the strength of the claim during the investigative process.

In 2010, Samuel Calderon brought a collective action under the FLSA on behalf of himself and other company investigators, claiming that they were improperly classified. The trial court granted summary judgment to the investigators on their overtime pay claim, finding that their primary duties did not sufficiently involve the exercise of discretion and independent judgment on matters of significance to GEICO.

The 4th Circuit affirmed the trial court’s decision, finding that conducting factual investigations and making recommendations to GEICO on whether to prosecute certain insurance claims as fraudulent is not, by itself, sufficient to satisfy the exemption’s requirements. Of significance, the 4th Circuit determined that the investigators had no role in managing, running or servicing the company’s general business operations nor developing, reviewing, evaluating or recommending to GEICO business policies or strategies related to the claims they investigated. Without such a role, the investigators could not be classified as serving in a bona fide executive, administrative or professional capacity. Accordingly, the investigators were entitled to overtime pay.

Calderon v. GEICO General Insurance Co., 4th Cir., No. 14-2111 (Dec. 23, 2015).

Professional Pointer: This case provides a clear reminder that employers periodically need to examine employment positions they are treating as exempt from the FLSA’s overtime pay requirements. Given that it is the policy of the courts to construe all such exemptions narrowly, the best practice is for employers to err on the side of paying overtime.

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