MEMORANDUM OPINION AND ORDER
Farmers Insurance Exchange (“FIE”) is an inter-insurance exchange, or reciprocal, organized in California. FIE employs special investigators who investigate potentially fraudulent insurance claims. Special investigator Michael Fenton alleges that he and other FIE special investigators routinely work more than forty hours per week, but are improperly classified as “exempt” from overtime pay under the Fair Labor Standards Act (“FLSA”). Fenton and twenty other named plaintiffs bring this collective action challenging this practice on behalf of themselves and all other similarly situated special investigators. See 29 U.S.C. § 216(b). In addition, twenty named plaintiffs bring claims under California state labor laws seeking further relief. Both plaintiffs and FIE now move for summary judgment. For the reasons given below, both motions are granted in part, denied in part, and deferred in part.
BACKGROUND
FIE is a reciprocal or inter-insurance exchange that sells insurance policies throughout the county. As a reciprocal exchange company, FIE is owned by its policyholders, or “subscribers,” who exchange contracts with one another and, by pooling their resources, insure one another against certain losses. FIE, whether on
FIE’s special investigators—the plaintiffs in this action—investigate the factual basis for subscribers’ insurance claims, to determine whether the claims should be paid. The claim investigation process and the job duties of the investigators are critical to this action, and are described in detail below.
The claims investigations process begins with FIE’s claims representatives, who work out of a different business unit than the investigators, and flag claims that exhibit potential signs of fraud. (Morgan Aff., Docket No. 94, at 127-28.) The claims representatives then use a shared electronic database to refer the flagged claims to an FIE unit staffed by the plaintiffs. (Id. at 105.) Managers in this unit then assign the claims to specific investigators. (Id. at 107.)
After an investigator receives an assignment, he or she is required to promptly contact the claims representative who referred the claim. (Id. at 115-16.) The investigator is required to consider the specific issues flagged by the claims representative, and attempt to develop a plan to investigate those issues. (M; Morgan Aff., Docket No. 94, Ex. F, at 74.) While investigators may occasionally suggest an additional fraud indicator to pursue, they do not reshape the scope of an investigation without first getting the approval of the claims representative or their supervisor. (Morgan Aff., Docket No. 116, Ex. 7, at 44 (“It’s [the claims representative’s] file.”); id. Ex. 2, at 38 (indicating that investigation plans are “always” sent to supervisors for approval).) In addition, while investigators may recommend that a claim does not require the work of an investigator, the final decision about whether to close an investigation is made by supervisors or claims representatives. (Ashbridge Deck, Docket No. 41, ¶ 18.)
Plaintiffs’ investigations often involve taking photographs of relevant materials; retrieving police or fire reports and other records; and interviewing the claimant and other witnesses. (Id. ¶ 19.) Investigators also ensure that FIE complies with California’s requirement that suspected insurance fraud be reported to the state. See Cal. Ins.Code § 1872.4. While plaintiffs may recommend that FIE use an expert to evaluate an incident, this determination is ultimately made by the claims representative. (Morgan Aff., Docket No. 116, Ex. 2, at 48.) In addition, while plaintiffs encounter new leads on occasion in the course of their investigations, they are not to pursue those leads without permission of the claims representative or a supervisor. (Morgan Aff., Docket No. 94, Ex. F, at 75.)
When an investigator believes that an investigation is complete, he or she contacts the claims representative to determine if the representative would like him or her to investigate further. (Morgan Aff., Docket No. 116, Ex. 12, at 158.) Once the claims representative approves the closing of the investigation, the investigators are required to submit an exhaustive file of their research materials, including “a list of all completed tasks (or an explanation of why a task was not completed), a report of any inconsistencies, discrepancies, and/or significant findings (both inculpating and exculpating); [and] a complete summary of the entire investigation.” (Ashbridge Deck, Docket No. 41, ¶ 22.) In addition, although investigators describe coming to credibility determinations after interviews with witnesses or claimants, and occasionally share these impressions in informal conversations with
Investigators are required to open new investigations at a rate of 12.5 per month, and must close each investigation within fourteen days. (Morgan Aff., Docket No. 94, Ex. 11, at 46.) These investigations are their primary job duty. (Ashbridge Deck, Docket No. 41, ¶ 6.) Investigators are also required to randomly review claim files to look for fraud indicators, an activity which accounts for 5% of their overall performance rating, (Morgan Aff., Docket No. 94, Ex. P, at 7), and occasionally conduct training for claims representatives about insurance fraud awareness.
