Samuel Calderon v. GEICO General Insurance Company , 809 F.3d 111 ( 2015 )

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 14-2111
SAMUEL CALDERON, individually and on behalf of other
similarly situated individuals; MICHAEL HEADLEY; AARON
KULSIC; KENNETH MILLER; MICHAEL CREAMER; GEORGE WOOD;
ROBERT DEMARTINO; JOHN HALLIDAY; JAMES L. HANSON; THOMAS F.
BRADY; DANA FERRIN; MAUREEN AYLING; CANDIDO CUBERO; THOMAS
FITZGERALD; WILLIAM DOLINSKY; MARVIN HOURIGAN; DAVID
MCCAMLEY; AUGUSTUS STANSBURY, JR.; JOAN BISCHOFF; RANDALL
GIBSON; VINCENT GRECO; TERESA HARTEY-ADAMETZ; THOMAS LOWE;
DAVID MCENRY; JENNIFER RICCA; ANITA SINGH; BRYAN UTTERBACK;
PATRICK WEISE; LEAH HAMILTON; DENNIS FULTON; EBERHARD
GROSSER; JOSEPH MILES, JR.; RICKY MCCRACKEN; THOMAS
STURGIS; CHRISTOPHER SULLIVAN; MICHAEL RUSSELL; RANDALL
STEWART; LAVERNE HOLMES; THOMAS DAVIDSON, JR.; SHANNON
BOYD; ANTHONY DEAN, JR.; FRANCISCO NOGALES; JOHN GHETTI;
GERALD DEXTER; CLAUDE REIHER; STEVEN MCBRIDE; PHILLIP
RONDELLO; ROBERT MERRY,
Plaintiffs - Appellees,
and
MICHAEL BROWN,
Plaintiff,
v.
GEICO GENERAL INSURANCE COMPANY; GOVERNMENT EMPLOYEES
INSURANCE COMPANY,
Defendants – Appellants,
and
GEICO CORPORATION; GEICO INDEMNITY COMPANY; GEICO CASUALTY
COMPANY; DOES 1-10,
Defendants.
No. 14-2114
SAMUEL CALDERON, individually and on behalf of other
similarly situated individuals; MICHAEL HEADLEY; AARON
KULSIC; KENNETH MILLER; MICHAEL CREAMER; GEORGE WOOD;
ROBERT DEMARTINO; JOHN HALLIDAY; JAMES L. HANSON; THOMAS F.
BRADY; DANA FERRIN; MAUREEN AYLING; CANDIDO CUBERO; THOMAS
FITZGERALD; WILLIAM DOLINSKY; MARVIN HOURIGAN; DAVID
MCCAMLEY; AUGUSTUS STANSBURY, JR.; JOAN BISCHOFF; RANDALL
GIBSON; VINCENT GRECO; TERESA HARTEY-ADAMETZ; THOMAS LOWE;
DAVID MCENRY; JENNIFER RICCA; ANITA SINGH; BRYAN UTTERBACK;
PATRICK WEISE; LEAH HAMILTON; DENNIS FULTON; EBERHARD
GROSSER; JOSEPH MILES, JR.; RICKY MCCRACKEN; THOMAS
STURGIS; CHRISTOPHER SULLIVAN; MICHAEL RUSSELL; RANDALL
STEWART; LAVERNE HOLMES; THOMAS DAVIDSON, JR.; SHANNON
BOYD; ANTHONY DEAN, JR.; FRANCISCO NOGALES; JOHN GHETTI;
GERALD DEXTER; CLAUDE REIHER; STEVEN MCBRIDE; PHILLIP
RONDELLO; ROBERT MERRY,
Plaintiffs - Appellants,
and
MICHAEL BROWN,
Plaintiff,
v.
GEICO GENERAL INSURANCE COMPANY; GOVERNMENT EMPLOYEES
INSURANCE COMPANY,
Defendants – Appellees,
and
GEICO CORPORATION; GEICO INDEMNITY COMPANY; GEICO CASUALTY
COMPANY; DOES 1-10,
Defendants.
2
Appeals from the United States District Court for the District
of Maryland, at Greenbelt. Roger W. Titus, Senior District
Judge. (8:10-cv-01958-RWT)
Argued: October 28, 2015 Decided: December 23, 2015
Before TRAXLER, Chief Judge, KING, Circuit Judge, and DAVIS,
Senior Circuit Judge.
Affirmed in part, reversed in part, and remanded by published
opinion. Chief Judge Traxler wrote the opinion, in which Judge
King and Senior Judge Davis concurred.
ARGUED: Pratik A. Shah, AKIN GUMP STRAUSS HAUER & FELD LLP,
Washington, D.C., for Appellants/Cross-Appellees. Matthew Hale
Morgan, NICHOLS KASTER, PLLP, Minneapolis, Minnesota, for
Appellees/Cross-Appellants. ON BRIEF: Eric Hemmendinger, SHAWE
& ROSENTHAL, LLP, Baltimore, Maryland; Hyland Hunt, AKIN GUMP
STRAUSS HAUER & FELD LLP, Washington, D.C., for
Appellants/Cross-Appellees. Timothy C. Selander, NICHOLS
KASTER, PLLP, Minneapolis, Minnesota, for Appellees/Cross-
Appellants.
3
TRAXLER, Chief Judge:
Government Employees Insurance Company and GEICO General
Insurance Company (together, “GEICO”) appeal a district court
order granting judgment against them in an action asserting
denial of overtime pay under the Fair Labor Standards Act
(“FLSA”), see 29 U.S.C. §§ 201 et seq., and the New York labor
law (“NYLL”), see N.Y. Lab. Law §§ 650 et seq.; N.Y. Comp. Codes
R. & Regs. tit. 12, § 142–2.2. The plaintiffs cross-appeal
several rulings relating to the remedy awarded. We reverse the
denial of prejudgment interest and remand for a prejudgment
interest award. Otherwise, we affirm.
I.
GEICO is in the business of providing insurance for its
customers. The plaintiffs in this matter are security
investigators (the “Investigators”) who currently work, or
previously worked, for GEICO. The Investigators work in GEICO’s
Claims Department primarily investigating claims that are
suspected of being fraudulent. The FLSA requires that employers
pay overtime for each hour their employees work in excess of 40
per week, but it exempts “any employee employed in a bona fide
executive, administrative, or professional capacity.” 29 U.S.C.
§ 213(a)(1). GEICO has long classified its Investigators as
4
exempt from the FLSA’s overtime pay protections. 1 This case
primarily concerns whether that classification is correct.
Viewing the facts concerning the classification in the
light most favorable to GEICO, as we must, 2 the record reveals
the following.
GEICO has employees called Claims Adjusters who work in the
Claims Department and whose primary job it is to adjust
insurance claims by investigating, assessing, and resolving
them. The Claims Adjusters decide how much, if anything, GEICO
will pay on a claim, and they negotiate any settlements.
The Investigators work in GEICO’s Special Investigations
Unit (“SIU”), which is part of GEICO’s Claims Department. The
Investigators report to Supervisors, who in turn report to
Managers, who in turn report to the Assistant Vice-President of
Claims. The SIU attempts to identify claims that are fraudulent
1 The sole exception is in the state of California. GEICO
in 2001 reclassified all non-managerial claims employees there
as non-exempt as a result of a California state-court decision
that narrowed the administrative exemption under state law.
2 The district court granted partial summary judgment to the
plaintiffs on the issue of whether they were improperly
classified. See Emmett v. Johnson, 532 F.3d 291, 297 (4th Cir.
2008) (explaining that we review a grant of summary judgment de
novo, “viewing the facts and the reasonable inferences drawn
therefrom in the light most favorable to the nonmoving party”).
