Applicability of the Administrative Exemption to Insurance Company Claims Representatives

DearMs.Berman:

This is in response to your letter of September 14, 1998, requesting an opinion as to whether insurance company claims representatives are covered by the overtime provisions of Industrial Welfare Commission Wage Order 4-98 [Cal. Code of Regulations § 11040, hereinafter referred to as IWC Order 4)1 or whether said employees are exempt as "persons employed in administrative capacities" as described in Section 1 of the Wage Order.2

Both the Fair Labor Standards Act and the Wage Orders promulgated by the Industrial Welfare Commission are remedial in nature. Accordingly, " [t]he employer bears the burden of proving an employee is exempt. (Corning Glass Works v. Brennan (1974) 417 u. S. 188,·· 196-197) Exemptions are narrowly construed against the employer and their application is limited to those employees plainly and unmistakably within their terms. (Dalheim v. KDFW-TV (5th Cir. 1990) 918 F.2d 1220, 1224.)" Nordquist v. McGraw-Hill Broadcasting Co. (1995) 32 Cal.App.4th 555, 562.

As I am sure you are aware, neither federal nor state agencies, when interpreting regulations relating to exempt status, no'r- courts hearing such matters, place any reliance on the job title, but focus on the actual job duties performed. "Titles alone are of little or no assistance in determining an employee's exempt or nonexempt status." Freeman v. NBC (S.D.N.Y. 1993) 846 F. Supp. 1109, 1115, rev 'd on other grounds, 80 F.3d 78 (2nd Cir. 1996). "Titles can be had cheaply and are of no determinative value." 29 C.F.R. §541.201 (b) .

Thus, a determination as to whether an employee or group of employees are exempt or non-exempt from overtime provisions requires a thorough investigation as to the actual work performed by the employee(s) . This is a fact intensive inquiry, and for this reason, the Division generally cannot issue a ruling as to the exempt or non-exempt status of any specific employee(s) without either conducting our own investigation or by ascertaining the relevant facts in an adjudicatory capacity through an evidentiary hearing. However, there are occasions when material facts are not in dispute, or when we are requested to set forth the Division' s opinion in response to a statement of facts provided by the requesting party. Such opinion letters are authorized by statute as a means of providing guidance to the public, and may be considered by a court confronting a similar issue. (Labor Code section 1198.4; Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 571 ["agencies may provide parties with advice letters, which are not subject to the rulemaking provisions of the APA." ]; Yamaha Corp. v. State Board of Equalization (1998) 19 Cal.4th 1 [discussing the degree of deference to be accorded by courts to agency opinion letters interpreting statutes or regulations] .)

Inyourletter,yousetforththejobdutiesofinsurancecompanyclaimsrepresentativesasfollows:

"Thisclaimsrepresentativehandlesclaimsunderpersonal(asopposedtocommercial)autoinsurancepolicies.Inaccordance with company guidelines setting forthestimating policies andprocedures,heestimates theextentofautodamageandrepaircost,inadditiontoallowablemedicalandrelatedcostsattendanttobodilyinjuryclaimssometimesfiledinconnectionwith,acaraccident.Inthecourseofthisclaimsprocessing,hepassesalongtotheinsurancecompanyanyinformationwhichmaysuggestpotentialfraudorwhichmayprovide.the insurance company the opportunity to obtainreimbursement from another party to the accident('subrogation').Beforeclosingaclaimsfile,hemustget higher approvals if the amount of the estimateexceedsthedollarauthoritylevelgrantedtohimbythe insurancecompany."

You ask two questions. First, you ask whether, in determining whether certain employees function in an "administrative" capacity, the DLSE would apply the same analysis as that applied under federal regulations; that is, would our analysis focus on whether the employees' job activities are "directly related to management policies or general business operations" or are "production" in nature. Second, you ask if the facts set forth in your letter would lead DLSE to conclude that the employees described therein are nonexempt because their duties demonstrate that they are engaged in "production" activities.