FIE randomly subjects plaintiffs’ work product to Quality Assurance (“QA”) review. The results of QA reviews constitute 50% of FIE’s overall evaluation of an investigator’s performance. (Id.) The guidelines for performing a QA review are nine pages long, and include dozens of specific criteria that are used to evaluate an investigation’s quality. (Moran Aff., Docket No. 94, Ex. O.) The QA guidelines give specific timelines for investigators’ work, state twenty-five separate steps that investigators should consider in the course of their investigations, and state nineteen requirements for investigators’ written reports. (Id.) The QA guidelines add that the investigators’ “purpose is to provide ... factual information that allows the Claims Professionals ... to make good decisions, not tell them what decision to make, or provide conjecture on what really happened.” (Id.)
Plaintiffs filed this action under the FLSA, alleging that they are improperly classified as exempt from the FLSA’s overtime requirements. Plaintiffs seek liquidated damages and contend that the statute of limitations for their claims should be extended to three years because FIE’s violations were willful. Plaintiffs also allege claims under California state law, which are dealt with individually below. Plaintiffs now move for partial summary judgment, asking the Court to conclude (1) that they are not exempt from the FLSA’s overtime requirements, (2) that they are entitled to liquidated damages, (3) that FIE’s violations were willful, and (4) that the Court should not calculate damages using the “fluctuating workweek” method. FIE moves for summary judgment on all of plaintiffs’ claims.
ANALYSIS
I. STANDARD OF REVIEW
Summary judgment is appropriate where there are no genuine issues of material fact and the moving party can demonstrate that it is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). A fact is material if it might affect the outcome of the suit, and a dispute is genuine if the evidence is such that it could lead a reasonable jury to return a verdict for either party.
Anderson v. Liberty Lobby, Inc.,
II. EXEMPTION UNDER THE FLSA
29 U.S.C. § 207(a)(1) requires qualifying employers to pay employees time and a half for work in excess of forty hours per week. The statute includes sev
The FLSA delegates authority to define the scope of its exemptions to the Secretary of Labor (“Secretary”). 29 U.S.C. § 213(a)(1). In accordance with that authority, the Secretary has established the “short duties test,” which is used to determine whether an employee earning more than $455 per week qualifies for the administrative exemption. To qualify as exempt, an employee’s primary duty must (1) consist of 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 (2) include “the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a). The Secretary further explains:
The phrase ‘directly related to the management or general business operations’ refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting with the running or servicing of the business as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.
29 C.F.R. § 541.201(a). In addition,
the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. The term “matters of significance” refers to the level of importance or consequence of the work performed.
29 C.F.R. § 541.202(a).
The Secretary adds that whether an employee exercises sufficient discretion and independent judgment depends on factors such as “whether the employee has authority to waive or deviate from established policies and procedures without prior approval [and] whether the employee has authority to negotiate and bind the company on significant matters.” 29 C.F.R. § 541.202(b). In other words, “[t]he exercise of discretion and independent judgment must be more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.” 29 C.F.R. § 541.202(e).
The regulations go on to explain how these provisions apply to several specific jobs. For example, insurance claims adjusters generally are exempt where:
their duties include activities such as interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damage estimates; evaluating and making recommendations regarding coverage of claims; determining liability and total value of a claim; negotiating settlements; and making recommendations regarding litigation.