5
and that GEICO therefore does not have to pay. 3 An Investigator
generally becomes involved in a claim when other Claims
Department personnel refer the claim to him on suspicion that it
is fraudulent, although there are limited circumstances under
which the Investigators initiate investigations themselves. The
Investigators’ primary responsibility is to investigate whether
such claims are fraudulent, which occupies about 90% of their
time.
GEICO has procedures that govern an Investigator’s handling
of a claim that has been referred to him, which require:
1. A thorough investigation of the referral.
2. Identification and interviews of potential
witnesses who may provide information on the accuracy
of the claim and/or application.
3. Utilizing industry recognized databases as deemed
necessary in conducting investigations.
4. Preservation of documents and other evidence.
5. Writing a concise and complete summary of the
investigation, including the investigators[’] findings
regarding the suspected insurance fraud and the basis
for their findings.
Calderon v. GEICO Gen. Ins. Co., 917 F. Supp. 2d 428, 432 (D.
Md. 2012) (internal quotation marks omitted).
3
According to the Insurance Information Institute,
approximately 10% of claims payments – about $32 billion per
year for the insurance industry – are for fraudulent claims.
See Insurance Information Institute, Insurance Fraud,
http://www.iii.org/issue-update/insurance-fraud (last visited
Dec. 22, 2015) (saved as ECF opinion attachment). Each
Investigator handles approximately 165 investigations per year.
6
GEICO requires Investigators when they receive a claim
referral to begin their work by creating a plan of action
regarding what steps must be taken in order to investigate the
particular claim. The Investigator then enters this plan of
action into the SIU Case Management System (“SICM”).
An investigation might entail steps such as interviewing
witnesses, taking photographs, and reviewing property damage.
Some interviews may take the form of face-to-face questioning
wherein the witness is under oath. Such interviews serve the
purpose of obtaining information, providing the insured an
opportunity to provide explanation or further substantiation for
his claim. They also allow the Investigator to evaluate the
credibility of the witness and to preserve the witness’s
testimony. Although GEICO has procedures governing how
Investigators conduct investigations, Investigators still must
use their judgment to determine exactly how to conduct their
investigations and what inferences to draw from the evidence
they uncover, including determining the credibility of insureds
or other witnesses.
Investigators must submit an initial report within 10 days
of receiving a claim referral and then submit interim reports
every 20 days during the investigation. With regard to both
interim and final reports, most Investigators – all but about 40
or 50 out of 250 – are required to submit their reports to their
7
Supervisor for review before the reports are submitted through
the SICM. This allows the Supervisor to “provide any input he
may feel appropriate because of his expertise” and to ensure
that the reports comply with format requirements. J.A. 1372.
GEICO does not permit speculation in its reports and it
requires that Investigators substantiate any conclusions in
their reports with facts and evidence. However, Claims
Adjusters generally do not review reports once they are
finalized. Instead, they generally base their decisions
regarding whether to pay claims on oral reports or summaries of
the reports that the Investigators provide to them.
In addition to conducting investigations, finding facts,
and reporting their findings, Investigators also spend a small
percentage of their time performing other duties. They
sometimes educate adjusters about fraud, often utilizing their
experiences from the field. Also, when an Investigator is
preparing to end his work on a case, he has discretion to refer
the claim to the National Insurance Crime Bureau or other state
agencies if he has found significant indications of fraud. And
finally, when an investigation reveals a problem with the
policyholder, Investigators also may choose to refer a case to
GEICO’s underwriting department so that the insured’s rates may
be adjusted when his policy comes up for review.
8
GEICO has long classified its Investigators as exempt under
the FLSA. In 2004, two events prompted GEICO to revisit the
issue. First, a federal district court ruled that GEICO had
misclassified its auto damage adjusters as exempt. See
Robinson-Smith v. GEICO, 323 F. Supp. 2d 12 (D.D.C. 2004).
Second, the Labor Department issued new regulations concerning
the administrative exemption. See Defining and Delimiting
Exemptions for Executive, Administrative, Professional, Outside
Sales and Computer Employees, 69 Fed. Reg. 22,122 (Apr. 23,
2004).
In light of these events, GEICO Vice President of Claims
John Geer asked GEICO’s head of SIU, Steven Rutzebeck, to
consider under the reasoning of the Robinson-Smith opinion
whether the Investigators would be properly classified as
exempt. Rutzebeck concluded that, assuming that the reasoning
of the decision was correct, it would apply to GEICO’s
Investigators as well.
Geer, an attorney, questioned the correctness of the
Robinson-Smith decision and concluded himself the Investigators
were properly classified as exempt. Geer discussed the issue
with his boss, Senior Vice President Donald Lyons, as well as
with Senior Vice President of Human Resources David Schindler.
The group, which collectively had extensive knowledge of
Investigators’ duties, concluded that despite what the reasoning
9
of Robinson-Smith might dictate, the Investigators were properly
classified as exempt. Accordingly, GEICO continued the
Investigators’ exempt status. GEICO also appealed the Robinson-
Smith decision, which was eventually reversed. See Smith v.
GEICO, 590 F.3d 886 (D.C. Cir. 2010).
In 2007, GEICO undertook another review of various employee
classifications under the FLSA, including that of the
Investigators. After that review, which lasted one or two
months and which involved different executives than did the 2004
review, GEICO again concluded that the Investigators were
properly classified as exempt under the administrative
exemption.
In 2010, named plaintiff Samuel Calderon brought a
collective action under the FLSA in federal district court on
behalf of himself and a proposed class of all persons who were
or had been employed by GEICO as Investigators at any time in
the United States, except for in California, within three years
prior to the filing date of the action through the date of the
disposition of the action. The complaint alleged that GEICO
improperly classified the Investigator position as exempt from
overtime under the FLSA. See 29 U.S.C. § 213(a). The complaint
requested damages in the amount of their unpaid overtime,
liquidated damages, interest, and an award of attorneys’ fees
and costs. See 29 U.S.C. § 216(b). After the district court
10
conditionally certified the FLSA claim as a collective action,
approximately 48 current and former Investigators joined the
suit as opt-in plaintiffs.
The plaintiffs subsequently amended their complaint to add
an individual and class action claim for unpaid overtime pay
under NYLL by opt-in plaintiff Tom Fitzgerald on behalf of
himself and others who had worked as Investigators for GEICO in
New York. See N.Y. Lab. Law §§ 650 et seq.; N.Y. Comp. Codes R.
& Regs. tit. 12, § 142–2.2. In addition to seeking compensatory
damages in the amount of the unpaid overtime, the amended
complaint sought liquidated damages, and attorneys’ fees and
costs in regard to this cause of action. The district court
certified the class. 4 See Fed. R. Civ. P. 23.
Following discovery, the plaintiffs moved for partial
summary judgment, and GEICO moved for summary judgment, on the
issue of liability. The district court granted the plaintiffs’
motion and denied GEICO’s, rejecting as a matter of law GEICO’s
contention that the Investigators fell within the FLSA’s
4 In its discretion, the district court exercised
supplemental jurisdiction over the NYLL claims. See 28 U.S.C.
§ 1367; see Shahriar v. Smith & Wollensky Rest. Grp., 659 F.3d
234, 248 (2d Cir. 2011) (noting that “the Seventh, Ninth, and
District of Columbia Circuits all have determined that
supplemental jurisdiction is appropriate over state labor law
class claims in an action where the court has federal question
jurisdiction over FLSA claims in a collective action”).
11
“administrative function” exemption. See Calderon, 917 F. Supp.
2d at 441-44.
The parties later filed cross-motions for summary judgment
on several disputed remedy issues. Considering these motions,
the court ruled that because GEICO acted in good faith, GEICO
did not act willfully and thus the statute of limitations for
the plaintiffs’ claims extended only for two years. For similar
reasons, the court also ruled that the plaintiffs were not
entitled to liquidated damages or prejudgment interest. And
finally, the court determined that because the plaintiffs were
paid fixed salaries regardless of the varying number of hours
they worked, the method of overtime described in Overnight Motor
Transportation Co. v. Missel, 316 U.S. 572 (1942), applied to
the plaintiffs’ claims.