Toansweryourfirstquestion,Californialawisnotidenticaltofederallawontheissueofexemptstatus.TheFairLaborStandardsActprovides,at29U.S.C.§213(a)(1),thattheminimumwageandovertimeprovisionsoftheAct[29U.S.C.§§206and207,respectively]donotapplyto:

"Any employee administrative, employed in abona fide executive, or professional capacity (including any employee employed in the capacity of academic administrative personnel or teacher in elementary or secondary schools), or in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary [of Labor], subject to the provisions of subchapter II of chapter 5 of Title 5, except that an employee of a retail or service establishment shall not be excluded from the definition of employee employed in a bona fide executive or administrative capacity because of the number of hours in his workweek which he devotes to activities not directly or closely related to the performance of executive or administrative activities, if less than 40 per centum of his hours worked in the workweek are devoted to such activities) ...."

WageOrder4[Sectionl(A)]providesthefollowingexemptionforadministrative,executiveorprofessionalemployees:

"ProvisionsofSections3through12shallnotapplytopersonsemployedinadministrative,executiveorprofessionalcapacities.Nopersonshallbeconsideredtobeemployedinanadministrative,executive,orprofessionalcapacityunless......

(1)The employee is engaged in work which is primarily intellectual, managerial, or creative, and which requires the exercise of discretion and independent judgment, and for which the remuneration is not less than $1,150 per month . ."3( emphasi's added. )

As you can see, the language of the Fair Labor Standards Act differs somewhat from that of the IWC Wage Order. The FLSA simply requires that the employee be employed in an administrative capacity, while Wage Order 4 requires that the person be engaged in workwhichisprimarily4intellectual,managerial,orcreative,andwhichrequiresexerciseofdiscretionandindependentjudgment.

The federal scheme allows the Secretary of Labor, through appropriate regulations, to define the terms used to describe exempt employees. The Department of Labor, which is headed by the Secretary of Labor, has promulgated such regulations at 29 C.F.R. §541 et seq. These regulations outline both the "long" and "short" tests of bona fide administrative employee status. Section (a) through (e) ( the "long test") defines the term "employee employed in a bona fide administrative capacity" as being an employee:

(a)[w]hoseprimarydutyconsistsof....

(1)the performance of office or non.:manual work directly related to management policies or general business operations of his employer or his employer's customers, ....and

(b)[w]hocustomarilyandregularlyexercisesdiscretionandindependentjudgment;and

(c)...(3)[w]hoexecutesunderonlygeneralsupervisionspecialassignmentsandtasks;and

(d)[w]hodoesnotdevotemorethan20percent,orinthecaseofanemployeeofaretailorserviceestablishmentwhodoesnotdevoteasmuchas40percent,ofhishoursworkedintheworkweektoactivitieswhicharenotdirectlyandcloselyrelatedtotheperformanceoftheworkdescribedinparagraphs(a)through(c)ofthissection...;and

(e)(1)[w]hoiscompensatedforhisservicesonasalaryorfeebasisatarateofnotlessthan$155perweek."

Section541.214(the"shorttest")provides:

"(a)Exceptasotherwisenotedinparagraph(b)ofthissection,§541.2containsaspecialprovisoincludingwithinthedefinitionof"administrative"anemployeewhoiscompensatedonasalaryorfeebasisatarateofnotlessthan$250perweekexclusiveofboard,lodging,orotherfacilities,andwhoseprimarydutyconsistsofeithertheperformanceofofficeornonmanualworkdirectlyrelatedtomanagementpoliciesorgeneralbusinessoperationsoftheemployerortheemployer'scustomers,...wheretheperformanceofsuchprimarydutyincludesworkrequiringtheexerciseofdiscretionandindependentjudgment.Suchahighlypaidemployeehavingsuchworkashisorherprimarydutyisdeemedtomeetalltherequirementsin§541.2(a)through(e).

Thusthe"shorttest"exemptsemployeeswhomeetthattest'shighersalarythresholdANDwhose"primaryduty"is"directlyrelatedtomanagementpoliciesorgeneralbusinessoperationsoftheemployer"(ortheemployer'scustomers)ANDwheresuchworkrequirestheexerciseofdiscretionandindependentjudgment.

