10 Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) Seyfarth Shaw LLP | www.seyfarth.com are eligible for the exemption. This distinction between production and administrative workers is sometimes referred to as the “administrative/production dichotomy.” One of the few class actions that actually went to trial in California, Bell v. Farmers Insurance Exchange,41 challenged whether certain insurance adjusters qualified for the administrative exemption. The plaintiffs prevailed on the basis that the insurance adjusters failed, on a classwide basis, to qualify for the administrative exemption. The plaintiffs’ success in Bell inspired numerous other challenges to the exempt status of insurance adjusters. Bell addressed the “administrative/production dichotomy”42 and examined FLSA regulations and case law that distinguish between “administrative work“ (which can qualify as exempt work under the exemption) and “production work” (which cannot qualify).43 Because Farmers Insurance Exchange was the claims subsidiary of Farmers Group, performing adjusting services for a variety of underwriting entities within the group, and because Farmers Group provided administrative support to Farmers Insurance Exchange, Bell held that the work of adjusters was inherently the production of Farmers’ product (insurance adjusting), which rendered the employees ineligible for the exemption regardless of their duties.44 It is significant that Bell was decided under the pre-2000 version of the Wage Orders, which did not expressly incorporate the FLSA’s regulations on its administrative exemption. Given that the current version of the IWC regulations expressly does incorporate the federal administrative exemption regulations, and given that numerous federal decisions have refused to apply Bell’s reasoning to FLSA insurance adjuster cases,45 employers have at least a colorable argument that Bell is not good law for cases arising since 2001. Moreover, the 2004 amendments to the FLSA regulations, which purport merely to clarify and to update what the FLSA has always required, state that insurance adjusters can be covered by the administrative exemption “whether they work for an insurance company or another type of company.”46 41 87 Cal. App. 4th 805 (2001). 42 Id. at 811-12. 43 See, e.g., Dalheim v. KDFW-TV, 918 F.2d 1220, 1230 (5th Cir. 1990) (“The distinction § 541.205(a) draws is between those employees whose primary duty is administering the business affairs of the enterprise from those whose primary duty is producing the commodity or commodities, whether goods or services, that the enterprise exists to produce and market.”). 44 Bell, 87 Cal. App. 4th at 823-28. Although Bell specifically held that it did not need to look at the duties test, it noted that the undisputed evidence showed that the adjusters at issue simply acted as claims processors with little authority or discretion. 45 See, e.g., Miller v. Farmers Ins. Exch., 481 F.3d 1119 (9th Cir. 2007) (criticizing Bell’s interpretation of the administrative/professional dichotomy and finding insurance adjusters categorically to qualify as exempt employees); In re Farmers Ins. Exch., 336 F. Supp. 2d 1077, 1087-88, 1091 (D. Or. 2004), affirmed in part, reversed in part, In re Farmers Ins. Exch. Claims Representatives’ Overtime Pay Litigation, 336 F.Supp.2d 1077 (D. Or. 2004) (rejecting notion that Farmers’ adjusters were non-exempt “production“ workers regardless of whether they met the other requirements of the administrative exemption; refusing to apply Bell to a case under the FLSA). 46 29 C.F.R. § 541.203(a). The current regulations still require an adjuster to meet the duties test to qualify as exempt, which requires the adjuster to perform such activities as “interviewing insureds, witnesses and physicians; inspecting property damage; reviewing factual information to prepare damages estimates; evaluating and making recommendations regarding
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