The district court then entered a “Stipulated Order
Relating to Remedy” that it described as a “final judgment.”
J.A. 109, 112. That order “contain[ed] a complete formula for
the computation of backpay” based on the rulings that the court
had made and the parties’ stipulations. J.A. 109. The order
noted that both sides reserved the right to appeal the rulings
of the district court underlying the order and that the order
would “have no effect unless a judgment of liability is entered
and sustained after all judicial review has been exhausted.”
J.A. 109. The backpay formula adopted by the district court
12
would produce an amount of backpay to which each plaintiff was
entitled depending upon the total pay received and the total
time worked for each two-week pay period within the applicable
limitations period. The order further stated that “[t]he
backpay calculations will be performed by a mutually acceptable
entity with right of review and confirmation by Defendants’ and
Plaintiffs’ counsel.” J.A. 112. It also provided that the
district court “shall have jurisdiction to resolve or supervise
the resolution of any issue concerning the remedy that the
parties are unable to resolve.” J.A. 111. There was no
limitation on the right of either party to appeal the district
court’s decisions.
GEICO subsequently appealed the district court’s order
granting partial summary judgment to the plaintiffs on the issue
of liability, and the plaintiffs cross-appealed several of the
district court’s rulings regarding remedy issues.
Concluding that the district court had not yet found all of
the facts necessary to compute the amount of damages to be
awarded, we determined there was no final judgment and that we
therefore lacked appellate jurisdiction; accordingly, we
dismissed the appeals. See Calderon v. GEICO Gen. Ins. Co., 754
F.3d 201, 204-07 (4th Cir. 2014). On remand, the district court
determined the amount of damages to which each plaintiff was
entitled and entered judgment in favor of the plaintiffs.
13
Now the plaintiffs have once again appealed and GEICO has
cross-appealed, with each party raising the same issues it
raised in the prior appeal. Now that a final judgment is before
us, we possess jurisdiction to consider the appeals, see
Hellerstein v. Mr. Steak, Inc., 531 F.2d 470, 474 (10th Cir.
1976) (“The general rule is that an interlocutory order from
which no appeal lies is merged into the final judgment and open
to review on appeal from that judgment.”), which we will address
seriatim.
II. GEICO’s appeal
GEICO argues that the district court erred in granting
partial summary judgment against it on the issue of liability.
We disagree.
We review de novo a district court’s order granting summary
judgment, applying the same standards as the district court.
See Providence Square Assocs., L.L.C. v. G.D.F., Inc., 211 F.3d
846, 850 (4th Cir. 2000). Summary judgment is appropriate “if
the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter
of law.” Fed. R. Civ. P. 56(a).
In FLSA exemption cases, “[t]he question of how [employees]
spen[d] their working time . . . is a question of fact,” but the
ultimate question of whether the exemption applies is a question
of law. Icicle Seafoods, Inc. v. Worthington, 475 U.S. 709, 714
14
(1986); see also Shockley v. City of Newport News, 997 F.2d 18,
26 (4th Cir. 1993) (noting that the significance of an
employee’s duties can also present questions of fact). “FLSA
exemptions are to be ‘narrowly construed against the employers
seeking to assert them and their application limited to those
establishments plainly and unmistakably within [the exemptions’]
terms and spirit.’” Desmond v. PNGI Charles Town Gaming,
L.L.C., 564 F.3d 688, 692 (4th Cir. 2009) (“Desmond I”) (quoting
Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960)). 5 See
also Pugh v. Lindsay, 206 F.2d 43, 46 (4th Cir. 1953) (“Since
the Act is remedial in nature, the exemptions contained therein
must be strictly construed, and it is incumbent upon one
asserting an exemption to bring himself clearly and unmistakably
within the spirit and the letter of its terms.”). In this
circuit, employers must prove application of the exemptions by
clear and convincing evidence. See Desmond I, 564 F.3d at 691
n.3.
5GEICO points out that the Supreme Court has recently
explained that the rule that exemptions are narrowly construed
against the employer is “inapposite where [courts] are
interpreting a general definition that applies throughout the
FLSA.” Christopher v. SmithKline Beecham Corp., 132 S. Ct.
2156, 2172 n.21 (2012). However, this case does not concern a
general definition that applies throughout the FLSA. Rather, it
involves interpreting the specific rules the Labor Department
has created regarding the administrative exemption.
15
The FLSA generally requires that employers pay overtime in
the amount of one-and-a-half times an employee’s “regular rate”
for each hour their employees work in excess of 40 per week. 29
U.S.C. § 207(a)(1). That requirement was intended “to spread
employment by placing financial pressure on the employer” and
“to compensate employees for the burden of a workweek in excess
of the hours fixed in the Act.” Walling v. Helmerich & Payne,
Inc., 323 U.S. 37, 40 (1944). The Act does contain exemptions,
however. As is relevant here, it exempts “any employee employed
in a bona fide executive, administrative, or professional
capacity.” 6 29 U.S.C. § 213(a)(1). Congress did not define this
phrase. Rather, it delegated authority to the Labor Department
to issue regulations “to define[] and delimit[]” these terms.
Id. The current regulations, which were reissued in 2004,
provide that the administrative exemption covers employees:
6 Congress exempted employees fitting this description
because “the workers exempted typically earned salaries well
above the minimum wage, and they were presumed to enjoy other
compensatory privileges such as above average fringe benefits
and better opportunities for advancement, setting them apart
from the nonexempt workers entitled to overtime pay.” Defining
and Delimiting Exemptions for Executive, Administrative,
Professional, Outside Sales and Computer Employees, 69 Fed. Reg.
22,122, 22,124 (Apr. 23, 2004). Additionally, “the type of work
they performed was difficult to standardize to any time frame
and could not be easily spread to other workers after 40 hours
in a week,” thus “precluding the potential job expansion
intended” by the overtime premium. Id.
16(1) [Who are c]ompensated . . . 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.
29 C.F.R. § 541.200(a). 7 The applicable New York regulations
incorporate the federal exemption by reference. See N.Y. Comp.
Codes R. & Regs. tit. 12, § 142-2.2; Gorey v. Manheim Servs.
Corp., 788 F. Supp. 2d 200, 205 (S.D.N.Y. 2011) (“New York law
governing overtime pay is defined and applied in the same manner
as the FLSA.”).
The district court addressed all three elements in
resolving the summary judgment motions on the issue of
liability. It is undisputed that the first element, regarding
compensation, is satisfied here. 8 The district court also
7 The prior version of the regulations had provided for a
long and short test for the exemption. See Darveau v. Detecon,
Inc., 515 F.3d 334, 338 (4th Cir. 2008). The amendments were
not intended to significantly change the exemption criteria.
See Desmond I, 564 F.3d 688, 691 n.2 (4th Cir. 2009).
8 The salary threshold of $455 per week equates to $23,660
per year. The starting annual salary of Samuel Calderon, named
plaintiff in the FLSA claim, was $45,000 in 2009. The starting
annual salary for Tom Fitzgerald, class representative in the
NYLL claim, was $37,000 in 2000. We note that the Labor
Department has recently proposed increasing the threshold to
$921 per week (or $47,892 per year). See
(Continued)
17
concluded that the second element (the “directly related
element”) was likely met. See Calderon, 917 F. Supp. 2d at 436-
41. The court ruled, however, that the plaintiffs were entitled
to partial summary judgment on the issue of liability because,
as a matter of law, GEICO failed to establish the third element
(the “discretion-and-independent-judgment element”). See id. at
441-44. In our view, the plaintiffs were entitled to summary
judgment on the basis of the directly related element. It is
therefore that element on which we focus our discussion.