ThekeydifferencebetweeneitherfederaltestandtheIWCWageOrderisthedistinctionbetweenthefederalfocuson"primaryduty"andthestatefocusonwhethertheemployeeisactuallyengagedinexemptworkformorethanhalfofthehoursworkedintheworkweek.Unlikethestrictlytime-baseddefinitionof"primarily"contained-ineachoftheIWCorders5,thefederalregulationsexpresslyprovidethat"timealone.isnotthesoletest",allowing-forafindingofexemptstatuseven"insituationswheretheemployeedoesnotspendover50%ofhistimein[exempt]duties."29C.F.R.§§541.103,541.206(b).Inadditiontothisdifferencebetweenthefederal"primaryduty"testandthestate"primarilyengagedin"test,theIWCorders(unlikethefederal"long"and"short"tests)donotprovideforalowerlevel ofscrutinyforhighercompensatedemployees.6Thesedifferencesbetweenstateandfederallawnot with satnding,theDivisionofLaborStandardsEnforcementhastraditionallyfollowedfederalcasesandfederalregulations,totheextentthatsuchcasesandregulationsarenotinconsistentwithstatewageandhourprovisions,ininterpretingandenforcingthevariousIWCwageorders,includingWageOrder4.Thus,inanopinionletterdatedJanuary7/1993,DLSEChiefCounselH.ThomasCadellexplained:

"Again,indeterminingtheexemptionstatusundertheadministrativecategory,thekeyphraseis'engagedin'andnot,asunderthefederalregulations,'primaryduty'(29C.F.R.§541.2(a))Withthisexception,theDLSEacceptsthegeneraldefinitionof'administrativeduties'setoutbytheDOLat29C.F.R.§541.2.Generally,administrativeworkmustbenonmamual,relatedtomanagementpoliciesorgeneralbusiness·operationsoftheemployerortheemployer'scustomersandmustinvolvethecustomaryandregularexerciseofdiscretionandindependentjudgment.TheDepartmentofLabor'sregulationsdiscusstheadministrativeexemptionindetailat29C.F.R.§541.201through§541.208andtheDLSEadoptsthesedefinitions.However,itmustbenotedthatcertainoftheregulationsnotcontainedwithintheabovecitedsectionsinconsistentwiththeIWCOrdersandcannotbereliedupon."7

29C.F.R.§541.205isthusoneofthefederalregulationsthatDLSEfollowsinenforcingtheprovisionsofIWCOrder4.Section 541.205(a)definesthephrase"directlyrelatedtomanagementpoliciesorgeneralbusinessoperationsof[theemployee's] employer or[the]employer's customers"as"those types ofactivitiesrelatingtotheadministrativeoperationsofabusinessasdistinguished from'production'or,inaretailor serviceestablishment,'sales'work."Furthermore,Section541.205(a)"limitstheexemptiontopersonswhoperformworkofsubstantialimportancetothemanagementoroperationofthebusinessof[the]employeror[the]employer'scustomers."Thus,inanswertoyourfirstquestion,DLSEusesthetestsetoutat29C.F.R.§541.205indeterminingtheapplicabilityoftheadministrativeexemptionunderIWCOrder4.Inotherwords,ifanemployeeisprimarilyengagedin"production"or"sales"work,rather than inactivities"directly related to management policiesorgeneralbusinessoperations,"theemployeedoesnotfallwithintheadministrativeexemptionfromIWCOrder4'sovertimerequirements.

Inresponsetoyoursecondquestion,itappears,baseduponthedescriptionofdutiessetforthinyourletter,thattheinsuranceclaimsrepresentativesdescribedthereinarenotprimarilyengagedinactivities"directlyrelatedtomanagementpoliciesorgeneralbusinessoperations,"andthus,arenotexemptfromovertimeunderOrder4.Inreachingthisconclusion,werely upon federalregulations,subject tothe limitations discussedabove,andfederalcaselaw.8

Numerous courts have held that the "concept of 'production' 1n 29 C.F.R. §541.205( a) 's administrative/productive work dichotomy is not to be understood as covering only work involving the manufacture of tangibles. The concept is not limited to manufacturing activities. therefore be 'production' Martin v. Cooper Electric Co (3rd Cir. 1991) 940 F.2d 896, 936, 112 S.Ct. 1473 (1992). See also, Reich v. State of New York production/administrative manufacturing context, and (3rd Cir. 1993) 3 F.3d 581 [holding that dichotomy applies outside the that investigators employed by the State Police Bureau of Criminal Investigation, and who are responsible for conducting investigations, are engaged 1n non-exempt "production" work. because investigations are part of a law enforcement agency's "product"] .