In arguing that plaintiffs are exempt from the FLSA’s overtime requirements, FIE relies heavily on the legal treatment of claims adjustors, both in the regulation quoted above, and in case law.
See, e.g., McAllister,
[Planning one’s own workload, such as prioritizing the pursuit of particular leads, assessing whether the leads provided are in the Investigator’s area of responsibility, or have provided information that requires further investigation, determining which potential witnesses to see and which documents to review, and making similar decisions that promote effective and efficient use of that individual’s own work time in performing assigned investigative activities, do not constitute exercising discretion and independent judgment with respect to matters of significance.
Plaintiffs also note that at least one federal case has dealt specifically with the classification of employees hired to investigate insurance claims. In
Gusdonovich v. Business Information Co.,
the court considered the status of employees whose primary responsibilities were “the search of public records, the serving of subpoenas and orders, surveillance, [and] the interrogation of witnesses.”
The Court agrees that plaintiffs’ job duties and FIE’s constraints on their discretion are sufficiently aligned with the employment circumstances of (1) the insurance investigators discussed in Gusdonovich, and (2) the employees performing background investigations and police investigations addressed by the Secretary, for plaintiffs to be non-exempt from the FLSA’s overtime requirements as a matter of law. Specifically, the Court concludes that the record demonstrates as a matter of law that plaintiffs do not “exercise ... discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a).
In reaching this conclusion, the Court begins with FIE’s extensive QA review guidelines, which explain in great detail how plaintiffs should approach dozens of issues that typically arise in the performance and documentation of investigations.
1
(See
Morgan Aff., Docket No. 94, Ex. O.) Even though this document formally functions as guidance for how to evaluate investigators, rather than as guidance for how to perform investigations, deposition testimony demonstrates that investigators are well aware of it.
(See, e.g.,
Morgan Aff., Docket No. 94, Ex. H, at 92 (noting that one employee creates his own checklists to match the QA guidelines).) In light of the fact that QA reviews constitute 50% of an employee’s overall performance assessment, it is unsurprising that their detailed criteria attract investigators’ fixed attention, and it is clear that they are relevant to this Court’s application of the short duties test.
(See, e.g.,
Morgan Aff., Docket No. 94, Ex. H, at 92 (noting that one employee creates his own checklists to match the QA guidelines));
see also Gusdonovich,
To be clear, FIE is correct that the mere fact that plaintiffs effectively operate in the shadow of an employment manual is not enough, on its own, to demonstrate that they are not exempt.
See, e.g., McAllister,
As to the Secretary’s assessment of claims adjustors, which is relied on heavily by FIE, the Court simply adds that although an employee need not perform all of the duties of claims adjusters listed by the Secretary in order to qualify as exempt,
see In re Farmers,
III. WILLFULNESS OF FLSA VIOLATIONS
FLSA violations normally have a two-year statute of limitations, but if the violations are willful, the statute of limitations is extended to three years. 29 U.S.C. § 255(a). The Supreme Court has defined a willful violation of the FLSA as one where the employer acts with “knowing or reckless disregard for the matter of
Here, plaintiffs argue that FIE’s violations should be categorized as willful because FIE failed to identify the employee responsible for its original classification decision, and failed to produce any documents demonstrating how it decided that investigators should be compensated. In other words, plaintiffs offer no evidence that affirmatively proves that FIE’s violations were willful, but argues that this Court should nonetheless infer that such evidence exists because FIE has not demonstrated otherwise. Put yet another way, plaintiffs ask this Court to reassign the burden of proof. The Court finds no legal basis for this reworking of the law, and agrees with FIE that plaintiffs’ willfulness claim must be dismissed. If plaintiffs did not receive relevant evidence, the proper course would have been to bring a motion to compel. In the absence of such a motion, and in the absence of anything else that rises above speculation about FIE’s motives, the Court concludes that plaintiffs have failed to meet the weighty burden for proving willfulness, and that their request to extend the statute of limitations to three years must be dismissed. Accordingly, as to the question of willfulness, FIE’s motion is granted, and plaintiffs’ motion is denied.