The applicable Labor Department regulations shed some light
on the meaning of the directly related element. They explain
that “‘primary duty’ means the principal, main, major or most
important duty that the employee performs.” 29 C.F.R. §
541.700(a). “Determination of an employee’s primary duty must
be based on all the facts in a particular case, with the major
emphasis on the character of the employee’s job as a whole.” 9
Id.http:/www.dol.gov/whd/overtime/NPRM2015/factsheet.htm (last
visited Dec. 22, 2015) (saved as ECF opinion attachment).
9 29 C.F.R. § 541.700(a) also provides:
Factors to consider when determining the primary duty
of an employee include, but are not limited to, the
relative importance of the exempt duties as compared
with other types of duties; the amount of time spent
performing exempt work; the employee’s relative
(Continued)
18
Here, the summary judgment record clearly showed that the
Investigators’ primary duty was the investigation of suspected
fraud, including reporting their findings. Unless the primary
duty qualifies as “exempt work,” the FLSA exemption relied upon
by GEICO does not apply. 10 See id. (“To qualify for exemption
under this part, an employee’s ‘primary duty’ must be the
performance of exempt work.”).
freedom from direct supervision; and the relationship
between the employee’s salary and the wages paid to
other employees for the kind of nonexempt work
performed by the employee.
10 GEICO notes that the Investigators also must make
decisions regarding whether to make referrals to law enforcement
or to the National Insurance Crime Bureau and whether to make
referrals to GEICO’s underwriting department so that an
insured’s rates may be adjusted when his policy comes up for
review. GEICO also notes that Investigators sometimes process
claim withdrawals when claimants decide to withdraw their
claims. And they speak with law enforcement officials to
discuss particular investigations and share information with
other insurers. Even assuming that the administrative exemption
would apply to an employee whose duties were primarily these,
GEICO has pointed to nothing in the record that would support a
conclusion that these responsibilities were any more than a
minor part of the Investigators’ jobs, either in their
importance or in the amount of the Investigators’ time that they
occupy. See Clark v. J.M. Benson Co., 789 F.2d 282, 286 (4th
Cir. 1986) (holding that employer “bears the full burden of
persuasion for the facts requisite to an exemption”); see also
Schaefer v. Indiana Mich. Power Co., 358 F.3d 394, 403 (6th Cir.
2004) (holding that even though some of employee’s duties
appeared to satisfy the directly related element, the element
was not satisfied where those duties were not part of his
primary duty).
19
“The phrase ‘directly related to the management or general
business operations,’” within the context of the second element,
“refers to the type of work performed by the employee.” 29
C.F.R. § 541.201(a); see Desmond I, 564 F.3d at 693 (“Both the
FLSA and its regulations make clear that an employee is exempt
based on the type of work performed by that individual.”
(emphasis in original)). “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) (emphasis added).
The regulations provide examples of the type of work that
is directly related to management or general business
operations, explaining that qualifying work
includes, but is not limited to, work in functional
areas such as tax; finance; accounting; budgeting;
auditing; insurance; quality control; purchasing;
procurement; advertising; marketing; research; safety
and health; personnel management; human resources;
employee benefits; labor relations; public relations,
government relations; computer network, internet and
database administration; legal and regulatory
compliance; and similar activities.
20
29 C.F.R. § 541.201(b) (emphasis added). 11 And Labor Department
comments to the applicable regulations explain that “the
administrative operations of the business include the work of
employees ‘servicing’ the business, such as, for example,
‘advising the management, planning, negotiating, representing
the company, purchasing, promoting sales, and business research
and control.’” 69 Fed. Reg. at 22,138.
Because § 541.201(a) specifically identifies working on a
manufacturing production line as an example of work that is not
directly related to assisting with the running or servicing of a
business, courts analyzing whether the directly related element
has been satisfied have often focused their inquiry on whether
the work is “production-type” work or analogous thereto. See,
e.g., Desmond I, 564 F.3d at 694. Our court has explained that
“[a]lthough the administrative-production dichotomy is an
imperfect analytical tool in a service-oriented employment
context, it is still a useful construct.” Id. One reason that
the dichotomy is imperfect is that while production-type work is
not administrative, not all non-production-type work is
administrative. See Martin v. Indiana Mich. Power Co., 381 F.3d
574, 582 (6th Cir. 2004) (“The regulations do not set up an
11
The regulation notes that “[s]ome of these activities may
be performed by employees who also would qualify for another
exemption.” 29 C.F.R. § 541.201(b).
21
absolute dichotomy under which all work must either be
classified as production or administrative.”); Bothell v. Phase
Metrics, Inc., 299 F.3d 1120, 1127 (9th Cir. 2002) (“Only when
work falls ‘squarely on the “production” side of the line,’ has
the administration/production dichotomy been determinative.”).
The regulation, after all, provides production work only as an
example of work not directly related to assisting with the
running or servicing of the business. Thus, in the end, the
critical focus regarding this element remains whether an
employee’s duties involve “‘the running of a business,’” Bratt
v. County of Los Angeles, 912 F.2d 1066, 1070 (9th Cir. 1990),
as opposed to the mere “‘day-to-day carrying out of [the
business’s] affairs,’” Desmond I, 564 F.3d at 694 (citing Bratt,
912 F.2d at 1070).
We applied this test most recently in Desmond I. In that
case, the plaintiff-employees worked as racing officials for a
company that staged live horse races. Along with some clerical
responsibilities, the employees ensured that the horses wore
proper equipment and that a trainer or groom was positioned to
saddle the horse and prepare it for the race; verified that the
horses had the proper papers, tattoos, and test results;
confirmed each jockey’s presence and licensing; and determined
the races’ final outcomes. See id. at 690.
22
Despite the employer’s contention that the officials were
indispensable to its business, we concluded as a matter of law
that their work was not “directly related to the management or
general business operations of the employer.” See id. at 692.
We noted that the employees’ indispensability was not
dispositive because it was “‘the nature of the work, not its
ultimate consequence’” that was critical. Id. (quoting Clark v.
J.M. Benson Co., 789 F.2d 282, 287 (4th Cir. 1986)). As for the
nature of the work, we reasoned:
Racing officials have no supervisory responsibility
and do not develop, review, evaluate, or recommend
Charles Town Gaming’s business policies or strategies
with regard to the horse races. Simply put, the
[racing officials’] work did not entail the
administration of–the “running or servicing of”–
Charles Town Gaming’s business of staging live horse
races. The Former Employees were not part of “the
management” of Charles Town Gaming and did not run or
service the “general business operations.” While
serving as a Placing Judge, Paddock Judge, or
performing similar duties is important to the
operation of the racing business of Charles Town
Gaming, those positions are unrelated to management or
the general business functions of the company.
Id. at 694. We concluded that the employees’ duties were
“similar to those performed ‘on a manufacturing production line
or selling a product in a retail or service establishment,’” id.
(quoting 29 C.F.R. § 541.201(a)), in that their employer
produces live horse races and the employees’ duties “consist[]
of ‘the day-to-day carrying out of [their employer’s] affairs’
23
to the public, a production-side role,” id. (quoting Bratt, 912
F.2d at 1070).
To the extent that the Investigators’ work supports the
claim-adjusting function, the Investigators, unlike the
employees in Desmond I, are not production workers per se. See
69 Fed. Reg. at 22,145 (“[C]laims adjusters are not production
employees because the insurance company is in the business of
writing and selling automobile insurance, rather than in the
business of producing claims.” (internal quotation marks
omitted)). But, like the employees in Desmond I, the
Investigators’ primary duty is too far removed from their
employer’s management or general business operations to satisfy
the directly related element.