"Thedistinction§541.205(a)drawsisbetweenthoseemployeeswhoseprimarydutyisadministeringthebusinessaffairsoftheenterprise·fromthosewhoseprimarydutyisproducingthecommodityorcommodities,whethergoodsorservices,thattheenterpriseexiststoproduceandmarket."Dalheimv.KDFW TV(5thCir.1990)918F.2d1220,1230(emphasisadded).Inapplying§541.205,theFifthCircuitheldthatnewsproducers,directorsandassignmenteditorswerenotexemptadministratorsbecausetheirworkrelatedtothe"production"oftheproductbeingmarketedbytheemployer,namely,thenewscast,andhad·littleornothingtodowith"settingbusinesspolicy,planningthelongorshort-termobjectivesofthenewsdepartment,promotingthenewscast,negotiatingsalaryorbenefitswithotherdepartmentpersonnel,oranyoftheothertypesof'administrative'tasksnotedin§541.205(b)."9Id.at1231.Thusrejectingtheemployer'sargumentthattheterm"production,"asusedinsection541.205(a)appliedonlyto"bluecollarmanufacturingemployees,"theDalheimcourtconcludedthatwherethe"product"whichtheenterpriseexiststoproduceandmarketisaservice,theemployeeswhoseworkconsistsofprovidingthatserviceareengagedin"production"andarenotexemptadministrativeemployees.

Thisanalysishasbecomethetouchstoneofjudicialdeterminationsofexemptadministrativestatus.Administrativeactivity,asdefinedatC.F.R.§541.205(b),"denotesemploymentactivityancillarytoanemployer'sprincipalproductionactivity,whetherthatbeproductionofa'commodityorcommodities,goodsorservices',seeDalheim,918F.2dat1230,or[inthecaseofawholesaledistributor]productionofwholesalesales."Martinv.Cooper,supra,940F.2d896,904-905[holdingthatinsidesalespersonsemployedbyawholesaledistributorareengagedin "production"withinthemeaningofsection541.205{a),thatnegotiatingwithcustomersinthecourseofmakingwholesalesalesdoesnotconstituteadministrative"servicing"ofthebusinesswithinthemeaningof29·C.F.R.§541.205(b),andthus,thatsuchemployeesarenon-exempt].

TheNinthCircuitappliedthissameanalysis,inBrattv.Countyof·LosAngeles.(9thCir,1990)912F.2d1066,cert.den.498U.S.1086(1991),inholdingthatcountyprobationofficers,whoconductedinvestigationsofadultoffendersand/orjuveniledetainees,andwhoadvisedthecourtastoappropriatesentencingorothercasedisposition,didnotmeetthetestofperformingworkdirectlyrelatedtomanagementpoliciesorgeneralbusinessoperations.TheCourtheldthattheessenceofthedistinctionbetweenactivities"directlyrelatedtomanagementpolicies"andthoserelatedto"production"wasthatbetween"therunningofabusiness,andnotmerely.theday-to-daycarryingoutitsaffairs."Id.at1070.Theworkoftheprobationofficersatissuewasheldtoinvolvetheday-to daycarryingoutofthebusinessoftheprobationdepartment,asopposedtotheoveralloperationalmanagementorpoliciesofthatagency.Thecourtfurtherheldthatrecommendationsmadebytheprobationofficersastoappropriatesentencingdidnotrelatetotheoperationofthecourtsorcourtpolicy,butmerelyservedtoprovideinformationtobeusedbythecourtsintheexerciseofthecourt'sdiscretionaryfunctions.

Districtcourtsapplyingthisanalysishaveconcludedthatemployeesresponsibleforestimatingorinvestigatinginsuranceclaims,whenemployedbybusinessesengagedintheestimationorinvestigationofsuchclaims,arenon-exempt"production"employees.InReichv.AmericanInternationalAdjustmentCompany(D.Conn.1994)902F.Supp.321,325,thecourtheldthatautomobiledamageappraisersemployedbyabusinessengagedintheappraisalofdamageclaims,whoinspectvehicles,determinetheextentofnecessaryrepairs,estimaterepaircosts,and,whennecessary,negotiatewithbodyshopsregardingrepaircosts"performtheday-to-dayactivitiesofthebusiness[and,therefore]donotadministerthebusinessof[theemployer]."Similarly,inGusdonovichv.BusinessInformationCompany(W.D.Penn.1985)705F.Supp.262,thecourtheldthataninvestigator,employedbyacompanythatinvestigatesandcollectsinformationforinsurancecompanies,andwhoseprimarydutyconsistedof investigatinginsuranceclaims,wasnon-exemptbecausetheemployer's"businessis'producing'informationforitsclients,andtheplaintiff'sdutiesconsistedalmostentirelyofgatheringthat'product'.Thus.plaintiffwasengagedin'production'withinthemeaningoftheregulation."Id.at265.

