In Fowler v. OSP Prevention Group, Inc.,¹ the U.S. Court of Appeals for the Eleventh Circuit relied on Department of Labor guidance to conclude that property damage investigators do not qualify for the Fair Labor Standards Act’s administrative exemption, and were therefore subject to the FLSA’s minimum wage and overtime requirements. In overruling the lower court’s opinion that two property damage investigators were properly classified as exempt on the basis of the administrative exemption, the Eleventh Circuit did not find that the investigators failed to exercise sufficient discretion and independent judgment with respect to matters of significance, as is typically the case in similar inquiries. Rather, it held that the investigators did not have a primary duty that was directly related to the management or general business operations of the defendant-employer, thus concluding that the plaintiffs were production workers. This case shows that careful consideration is needed when classifying employees as exempt under the FLSA’s administrative exemption.

Background and FLSA Exemption

The FLSA’s administrative exemption applies to employees whose primary duty: 1) is the performance of office or non-manual work directly related to the management or general operations of the employer or the employer’s customers; and 2) includes the exercise of discretion and independent judgment with respect to matters of significance. Unless both requirements are met, the exemption does not apply.

The employer at issue in this case, OSP, contracted with broadband service providers to investigate damage to their property, including fiber optic cables and aerial wires, determine liability, and recover costs arising from the damage. The plaintiffs, as investigators, were responsible for investigating damage, determining who was liable for the damage, and calculating the cost of repairs. The plaintiffs followed standard operating procedures when conducting the investigations, including following established steps to determine the “who, what, where, and when facts.” They compiled their findings into reports that were ultimately submitted to OSP’s subrogation department, but they had no responsibilities to seek monetary recovery, negotiate or settle claims.

Court Decision

The plaintiffs contended that as investigators, they performed “production” work, not administrative work directly related to the running or servicing of OSP’s business. The Eleventh Circuit agreed, holding that “conducting investigations” is not on the list of “functional areas” identified by the Department of Labor as representative of administrative work. Additionally, in denying the application of the administrative exemption, the court relied on DOL regulations providing examples of workers who “generally do not meet the duties requirements for the administrative exemption.” The court cited DOL regulations stating that employees who do “ordinary inspection work” using “well-established techniques and procedures” often derived from manuals, do not meet the administrative exemption. Nor do “‘examiners or graders’ who compare products using established standards,” or “‘inspectors or investigators of various types’ in the public sector whose work involves using ‘skills and technical abilities in gathering factual information,’ applying ‘known standards or prescribed procedures, determining which procedures to follow, or determining whether prescribed standards or criteria are met.’”

The court further interpreted DOL guidance as providing that “when a fact-finding investigator works for a company whose business is to provide investigative services, that investigator is likely a production employee and not an administrative one.” The court supported this point by citing a 2005 Wage and Hour Opinion Letter concluding that investigators conducting background checks for a private company providing background check services to the government were production workers.² The court also relied on a Fourth Circuit opinion finding that insurance investigators responsible for investigating fraudulent claims did not meet the administrative exemption because their primary duty was not directly related to the insurance company’s management or general business operations.

Ultimately, while the Eleventh Circuit agreed that the plaintiffs performed essential and important work for OSP, that did not render them “administrative” employees, because as the court concluded, they were not “part of OSP’s management, and they did not run or service the general business operations of the company.”³ The court declined to address whether their work included the exercise of discretion and independent judgment with respect to matters of significance.

Bottom Line

It is important for employers classifying employees as exempt pursuant to the administrative exemption to ensure that exempt employees have a primary duty of office or non-manual work directly related to the management or general operations of the employer or its customers, and that their primary duty also includes the exercise of discretion and independent judgment with respect to matters of significance.