Their primary duty consists of conducting investigations to
resolve narrow factual questions, namely whether particular
claims submitted to GEICO were fraudulent. Like the racing
officials in Desmond I, the Investigators have “no supervisory
responsibility and do not develop, review, evaluate, or
recommend [GEICO’s] business polices or strategies with regard
to the” claims they investigated. Desmond I, 564 F.3d at 694.
Although their work is important to GEICO, the Investigators are
in no way “part of ‘the management’ of [GEICO] and d[o] not run
or service the ‘general business operations.’” Id. Rather, by
assisting the Claims Adjusters in processing the claims of
24
GEICO’s insureds, the Investigators’ duties simply “consist[] of
‘the day-to-day carrying out of [GEICO’s] affairs’ to the
public.” Id.The applicable regulations and Labor Department opinion
letters support this interpretation. Specifically, they
indicate that employees whose primary duty is to conduct factual
investigations do not satisfy the directly related element, even
when the work is of significant importance to the employer. For
example, 29 C.F.R. § 541.3(b)(1) provides:
The section 13(a)(1) exemptions and the regulations in
this part . . . do not apply to police officers,
detectives, deputy sheriffs, state troopers, highway
patrol officers, investigators, inspectors,
correctional officers, parole or probation officers,
park rangers, fire fighters, paramedics, emergency
medical technicians, ambulance personnel, rescue
workers, hazardous materials workers and similar
employees, . . . who perform work such as preventing,
controlling or extinguishing fires of any type;
rescuing fire, crime or accident victims; preventing
or detecting crimes; conducting investigations or
inspections for violations of law; performing
surveillance; pursuing, restraining and apprehending
suspects; detaining or supervising suspected and
convicted criminals, including those on probation or
parole; interviewing witnesses; interrogating and
fingerprinting suspects; preparing investigative
reports; or other similar work.
29 C.F.R. § 541.3(b)(1) (emphasis added). Subsection
541.3(b)(3) explains that “[s]uch employees do not qualify as
exempt administrative employees because their primary duty is
not the performance of work directly related to the management
25
or general business operations of the employer or the employer’s
customers as required under § 541.200.”
GEICO argues that this regulation, when read in context,
should be interpreted as pertaining only to “public-sector law
enforcement officers.” Response and Reply Brief for
Appellants/Cross-Appellees at 23. In support of its argument,
which the district court agreed with, see Calderon, 917 F. Supp.
2d at 440, GEICO specifically notes that the Labor Department’s
stated purpose for adopting this provision was to clarify that
“police officers, fire fighters, paramedics, EMTs and other
first responders are entitled to overtime pay.” 69 Fed. Reg. at
22,129 (emphasis added)); see Foster v. Nationwide Mut. Ins.
Co., 710 F.3d 640, 644 (6th Cir. 2013). GEICO no doubt has
correctly identified the Labor Department’s motivation for
including this clarifying regulation. See 69 Fed. Reg. at
22,129 (“This new subsection 541.3(b) responds to commenters,
most notably the Fraternal Order of Police, expressing concerns
about the impact of the proposed regulations on . . . first
responders.”). However, neither the Labor Department’s comments
nor the regulation itself suggest that the Labor Department
intended to carve out some sort of special exception for first
responders or otherwise treat workers performing similar work
differently depending on whether they worked in the public or
private sector. See 29 C.F.R. § 541.201(a) (“The phrase
26
‘directly related to the management or general business
operations’ refers to the type of work performed by the
employee.” (emphasis added)); see Desmond I, 564 F.3d at 693(“Both the FLSA and its regulations make clear that an employee
is exempt based on the type of work performed by that
individual.” (emphasis in original)).
In fact, the Labor Department’s comments to 29 C.F.R.
§ 541.3(b)(1) explain that the regulation was merely intended to
reflect results that courts had already reached. See 69 Fed.
Reg. at 22,129. Indeed, one of the three cases cited in the
comments as supporting § 541.3(b)(1)’s application of the
administrative exemption, Bratt, employed analysis very similar
to that which we applied in Desmond I, analysis that seems to
apply to the Investigators as well. In Bratt, the court
considered whether the administrative exemption applied to
employees of a county probation department who “conduct[ed]
factual investigations of adult offenders or juvenile detainees
and advise[d] the court on their proper sentence or disposition
within the system.” Bratt, 912 F.2d at 1069. Analogizing the
sentencing courts’ work to a business, the court rejected the
notion that the employees could be characterized as “servicing”
the business of the courts or “advising the management”
regarding policy determinations such as how the business could
be run more efficiently. Id. at 1070 (internal quotation marks
27
omitted). Rather, the court concluded, the service that the
probation officers provided the courts, namely, “providing
information in the course of the customer’s daily business
operation[,] . . . d[id] not relate to court policy or overall
operational management but to the courts’ day-to-day production
process.” Id. Thus, the court determined that the probation
officers’ work did not directly relate to the management or
general business operations of the employer.
A strong argument can be made that the Investigators’ work
in this case did not satisfy the directly related element for
similar reasons. It is of course true that while the primary
duty of both the probation officers in Bratt and the
Investigators before us was to conduct factual investigations
and report their results, the information provided by the
probation officers was put to a different use than is that of
the Investigators before us. Namely, the information in Bratt
was used by courts to determine defendants’ sentences, while the
information in the present case is used by GEICO to assist the
Claims Adjusters in the processing of insurance claims. Nothing
in the regulations demonstrates that this distinction would be
dispositive, however. As we have stated, the regulations’ focus
is on “the nature of the work, not its ultimate consequence,”
Desmond I, 564 F.3d at 692, and the nature of the Investigators’
primary duty was not different in any significant way from that
28
of the probation officers. In neither case did the employees’
actual work duties relate to business policy or overall
operational management. Compare Shockley, 997 F.2d at 28(holding that because “Ethics and Standards Lieutenant spent all
her time accumulating and analyzing data and making
recommendations that shaped the police department’s policy with
regard to internal discipline[, her work was] ‘directly related
to management policies.’”), and West v. Anne Arundel Cnty., 137
F.3d 752, 764 (4th Cir. 1998) (holding that EMS Training
Lieutenants’ position met criteria because the Lieutenants
“develop[ed], coordinate[d], implement[ed,] and conduct[ed] EMS
training programs[;] . . . prepare[d] lesson plans and training
aids[;] supervise[d] delivery of training and tests[;] and
evaluate[d] new equipment”), with Shockley, 997 F.2d at 28-29(holding that Media Relations Sergeants did not meet exemption
criteria when they “spent half their time on the ‘crime line,’
answering the phone, taking tips, and passing them on to the
right department,” and also “screen[ed] calls to the Chief of
Police, respond[ed] to impromptu questions by the press,
determin[ed] what information should be released to the press
regarding ongoing investigations, and develop[ed] an ongoing
news broadcast called ‘Crime of the Week’”). Rather, the
information the Investigators provided was used in GEICO’s day-
to-day processing of their employers’ claims. Regardless of
29
whether this was “production work,” it does not appear to be
directly related to GEICO’s management or general business
operations.
Further supporting the conclusion that conducting factual
investigations does not constitute exempt work is 29 C.F.R.
§ 541.203(j), which provides that the work of “[p]ublic sector
inspectors or investigators of various types, such as fire
prevention or safety, building or construction, health or
sanitation, environmental or soils specialists and similar
employees . . . typically does not involve work directly related
to the management or general business operations of the
employer.” 12 As with § 541.3(b)(1), the addition of this
subsection was motivated by concerns relating to public
employees. See 69 Fed. Reg. at 22,147. But also as with
§ 541.3(b)(1), there is no clear indication that the Labor
Department, in promulgating the regulation, was doing anything
other than applying generally applicable principles to the
specifically enumerated jobs.
12 The regulation also provides that “[s]uch employees also
do not qualify for the administrative exemption because their
work involves the use of skills and technical abilities in
gathering factual information, applying known standards or
prescribed procedures, determining which procedure to follow, or
determining whether prescribed standards or criteria are met.”