Ofcourse,thisanalysisrequiresustolooknotonlyatthenatureo:ftheemployee'swork,butalsoatthenatureoftheemployer'sbusiness.Investigatorsemployedbyalawenforcementagencyareconsideredtobeengagedinnon-exempt"production"work(Reichv.StateofNewYork,supra),whilepostalinspectorsemployedbytheU.S.PostalServicehavebeenheldtobeexempt"administrators"(Spraguev.UnitedStates(Ct.Cl.1982)677F.2d865).Theseseeminglyconflictingresultsareeasilyexplained."[T]hebusinessofthePostOfficeisdeliveringthemail.AnemployeewhoworksforthePost·Officeinaninvestigatoryrolewouldnotappeartobeperformingalinefunctioninthat organization."Adamv.UnitedStates(1992)26Cl.Ct.782,791[holdingthatU.S.BorderPatrolagents,whosedutiesincludeconductinginvestigationsandpreparingcasesforprosecution,arenon-exemptbecausetheseagentscarryoutthe"endfunctionoftheBorderPatrol"].

Thus,inHaywoodv.NorthAmericanVanLines,Inc.(7thCir.1997)121F.3d1066,thecourtheldthatanemployeeemployedbyanemployerinthebusinessofshippinghouseholdgoodsforconsumersrelocatingwithintheUnitedSatesorCanada,andwhosejobdutiesconsistofnegotiatingandresolvingbillingdisputesandcustomerclaimsregardingdamagesordelaysconcerningshippedgoods,isnotengagedin"production"activitieswithinthemeaningof29C.F.R.§541.205(a),butrather-,isengagedinadministrativeactivitiesby"servicing"thebusinesswithinthemeaningofsection541.205(b).Thecourtexplainedthatthedefendant's"product"consistsofmovinghouseholdgoods,andthatplaintiff'sdutiesare"ancillarytotheproductionprocessofactuallymovingthehouseholdgoods."Id.at1071-1072.Thecourtcomparedplaintiff'sjobfunctionstothoseof"claimsagents"and"adjusters,"jobcategoriesthatareexpresslymentionedinthefederalregulations.

Tobesure,29C.F.R.§541.205(c)(5)statesthat"manypersons"employedas"advisoryspecialistsandconsultantsofvariouskinds,"including"claimsagentsandadjustors,"meet "[t]hetestofdirectlyrelated to management policies or general business operations."10 In seeming contrast ,29 C.F.R.§541.205 (c) (2) provides:

"Anemployeeperformingroutineclericaldutiesobviouslyisnotperformingworkofsubstantialimportancetothemanagementoroperationofthebusinesseventhoughhemayexercisesomemeasureofdiscretionandjudgmentastothemannerinwhichheperformshisclericaltasks....Aninspector,suchas,forexample,aninspectorfor aninsurancecompany,maycauselosstohisemployerbythefailuretoperformhisjobproperly.butsuchemployees,obviously,arenotperformingworkofsuchsubstantialimportancetothemanagementoroperationofthebusinessthatitcanbesaidtobe"directlyrelatedtomanagementpoliciesorgeneralbusinessoperations"asthatphraseisusedin§541.2."(emphasisadded.)

Taking into account, again, that it is the duties (or in state law, the work performed), rather than the titles, that determine exempt status, it would appear that the apparent conflict between subsections (c)(2) and (c)(5) of section 541.205 turns on the production/administration dichotomy. The types of employees listed at §541.205(c) (5) function as advisors either to the employer or the employer's customers, and the advice rendered concerns either the inner workings of the employer' s business or the business affairs of the customer. A claims adjustor employed by an employer whose principal business is not that of handling claims is not engaged in production work, and falls under the ambit of section 541.205(c) (5). In contrast, the processing and resolution of claims constitutes the-principal product of an insurance company, so that an insurance company claims adjustor is nothing more than a line worker, engaged in the "production" of his or her employer' s principal product. An adjuster employed by an insurance company (as opposed to a claims adjuster employed by, for example, an oil company) cannot be said to be performing work that is "directly related to management policies or general business operations" or that is "of substantial importance to the management or operation of the business." For this reason, section 541.205(c) (2) tells us that an insurance company "inspector" is not engaged in exempt "administrative" work.