IV. LIQUIDATED DAMAGES
An employer who violates the overtime provisions of the FLSA is ordinarily liable for both the unpaid overtime compensation and an equal amount as liquidated damages. 29 U.S.C. § 216(b). Liquidated damages are not punitive, but rather account for the fact that actual damages, such as costs to the employee arising from the delay in receiving wages, may be difficult to calculate and prove.
Hultgren v. County of Lancaster,
Here, the difference in the burden of proof that distinguishes this claim from plaintiffs’ willfulness claim is critical. On this issue, as opposed to the issue of willfulness, FIE has the burden of demonstrating how it came to its classification decision.
See Barbeque Ventures,
V. CALCULATING OVERTIME PAY
The parties also seek a ruling as to the appropriate method for calculating plaintiffs’ damages. As noted above, the FLSA requires employers to pay 150% of an employee’s “regular rate” for each hour of overtime. 29 U.S.C. § 207(a)(1). This statute does not explain, however, how to calculate overtime for employees who are paid a fixed salary to work hours that vary week by week. The Secretary provides guidance on this issue at 29 C.F.R. § 778.114.
Under that regulation, where “there is a clear mutual understanding of the parties that [an employee’s] fixed salary is compensation ... for the hours worked each workweek, whatever their number,” and where this salary arrangement is sufficient to ensure that the employee is being paid at least minimum wage for every workweek, the Secretary provides specific instructions for how to calculate overtime. Id. The Secretary explains that the “regular rate” of pay for such employees is first separately determined for each individual workweek. That figure is reached by dividing the actual number of hours that the employee worked in a particular week into that week’s fixed salary. 29 C.F.R. § 778.114(b). The overtime wages for that week is then determined by taking all of the hours that the employee worked that week beyond forty, and multiplying that number by one-half of that week’s “regular rate.” This typically results in less overtime compensation than if the employee was treated as if she were simply paid by the hour, a result that the Secretary suggests is justified because salaried employees’ have already been partially compensated for their additional hours through their salary. § 778.114(a).
Here, the parties agree that plaintiffs were paid a fixed salary to work a variable schedule, and there is nothing in the record that credibly suggests any other understanding of their compensation. In those circumstances, the Court concludes that plaintiffs’ had a “clear understanding” of the fixed nature of their compensation, and that the method of calculating overtime explained in § 778.114 applies.
See Clements v. Serco, Inc.,
VI. CALIFORNIA STATE LAW CLAIMS
A. Overtime Exemption
Plaintiffs bring additional claims under California state law. FIE seeks a ruling as to whether they should be classified as exempt from California’s overtime pay requirements. California’s requirements draw the category for exemption at least as narrowly as the FLSA,
see Heffelfinger v. Elec. Data Sys. Corp.,
580
B. Waiting Time for Wages at Termination
Under California law, if an employer “willfully” fails to pay an employee all of the wages the employee is owed when the employee quits or is fired, the employer is required to continue paying the employee’s wages at the same rate for thirty days, as a penalty. Cal. Labor Code § 203. However, if it is unclear whether the employee is legally entitled to the wages, and the employer is contesting that entitlement with a good faith belief in its position, the penalty does not apply.
Barnhill v. Robert Saunders & Co.,
Here, as noted above, plaintiffs have not brought forward evidence demonstrating that FIE was aware that it was violating the FLSA, or that FIE acted other than in good faith. While plaintiffs contend that this failure of proof is a result of FIE failing to hand over evidence, plaintiffs never sought to compel the production of that evidence. Thus, the Court agrees that this claim must be dismissed. Accordingly, FIE’s motion for summary judgment is granted to the extent that it seeks judgment on plaintiffs’ claim for unpaid wages at termination.