29 C.F.R. § 541.203(j).
30
Several Labor Department letter opinions further support
the view that conducting factual investigations, regardless of
how important they are to the employer, is not directly related
to management or general business operations. 13 Most
prominently, a 2005 opinion letter considered whether the
administrative exemption applied to investigators working for a
company that had contracted with the U.S. government to perform
“background investigations of potential government employees
being considered for U.S. Government Secret and Top Secret
security clearances.” U.S. Dep’t of Labor, Wage & Hour Div.,
Opinion Letter, FLSA 2005-21, 2005 WL 3308592 (Aug. 19, 2005),
at *1. Notwithstanding that the employees’ work was critical to
national security, that the investigators possessed significant
discretion in determining how to conduct their investigations,
and that they were called upon to make credibility
determinations, the Labor Department concluded that their
primary duty was “diligent and accurate fact-finding, according
to [agency] guidelines, the results of which are turned over to
[the agency,] who then makes a decision as to whether to grant
or deny security clearances.” Id. at *6. The Labor Department
13
When a regulation is ambiguous, we defer to the agency’s
interpretation of the regulation in an opinion letter so long as
it is not “‘plainly erroneous or inconsistent with the
regulation.’” D.L. ex rel. K.L. v. Baltimore Bd. of Sch.
Comm’rs, 706 F.3d 256, 259-60 (4th Cir. 2013) (quoting Auer v.
Robbins, 519 U.S. 452, 461 (1997)).
31
determined that those activities “are more related to providing
the ongoing, day-to-day investigative services, rather than
performing administrative functions directly related to managing
[the employer’s] business.” Id. And, the letter specifically
noted the fact that “29 C.F.R. § 541.203(j) regard[s] public
sector inspectors, investigators and similar employees, as
employees whose duties have been found not to meet the
requirements for the administrative exemption ‘because their
work typically does not involve work directly related to the
management or general business operations of the employer.’”
Id. at *7. Thus, the Labor Department determined that the
investigators’ “activities, while important, do not directly
relate to the management or general business operations of the
employer within the meaning of the regulations.” Id. at *6.
The reasoning in this letter is similar to several other
Labor Department opinion letters applying the pre-2004-amendment
regulations to other investigators. See U.S. Dep’t of Labor,
Wage & Hour Div., Opinion Letter, 1998 WL 852783 (Apr. 17,
1998), at *2 (concluding that work of journeymen investigators
in liquor industry “involve[d] the day-to-day ‘production’
functions of the employer rather than the management policies or
general business operations of the employer”); U.S. Dep’t of
Labor, Wage & Hour Div., Opinion Letter, 1998 WL 852752 (Jan.
23, 1998), at *2 (concluding that medical legal investigators
32
were “carrying out the employer’s day-to-day affairs rather than
running the business itself or determining its overall course
and policies”); U.S. Dep’t of Labor, Wage & Hour Div., Opinion
Letter, 1997 WL 971811 (Sept. 12, 1997), at *3 (concluding that
work of investigators who worked for a company that conducted
background investigations of various types of employees that
were used to determine the subjects’ fitness for employment did
not satisfy the directly related element because “the specific
investigation activities . . . would appear to be more related
to the ongoing day-to-day production operations of the firm than
to [its] management policies or general business operations”;
noting that the directly related element would not be satisfied
“[e]ven if the investigators were viewed as performing staff
operations of the firm’s customers,” such that the investigators
would not be engaged in production activities, “because their
work does not help shape or define the policies or operations of
[the customer businesses] or affect their operations to a
substantial degree”). We see nothing plainly erroneous
concerning these interpretations, and we therefore defer to
them, as we must. See D.L. ex rel. K.L. v. Baltimore Bd. of
Sch. Comm’rs, 706 F.3d 256, 259-60 (4th Cir. 2013).
Notwithstanding the similarity between the nature of the
Investigators’ primary duty and that of the many jobs the
regulations identify as not satisfying the directly related
33
element, GEICO maintains that the Investigators are nonetheless
exempt because they perform some of the same duties that claims
adjusters typically perform. 14 In this regard, GEICO points to
§ 541.203(a), which states,
Insurance claims adjusters generally meet the duties
requirements for the administrative exemption, whether
they work for an insurance company or other type of
company, if 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.
29 C.F.R. § 541.203(a) (emphasis added).
This regulation is of little help to us in our evaluation
of whether the nature of the Investigators’ work is directly
related to management or general business operations. As the
regulation’s language indicates, even for claims adjusters, 15 the
question of whether they satisfy the directly related element is
determined on a case-by-case basis and depends on their specific
14The district court’s conclusion that the directly related
element was likely satisfied was based in part on the fact that
Investigators’ work is used to assist GEICO claims adjusters in
adjusting claims. See Calderon v. GEICO Gen. Ins. Co., 917 F.
Supp. 2d 428, 441 (D. Md. 2012).
15 “A job title alone is insufficient to establish the
exempt status of an employee. The exempt or nonexempt status of
any particular employee must be determined on the basis of
whether the employee’s salary and duties meet the requirements
of the regulations in this part.” 29 C.F.R. § 541.2.
34
duties. See 69 Fed. Reg. at 22,144, 22,145 (emphasizing that
the regulation “identifies the typical duties of an exempt
claims adjuster” and noting that “there must be a case-by-case
assessment to determine whether the employee’s duties meet the
requirement for exemption,” including the directly related
element); see also U.S. Dep’t of Labor, Wage & Hour Div.,
Opinion Letter, FLSA 2005-2 (Jan. 7, 2005), at *2 (“[S]ection
541.203(a) simply provides an illustration of the application of
the administrative duties test; it does not provide a blanket
exemption for claims adjusters.” Rather, “there must be a case-
by-case assessment.” (internal quotation marks omitted)). 16 The
duties of the typical claims adjuster that the regulation
describes are certainly much broader than those of the
Investigators, and they include some duties that are
unmistakably administrative, such as “negotiating settlements”
and “making recommendations regarding litigation.” 17 See 69 Fed.
16The Labor Department over the years has consistently
expressed the view that claims adjusters typically satisfy the
requirements of the administrative exemption. See In re Farmers
Ins. Exch., 481 F.3d 1119, 1128-29 (9th Cir. 2007) (reviewing
prior regulations and opinion letters).
17 That the Investigators do not have these duties
distinguishes this case from many of those decisions that GEICO
relies on in its argument that the directly related element is
satisfied here. See Roe-Midgett v. CC Servs., Inc., 512 F.3d
865, 868-73 (7th Cir. 2008) (holding that administrative
exemption covered material-damage appraisers responsible for
“investigating auto accident damage, making repair or
(Continued)
35
Reg. at 22,138 (noting that “the administrative operations of
the business include the work of employees ‘servicing’ the
business, such as, for example, ‘advising the management,
planning, negotiating, representing the company, purchasing,
promoting sales, and business research and control’” (emphasis
added)). For this reason, it is hardly surprising that the work
of a claims adjuster with those duties would be considered to be
directly related to management or general business operations.
Although GEICO does not dispute that the Investigators’
duties are significantly more narrow than those of the typical
claims adjuster that the regulation describes, GEICO
nevertheless argues that the fact that the Investigators’ work
is used to support the claims-adjusting function demonstrates
that their work satisfies the directly related element. See
Foster, 710 F.3d at 646 (holding that although the plaintiffs
had only a subset of the duties listed in § 541.203(a), the
directly related element was satisfied because the employees’
replacement determinations, drafting estimates, and settling
claims of up to $12,000 where liability has been established and
coverage approved”); In re Farmers Ins. Exch., 481 F.3d at 1124
(holding that administrative exemption covered claims adjusters
who “determine whether the loss is covered, set reserves, decide
who is to blame for the loss and negotiate with the insured or
his lawyer”); Cheatham v. Allstate Ins. Co., 465 F.3d 578, 585
(5th Cir. 2006) (per curiam) (holding that exemption covered
adjusters who “advised the management, represented Allstate, and
negotiated on Allstate’s behalf”).