Intheinstantquery,theproductbeingmarketedistheservicewhichisattendanttothepurchaseofthepolicyofinsurance.Inotherwords,whentheconsumerisinvolvedinanaccident,the"service"renderedbytheinsurerisassessmentofthedamagesandestimationofthecostofmakingtheinsuredwholeforthelossincurred,includingdiminutionofthatcostbypassingoninformationobtainedregarding-thepossibleliabilityofthirdparties.Inprocessinginsuranceclaims,theinsurancecompanyclaimsrepresentativeisthereforeengagedinproducingthepreciseproductorservicethatissoldbyhisorheremployertoitscustomers.Suchactivitiesarenotadministrativeinnature,withinthemeaningoftheIWCWageOrder.

Yourqueryfurtherstatesthattheclaimsrepresentativealso"passesalongtotheinsurancecompanyanyinformationwhichmaysuggestpossiblefraud."Inthisregard,theinsurancecompanyclaimsrepresentativefunctionsinthesamemannerastheprobationofficersinBratt.Thetransmittalofinformationastowhichotherswillexercisediscretionandindependentjudgmentastothe courseofactiontobefollowedindicatestheabsenceofdiscretionessentialtotheadministrativeexemption.Yourstatedfactsalsoaverthattotheextenanestimateexceedsthemonetarylimitssetbytheinsurancecompany,theclaimsrepresentativemustseekapprovalfromsomeonewhohastheauthoritytooverridesuchlimits.Thisproceduresuggeststhattheclaimsrepresentativeplaysnoroleinsettingsuchlimits,andthus,doesnotperformexemptadministrative"workofsubstantialimportancetothemanagementoroperationofthebusiness."Wethereforeconcludethattheinsurancecompanyclaimsrepresentativesdescribedinyourletterarenotprimarilyengagedinworkthatis"directlyrelatedtomanagementpoliciesorgeneralbusinessoperationsof[their]employeror[their]employer'scustomers."

UnderIWCOrder4,theadministrativeexemptionwillnotapplyunlesstheemployeereceivestheminimumrequiredremunerationand"isengagedinworkwhichisprimarilyintellectual11,managerial,orcreativeandwhichrequiresexerciseofdiscretionandindependentjudgemet12."(emphasisadded.)Theserequirementsareexpressedintheconjunctive;theabsenceofanyonedefeatstheexemption.

Therequirementsforestablishingtheadministrativeexemptionunderthefederalregulationsarealsoexpressedintheconjunctive.Allfiveofthecriteriasetforth§541.2mustbemetbeforeanemployeewillbeconsideredexemptunderthefederal"longtest"anddeprivedoftheprotectionoftheFLSA.Mitchell v.Williams(8thCir.1969)420F.2d67,69.Mostcasesinterpretingtheregulationshavefocusedonthefirsttworequirements,foundatsection541.2(a)and(b),whichessentiallycorrespondtothecriteriaunderthe"shorttest"discussedat29C.F.R.§541.214.Theseparatecomponentsofthe"shorttest"havebeenheldtobe"analyticallydistinct,"andthus,adeterminationthatemployeeprimarilyfunctionina"production"capacitymakesitunnecessarytoalsodeterminewhetherthoseemployeesexercisediscretionandindependentjudgment.Inotherwords,onceitisdeterminedthattheemployee'sprimarydutydoesnotconsistof"workdirectlyrelatedtomanagementpoliciesorgeneralbusinessoperationsof[the]employeror[the]employer'scustomers,"furtherinquiryisunnecessary,andtheemployeeswillbefoundtobenon-exempt.Martinv.CooperElectricSupplyCo.,supra,940F.2dat907,fn.10;Brattv.CountyofLosAngeles,supra,912F.2dat1071.

