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LOS ANGELES—A California appellate court ruling that Liberty Mutual Group's claims adjusters are eligible for overtime could reach other businesses in California beyond the insurance industry.
But some experts question whether the California Supreme Court, which already overturned a ruling by the Court of Appeals in the same case, will uphold this latest ruling should Liberty Mutual appeal.
Frances Harris et al. vs. the Superior Court of Los Angeles has a complex history.
A trial court held initially that, based on two regulations by California's Industrial Welfare Commission, only some claims adjusters were eligible for overtime depending on whether they filed their claims before or after October 2000.
In 2007, the state appellate court ruled that all the claims examiners were eligible for overtime. However, the California Supreme Court overturned that ruling in December 2007 and remanded the case to the appellate court, holding that the appellate court had not used the “correct legal standard” in its ruling.
In its 2-to-1 ruling last week, a panel of the appellate court focused on the administrative exemption to California's overtime requirements. To be exempt from overtime, the court ruled that an employee must be primarily engaged in work “directly related to management polices or general business operations.”
“We hold that, with the few exceptions we have noted, adjusters' work duties do not satisfy the qualitative component of the "directly related' requirement (to management policies or general business operations and general business operations) because they are not carried on at the level of policy or general business operations,” the panel wrote in ruling that the adjusters are entitled to overtime.
Employers and insurers are watching the case closely because of its potential to affect insurance claims adjustment expenses and workers compensation claims-handling practices significantly.
Commenting on the ruling, Liberty Mutual said in a statement that it is “carefully reviewing that decision to evaluate our options.”
Attorneys differed in their interpretation of the ruling.
The administrative exemption “has been one of the most difficult to explain to clients” and the one that is “most often misused,” said Margaret J. Grover, an attorney with Kronick Moskovitz Tiedemann & Girard in Walnut Creek, Calif. “I think this gives us something to grab onto to describe it a little more clearly to clients.”
Jeffrey D. Polsky, a partner at Fox Rothschild L.L.P. in San Francisco, said the administrative exemption “remains a very confusing area of the law.”
“The difficulty is going to be advising clients” about how their particular situation does or does not meet the test of the administrative exemption “where there doesn't seem to be consensus on what that test is,” he said.
Several legal experts say, if upheld, the ruling could extend beyond the insurance sector.
“This could have a significant effect on lower-level administratively exempt employees” such as human resources staff who are not policymakers, said D. Gregory Valenza, a partner with Shaw & Valenza L.L.P. in San Francisco.
The standard set by the appellate court ruling is “very broad and vague,” Mr. Polsky said. “It's something that has to be addressed whenever you're evaluating whether something qualifies for the administrative exemption, so I think the impact of this is going to be felt well beyond just claims adjusters.”
However, Enzo Der Boghossian, a partner with Proskauer Rose L.L.P. in Los Angeles, said “I think the holding of the appellate court's decision can be limited to the facts of this case.”
He added, though, “I do think that employers are well-advised to re-examine” workforce members who have been deemed exempt from overtime “to ensure that they meet the appropriate standard” set by the appellate court.
“My concern is that other courts will not scrutinize the facts at the level I think employers would like to see following the Harris court's treatment of this, and that could end up hurting employers,” said Christopher W. Olmsted, a shareholder with Barker Olmsted & Barnier A.P.L.C. in San Diego.
Should Liberty Mutual appeal, “there's at least a distinct possibility” that the California Supreme Court will revisit the issue and “feel that the Court of Appeals may not have followed its instructions fully, and that the analysis as a whole ended up with the wrong result,” Mr. Der Boghossian said.
Ms. Grover disagreed. “I think there is a good analysis laid out in this, as to why they got where they did.”