36
“work remains integral to the claims adjusting function, is
performed in partnership with the [claims adjusters], and
involves making findings that bear directly on the [claims
adjuster’s] decisions to pay or deny a claim”). But this
argument fails to take into account that it is “the nature of
the work, not its ultimate consequence,” that controls whether
the exemption applies. Desmond I, 564 F.3d at 692; see 29
C.F.R. § 541.201(a) (“The phrase ‘directly related to the
management or general business operations’ refers to the type of
work performed by the employee.” (emphasis added)). Were
GEICO’s reasoning correct, even “run-of-the-mine” jobs such as
secretarial work that supported the claims-adjusting function
could be found to be directly related to management policies or
general business operations. But in fact such jobs do not
generally satisfy this element. 18 See Clark, 789 F.2d at 287.
Regardless of how Investigators’ work product is used or
who the Investigators are assisting, whether their work is
directly related to management policies or general business
operations depends on what their primary duty consists of. And,
as we have explained, the primary duty of the Investigators –
18
Indeed, if the fact that an employee’s work supported the
claims-adjusting process demonstrated that the directly related
element were satisfied, there would be no need to consider
claims adjusters’ duties on a case-by-case basis in deciding
whether they satisfied that element.
37
conducting factual investigations and reporting the results – is
not analogous to the work in the “functional areas” that the
regulations identify as exempt. 29 C.F.R. § 541.201(b). It is,
however, directly analogous to the work the regulations identify
as not satisfying the directly related element. See 29 C.F.R.
§§ 541.3(b)(1), 541.203(j). Accordingly, although the issue
presents a very close legal question, we conclude that GEICO has
not shown that the Investigators’ primary duty is, plainly and
unmistakably, directly related to GEICO’s management or general
business operations. We therefore hold that the district court
correctly granted partial summary judgment to the plaintiffs on
the issue of whether GEICO improperly classified the plaintiffs
as exempt. 19
III. The plaintiffs’ cross-appeal
A. Willfulness
The plaintiffs first argue in their cross-appeal that the
district court erred in granting partial summary judgment to
GEICO on the issue of willfulness under the FLSA. We disagree.
Under the Portal-to-Portal Act of 1947 (the “Portal Act”),
29 U.S.C. §§ 251-62, the length of the FLSA’s statute of
limitations depends upon whether the violation at issue was
19 In light of our affirmance on the basis of the directly
related element, we do not address the application of the
discretion-and-independent-judgment element.
38
willful. See 29 U.S.C. § 255(a); Perez v. Mountaire Farms,
Inc., 650 F.3d 350, 375 (4th Cir. 2011). If it is not willful,
the limitations period is two years, but the period is three
years for willful violations. See 29 U.S.C. § 255(a); Desmond
v. PNGI Charles Town Gaming, LLC, 630 F.3d 351, 357 (4th Cir.
2011) (“Desmond II”). “[O]nly those employers who either knew
or showed reckless disregard for the matter of whether its
conduct was prohibited by the [FLSA] have willfully violated the
statute.” Desmond II, 630 F.3d at 358 (internal quotation marks
omitted). And, negligence is insufficient to establish
willfulness. See id. The question of whether an employer acted
willfully is generally a question of fact. See Martin v.
Deiriggi, 985 F.2d 129, 136 (4th Cir. 1993). The burden to
establish willfulness rests with the employee. See Perez, 650
F.3d at 375.
Here, the question of whether the Investigators are exempt
was a close and complex one regarding two of the three elements
of the applicable test. Indeed, the Sixth Circuit in Foster v.
Nationwide Mutual Insurance Company, faced with facts
essentially identical to ours, concluded that the exemption
applied. See Foster, 710 F.3d at 644-50. As evidence of
willfulness, the plaintiffs point only to the memo that
Rutzebeck prepared in conjunction with GEICO’s 2004 review of
the Investigators’ exempt status. However, Rutzebeck’s
39
conclusion that the Investigators were not exempt was based on a
court decision that GEICO’s senior executives disagreed with,
and there is no reasonable basis for any finding that GEICO’s
disagreement with that decision was reckless. In fact, the
court decision was eventually reversed.
In any event, regardless of how GEICO made its exemption
decision in 2004, GEICO reconsidered the issue anew in 2007 over
a one- or two-month period and again concluded that the
Investigators were correctly classified as exempt. As was true
of the 2004 process, there is no evidence that any of the
executives involved in the 2007 process made anything other than
their best attempts to resolve this difficult exemption
question, and we conclude that their decision to continue
classifying the Investigators as exempt was a reasonable one.
We therefore agree with the district court that 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. Accordingly, the district
court properly granted summary judgment on the issue to GEICO.
B. Regular Rate
The plaintiffs next challenge the method the district court
used to calculate the compensation they were due for unpaid
overtime.
40
The FLSA provides that an employer will be liable to its
employees for a violation of the overtime pay requirement “in
the amount of . . . their unpaid overtime compensation.” 20 29
U.S.C. § 216(b). The method of calculating compensatory damages
for lost overtime is established for mistaken-FLSA-exemption
cases in which “the employer and employee had a mutual
understanding that the fixed weekly salary was compensation for
all hours worked each workweek and the salary provided
compensation at a rate not less than the minimum wage for every
hour worked.” Desmond II, 630 F.3d at 354. In such a case, “a
court should divide the employees[’] fixed weekly salary by the
total hours worked in the particular workweek,” producing the
“regular rate” for a given workweek. Id. (citing Overnight
Motor Transp. Co. v. Missel, 316 U.S. 572, 579-80 (1942)). The
employee should then receive overtime compensation for each week
in an amount no less than half of the regular rate for that week
multiplied by the number of hours worked in excess of 40. See
id. at 354-57.
In challenging the method the district court employed for
calculating damages, the plaintiffs simply maintain that there
was a genuine factual dispute regarding whether they agreed to
20
NYLL also provides such liability. See N.Y. Lab. Law
§§ 198(1-a); 663(1).
41
receive straight-time pay for all hours worked in a given
workweek. We disagree.
Importantly, “an understanding [that the fixed weekly
salary was compensation for all hours worked] may be ‘based on
the implied terms of one’s employment agreement if it is clear
from the employee’s actions that he or she understood the
payment plan.’” Mayhew v. Wells, 125 F.3d 216, 219 (4th Cir.
1997) (quoting Monahan v. County of Chesterfield, Va., 95 F.3d
1263, 1281 n.21 (4th Cir. 1996)). For many years without
objection, although the plaintiffs did not always work the same
number of hours in a day, they received fixed salaries that did
not fluctuate depending on the number of hours they worked. On
this basis, we conclude that the district court correctly
determined that a reasonable jury could only find that the
Investigators and GEICO came to understand that the
Investigators were receiving straight-time pay for all hours
worked in a given workweek. Although the plaintiffs claim that
GEICO hired them with the understanding that they would be
working only 38.75 hours per week, that does not negate the fact
that the record establishes that, over time, they came to
understand that any fluctuations that occurred in their hours
from week to week would not affect the amount that they would be
42
paid. 21 Accordingly, the district court correctly resolved the
issue against the plaintiffs as a matter of law.
C. Liquidated Damages
The plaintiffs also contend that the district court abused
its discretion by denying their request for liquidated damages
under the FLSA and NYLL. We disagree.
In addition to authorizing unpaid overtime award, the FLSA
provides for an award of liquidated damages equal to the amount
of compensation for unpaid overtime. See 29 U.S.C. § 216(b).