Consequently,wewouldconcludethattheinsurancecompanyclaimsrepresentativesdescribedinyourletterarenotexemptwithoutconsideringwhethertheirworkrequirestheexerciseof discretionandindependentjudgment.However,wewilltakethisopportunitytostatethattheDivision,indeterminingwhetheranemployeeisprimarilyengagedinworkthat"requiresexerciseofdiscretionandindependentjudgment,"withinthemeaningofthevariousIWCwageorders,wouldrelyonthefederalguidelinessetoutat29C.F.R.§541.207.Underthatregulation,theemployee,tobeexempt,musthavetheauthorityorpowertomakeindependentchoices"freefromimmediatedirectionandsupervision,andwithrespecttomattersofsignificance."(§541.207(a).)Moreover,"thediscretionandindependentjudgmentexercisedmustberealandsubstantial,thatis,theymustbeexercisedwithrespecttomattersofconsequence."(§541.207(d)(1).)Also,tobeexempt,theemployeemustexercisediscretionandindependentjudgment"customarilyandregularly."{§541.207(g).)Finally,theregulationswarn:

"Perhapsthemostfrequentcauseofmisapplicationoftheterm"discretionandindependentjudgment"isthefailuretodistinguishitfromtheuseofskillinvariousrespects.Anemployeewhomerelyapplieshisknowledgeinfollowingprescribedproceduresordeterminingwhichproceduretofollow,orwhodetermineswhetherspecifiedstandardsaremetorwhetheranobjectfallsintooneoranotherofanumberofdefinitegrades,classesorothercategories,withorwithouttheuseoftestingormeasuringdevices,isnotexercisingdiscretionandindependentjudgmentwithinthemeaningof§541.2.Thisistrueevenifthereissomeleewayinreachingaconclusion,aswhenanacceptablestandardincludesarangeoratoleranceaboveorbelowaspecificstandard."

29C.F.R.§541.207(c)(2).

Applyingthesecriteriatothefactsstatedinyourletter,wecannotconcludethattheclaimsrepresentativescustomarilyandregularlyexercisediscretionandindependentjudgmentastomattersofsignificance.Indeed,insofarasclaimsmustbehandled"inaccordancewithcompanyguidelinessettingforthestimatingpoliciesandprocedures",itwouldappearthatthefunctionsoftheclaimsrepresentativearebestdescribedbysection541.207(c)(2).Furthermore,therequirementthatclaimsrepresentativesobtaintheapprovalfromhigherlevelemployeeswhentheamountofthe estimateexceedsthe"dollarauthoritylevelgranted.bytheinsurance company,"suggests that whatever discretion andindependentjudgmentisexercisedisconfinedtomattersthatarenotsubstantial,andthattheclaimsrepresentativesdonothavetheauthority tomake independent choices,freefrom immediatedirectionandsupervision,withrespecttomattersofconsequence.

ThankyouforyourinterestinCalifornialaborlaw.Itrusttheaboveaddressesthemattersraisedbyyourinquiry.Ifyouhaveanyadditionalquestions,pleasefeelfreetocontacttheundersigned.

Sincerely,

MilesE.Locker

ChiefCounsel

cc:JoseMillan

TornGrogan

GregRupp

NanceSteffen

1Sections3("HousandDaysofWork")andll("MealPeriods")ofWageOrder4wereamended,effectiveJanuary1,1998;otheramendmentsmandatedbyincreasesinStateandFederalminimumwagestatuteswerealsoincorporatedintothereprintedWageOrder,whichamendedWageOrder4-89.TherewerenochangestoSections1and2,whichincludethelanguagerelevanttoyourinquiriesonexemptions.

2TheinclusionoftheadministrativeexemptioninIWCWageOrdersdatesbackto1947.TheminutesofanIWCmeetingonMarch7,1947stateatp.3thattheCommissionreceivedandacknowledgedevidenceandargumentthatfailuretoexempt"executive,administrativeandprofessionalwomen"(IWCWageOrdersonlyappliedtowomenandminorsatthattime)imposedaroadblocktoadvancementforemployeesinsuchpositions.Theminutesfurtherstateatp.4theintentoftheCommissiontoincludesuchexemptionsinitsWageOrdersusingthefederalcriteriaasaguide.See"Executive,Administrative,Professional...OutsideSalesmanRedefined"ReportandRecommendationsofthePresidingOfficeratHearingsPreliminarytoRedefinition,UnitedStatesDepartmentofLabor,October24,1940,forthefederalcriteriainexistenceatthetimeoftheinclusionofsaidexemptionsbytheIWC.TheWageOrderswerelateramendedtoapplytoemployeesofbothgenders,seeIndustrialWelfareCommissionv.SuperiorCourt(1980)27Cal.3d690,700-701.