C. Paycheck Stub Claim
California law also requires that employers provide their employees with pay stubs that include, among other things, the number of hours worked by an employee entitled to overtime compensation. Cal. Labor Code § 226. Employers who “knowing[ly] and intentionally]” fail to comply with this requirement may be liable for damages or statutory penalties. § 226(e). Plaintiffs contend that this statute was violated in this case, because then-pay stubs failed to include their overtime hours. FIE’s only argument that this claim should be dismissed as to all of the plaintiffs is that plaintiffs were exempt from any overtime pay requirements. The Court has rejected that argument for the reasons given above. Accordingly, FIE’s motion is denied to the extent that it seeks to dismiss this claim as to all of the plaintiffs.
FIE adds, however, that this claim should be dismissed as to plaintiff Neil Coffman, under the one year statute of limitations for California actions seeking statutory penalties. See Cal. Civ. Proc. § 340(a). FIE notes that Coffman was terminated on March 8, 2006, and was not added to this case until February 26, 2008. Plaintiffs do not dispute these contentions, which clearly place Coffman’s claim beyond the statute of limitations. Accordingly, FIE’s motion is granted to the extent that it seeks the dismissal of Coffman’s claim for pay stub penalties under section 226.
D. Breaks and Meal Periods
California law also provides for penalties where employers fail to provide employees with adequate meal breaks. Cal. Lab.Code § 226.7. The parties disagree over whether California’s current regulations require that an employer ensure that employees take the required breaks, or whether the employer must simply allow it. The California Supreme Court has recently granted certiorari to
ORDER
Based on the foregoing, all the files, records, and proceedings herein, IT IS HEREBY ORDERED that:
1. Plaintiffs’ Motion for Summary Judgment [Docket No. 91] is GRANTED in part, DEFERRED in part, and DENIED in part, as follows:
a. The motion is GRANTED as to plaintiffs’ contention that they are not exempt from the overtime requirements of the FLSA and California state law, and as to plaintiffs’ claim for liquidated damages.
b. The motion is DEFERRED as to plaintiffs’ claim for unpaid breaks.
c. In all other respects, plaintiffs’ motion is DENIED.
2. Defendant’s Motion for Summary Judgment [Docket No. 102] is GRANTED in part, DEFERRED in part, and DENIED in part as follows:
a. The motion is GRANTED as to plaintiffs’ allegation that defendant’s alleged violations were willful; as to plaintiffs’ California state law “waiting period” claim; and as to the California state law pay stub claim of plaintiff Neil Coffman.
b. The motion is DEFERRED as to plaintiffs’ claim for unpaid breaks.
c. In all other respects, defendant’s motion is DENIED.
3. Within twenty days of the California Supreme Court’s ruling in Brinkley v. Public Storage, the parties are to file a joint letter indicating whether further proceedings are necessary concerning plaintiffs’ claim for unpaid breaks. If no ruling has been handed down by February 1, 2010, the parties shall file a joint letter to the Court noting that fact, and shall contact the Court’s Calendar Clerk to schedule a status conference.
Notes
. For example, these guidelines state "[a]ll photos, regardless of when taken or who took them, must be reviewed to see if additional photos are needed for investigative purposes. If current photos are sufficient, then a summary of the [investigator's] observations must be documented. If they are not sufficient, then additional photos are to be obtained as needed and attached to the file.” (Morgan Aff., Docket No. 94, Ex. O.) Similarly, "[t]here must be documentation of any witness contact information (name, address, phone number, etc.) when one is identified in the investigation. There must also be an attempt to contact any witness identified, or an explanation as to why it was not necessary.” (Id.)
. FIE briefly contends that it should not be required to pay liquidated damages because the Ninth Circuit’s determination that FIE’s claims adjusters are exempt could reasonably have been read to cover the plaintiff investigators. As explained above, however, there are significant differences between these categories of employees. These differences would have been readily apparent to an employer who crafted the relevant job descriptions, and should have signaled that something beyond the Ninth Circuit case was necessary to assure FIE that the investigators were exempt. In any event, FIE offers no evidence that this is actually how FIE came to its determina