“Under the Portal Act, however, a district court, in its sound
discretion, may refuse to award liquidated damages if ‘the
employer shows to the satisfaction of the court that the act or
omission giving rise to such action was in good faith and that
he had reasonable grounds for believing that his act or omission
was not a violation of the [FLSA].’” Perez, 650 F.3d at 375(quoting 29 U.S.C. § 260) (alteration in original). This
provision protects employers who violate the statute but “who
21Black v. SettlePou, P.C., 732 F.3d 492, 498 (5th Cir.
2013), on which the plaintiffs rely, is distinguishable. In
that case, the court noted that the plaintiff testified that she
objected when she was not paid additional compensation for
working additional hours and that such testimony tended “to show
that she did not agree that her fixed weekly salary was intended
to compensate her for all of the hours she worked each week.”
Id. at 501 (distinguishing case in which “the employee accepted
her fixed weekly pay no matter how many hours she worked and
never asked for any additional overtime pay”). The plaintiffs
point to no such testimony in this case.
43
had reasonable grounds for thinking the law was other than it
turned out to be.” Thomas v. Howard Univ. Hosp., 39 F.3d 370,
373 (D.C. Cir. 1994). “[G]ood faith” and “reasonable grounds”
are both measured objectively, see 29 C.F.R. § 790.22(c), and
establishing either element is sufficient to satisfy the
statute. See Mayhew, 125 F.3d at 220.
NYLL regarding the liquidated damages that could be awarded
in addition to compensatory overtime underwent a change during
the limitations period applicable to the state-law violations,
which the parties stipulated was six years beginning on July 19,
2009. Prior to November 24, 2009, the law allowed for
liquidated damages in the amount of 25 percent of the overtime
underpayments in the event the employee could prove a willful
violation. See N.Y. Lab. Law §§ 198(1-a), 663(1). Effective
November 24, 2009, through April 8, 2011, liquidated damages in
the amount of 25 percent of the overtime underpayments were
allowed “unless the employer proves a good faith basis for
believing that its underpayment of wages was in compliance with
the law.” N.Y. Lab. Law § 198(1-a); see N.Y. Lab. Law § 663(1)
(similar). And effective April 9, 2011, the 25-percent amount
was increased to 100 percent. See N.Y. Lab. Law §§ 198(1-a),
663(1).
The district court concluded that GEICO acted in good faith
by reviewing the classification issue multiple times and that,
44
given the closeness of the issue, its decision to treat the
Investigators as exempt was a reasonable one. We agree that the
issue was a very close one, and we conclude that the district
court was within its discretion in refusing to award liquidated
damages under either the FLSA or NYLL.
D. Prejudgment Interest
The plaintiffs finally argue that, in the absence of an
award of liquidated damages, the district court abused its
discretion in declining to award prejudgment interest on the
basis that GEICO acted in good faith in treating its
Investigators as exempt. We agree.
Although the FLSA does not explicitly provide for
prejudgment interest, we have noted in the FLSA context that
“[n]ormally, ‘[p]rejudgment interest is necessary, in the
absence of liquidated damages, to make the [plaintiff] whole.’”
Dole v. Shenandoah Baptist Church, 899 F.2d 1389, 1401 (4th Cir.
1990) (second alteration in original) (quoting Cline v. Roadway
Express, 689 F.2d 481, 489 (4th Cir. 1982)); see Pignataro v.
Port Auth. of N.Y. & N.J., 593 F.3d 265, 274 (3d Cir. 2010)
(“Prejudgment interest [on a backpay award under the FLSA]
attempts to compensate for the delay in receiving the wages as
well as offset the reduction in the value of the delayed
payments caused by inflation.”). See also City of Milwaukee v.
Cement Div., Nat’l Gypsum Co., 515 U.S. 189, 195 (1995) (“The
45
essential rationale for awarding prejudgment interest is to
ensure that an injured party is fully compensated for its
loss.”). And we have held that “the decision whether to award
interest is within the trial court’s discretion.” Dole, 899
F.2d at 1401; see Cline, 689 F.2d at 489 (“[W]e have indicated
that the district court has discretion, based on the equities
involved, in awarding or denying interest” in FLSA cases).
Nevertheless, “as is always the case when an issue is
committed to judicial discretion, the judge’s decision must be
supported by a circumstance that has relevance to the issue at
hand.” City of Milwaukee, 515 U.S. at 196 n.8. Because
prejudgment interest on an FLSA overtime claim is compensatory
rather than 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 an award. See id.
at 196-97; see First Nat’l Bank of Chicago v. Standard Bank &
Trust, 172 F.3d 472, 480 (7th Cir. 1999) (“[T]he ‘closeness’ of
a case is not material to the issue of prejudgment interest.”).
Accordingly, we reverse the district court’s denial of
prejudgment interest under the FLSA.
On the NYLL claims, we conclude that the plaintiffs were
entitled to prejudgment interest as a matter of right and the
district court thus did not have discretion to deny an award.
“Where state law claims come before a federal court on
46
supplemental jurisdiction,” as they do in this case, “the award
of prejudgment interest rests on state law.” Mills v. River
Terminal Ry. Co., 276 F.3d 222, 228 (6th Cir. 2002). Accord
Olcott v. Delaware Flood Co., 327 F.3d 1115, 1126 (10th Cir.
2003) (“Where state law claims are before a federal court on
supplemental jurisdiction, state law governs the court’s award
of prejudgment interest.”); Mallis v. Bankers Trust Co., 717
F.2d 683, 692 n.13 (2d Cir. 1983) (“Because the applicability of
state law depends on the nature of the issue before the federal
court and not on the basis for its jurisdiction, state law
applies to questions of prejudgment interest on the pendent
claims in an action predicated upon violations of the federal
securities laws.”); cf. Hitachi Credit Am. Corp. v. Signet Bank,
166 F.3d 614, 633 (4th Cir. 1999) (“[State] law governs the
award of prejudgment interest in a diversity case.”); Martin v.
Harris, 560 F.3d 210, 220 (4th Cir. 2009) (explaining that “the
allowance of prejudgment interest is a substantive provision”).
On a NYLL wage claim, such as this one, an award of
prejudgment interest is mandatory. Prior to 2011, the source of
that statutory right was Section 5001 of New York’s Civil
Practice Law and Rules, which provides that prejudgment
“[i]nterest shall be recovered upon a sum awarded . . . because
of an act or omission depriving or otherwise interfering with
title to, or possession or enjoyment of, property.”
47
N.Y.C.P.L.R. § 5001(a) 22; see Santillan v. Henao, 822 F. Supp. 2d
284, 298 (E.D.N.Y. 2011) (“Section 5001 of New York’s Civil
Practice Law and Rules governs the calculation of prejudgment
interest for violations of the state’s Labor Law.”); see also
Mallis, 717 F.2d at 693-94 (holding that “[i]n light § 5001(a)’s
mandatory nature,” even a failure to request such interest in
the complaint or during trial does not constitute a waiver of
the right to prejudgment interest under the statute). Effective
April 9, 2011, New York also amended its statutes governing
civil actions asserting wage claims to explicitly provide for
awards of prejudgment interest. See N.Y. Lab. Law §§ 198(1-a),
663(1). Accordingly, with regard to the NYLL claims, the
district court did not have discretion to decline to award
prejudgment interest.
IV.
In sum, for the foregoing reasons, we reverse the district
court’s decision denying prejudgment interest under the FLSA and
NYLL and remand so that the district court may award prejudgment
interest. We otherwise affirm.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
22
The rule contains an exception for equitable actions, see
N.Y.C.P.L.R. § 5001(a), but an action seeking damages for unpaid
overtime is legal in nature, see Shannon v. Franklin Simon &
Co., 43 N.Y.S.2d 442, 444 (N.Y. Sup. Ct. 1943).
48