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California and the West

Farmers overtime ruling is reversed

The decision means that the insurer doesn't owe $52.5million to claims adjusters in seven states.

October 27, 2006|Lisa Girion | Times Staff Writer

A federal appeals court Thursday reversed a $52.5-million judgment awarded to claims adjusters who alleged that Farmers Group Inc. improperly denied them overtime pay.

The ruling involves adjusters in Colorado, Illinois, Michigan, Minnesota, New Mexico, Oregon and Washington, and is unlikely to affect California cases.

The U.S. 9th Circuit Court of Appeals in San Francisco said that the current and former adjusters were exempt from regulations that required overtime pay.

The court said a section of the federal Fair Labor Standard Act that exempted claims adjusters from overtime pay applied to the workers, who were paid salaries instead of by the hour.

A district court in Oregon had ruled that Farmers Insurance Exchange, a unit of Los Angeles-based Farmers Group, the third-largest U.S. home and auto insurer, improperly classified 1,039 current and former claims adjusters as exempt and awarded them $52.5 million, the appeals court said.

"We hold today that all of the adjusters in this case are exempt," the appeals court said.

In contrast, two years ago Farmers Insurance Exchange agreed to pay a record $210 million to California claims adjusters in a case that illustrates the differences between state and federal overtime laws.

In that case, the company admitted no wrongdoing but settled with the 2,400 adjusters in California after losing its appeal of a $90-million Alameda County jury award.

In affirming that verdict, a state appeals court cited the description in a company manual of the duties of adjusters as "routine and unimportant."

The settlement included interest, lawyers' fees and $40 million for Farmers' failure to heed a judge's post-trial order to immediately change its practices.

The California case was believed to be the most an employer had agreed to pay in an overtime dispute, and it energized a wave of class-action lawsuits in the state, which holds employers to a relatively strict standard for determining who is eligible for overtime pay.

Under California law, employers must pay a premium -- calculated at time and a half -- for work in excess of eight hours a day.

The law allows employers to exempt from overtime pay managers, certain professionals and administrators who have a say in how the business is run.

If, however, more than 50% of workers' time is spent performing the duties of hourly workers, they are eligible for overtime pay, even if they are called managers.

Under federal law, followed in most other states, employers may exempt workers from overtime pay if their primary duties are supervisory.

In its ruling Thursday, the 9th Circuit said duties that qualified as supervisory entailed interviewing witnesses, making coverage recommendations, determining fault and negotiating settlements.

Steve Zieff, a San Francisco lawyer who represented claims adjusters in both the California and federal cases, said he was disappointed by the decision.

"We think it's the wrong decision," he said. "We think the Farmers workers even outside of California were entitled to overtime, and we're evaluating our options."

Jeffrey Beyer, a spokesman for Farmers Group, didn't return messages seeking comment.

lisa.girion@latimes.com

Bloomberg News was used in compiling this report.

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