3Thefollowingsubparagraphexemptsemployeesengagedinvariousenumeratedlicensedprofessions,andemployeesengagedinoccupationsthatare"commonlyrecognizedasalearnedorartisticprofession."Theseexemptionsareclearlyinapplicabletoinsuranceclaimsrepresentatives.

4Section2ofWageOrder4defines"primarily"tomean"morethanonehalfoftheemployee'sworktime."In1993,WageOrders4and5wereamendedtoprovidearelaxeddefinitionof"primarily"thatisexpresslylimitedtoemployeesinthe"healthcareindustry·."

5Withtheexception,asdiscussedabove,ofemployeesinthe"healthcareindustry"coveredbyIWCOrders4or5.

6Incontrasttothefederalregulations,theIWCOrdersdonotsetoutdifferentexemptiontestsforlowersalariedandhighersalariedemployees.Order4,forexample,containsathresholdrequirementof$1,150permonth;thatis,iftheemployee'ssalaryfallsbelowthatamount,theemployee,evenif"primarilyengagedin"administrativeorexecutiveduties,isnon-exempt.Astoemployeeswhosesalaryisnotlessthanthisamount,nomatterhowhighlycompensatedtheemployeemaybe,onesetofcriteriaareapppliedindeterminingwhethertheemployeeisexemptornon-exempt.

7Forexample,DLSEwillnotrelyonfederalregulationsunderwhichnursesmaybeconside.redexemptbecausetheIWChasexpresslyprovidedthatnursesarenotexemptfromcoverageofOrder4.Likewise,theIWChasdefined"teaching"inamannerthatdoesnotexemptcertainteachers,therebyprecludingrelianceonfederalregulationsdeaiingwiththeexemptionforteachers.

8"Federalinterpretationsoffederallaborlawsmayprovidepersuasiveauthorityforinterpretingstatelaw;withthepersuasivenessoffederalauthoritybeinglesswhenthestatelawdiffersfromthefederal."Aguilarv.AssociationforRetardedChildren(1991)234Cal.App.3d21,31."BecausetheCaliforniawageandhourlawsaremodeledtosomeextentonfederallaws,federalcasesmayprovidepersuasiveguidance."Nordquistv.Mc-GrawHillBroadcasting Co.,supra,32Cal.App.4that562.

929C.F.R.§541.205(b)provides,inrelevantpart,that"[t]headministrativeoperationsofthebusinessincludetheworkperformedbyso-calledwhitecollaremployeesengagedin'servicing'abusinessas,forexample,advisingthemanagement,planning,negotiating,representingthecompany,purchasing,promotingsales,andbusinessresearchandcontrol."

10Thisreferenceto"claimsagentsandadjusters"isderivedfromthe1940DOLReportwhichdefinedthe"administrative"exemption.Seefn.2,supra.TheReportdidnotexpresslyrefertoinsurancecompanyclaimsagentsorinsurancecompanyadjusters.TheReportdidgiveanexampleofa"claimagentforalargeoilcompany,"withauthoritytosettlelargeclaims,asanemployeewhowouldcomewithintheadministrativeexemption.Obviously,suchanemployeeisnotengagedintheday-to-day"production"workofhisorheremployer.("Executive,Administrative,Professional.OutsideSalesman"Redefined,ReportandRecommendations,October24,1940,atpp.24-25.)

11TheWageOrderdoesnotdefinetheterm"intellectual"work.However,inviewoftheIWC'sexpressedintenttousethefederalexemptioncriteriaasguidance(seefn.2,supra),thistermcanonlybeunderstoodtoembracetherequirementsof29C.F.R.§541.2{a)(1),thatis,withinthemeaningoftheIWCOrder,"intellectualwork"is"officeornonmanualworkdirectlyrelatedmanagementpoliciesorgeneralbusinessoperationsof[the]employeror[the]employer'scustomers."

12Thi·srequi·rementc1oselymirrorsthelanguageof29C.F.R.§541.2(b).