Opinion ID: 1445904
Heading Depth: 3
Heading Rank: 1

Heading: The Directly Related Requirement

Text: For MDAs to fall within the administrative exemption, CCS must first establish that their primary duties consist of work directly related to management policies or general business operations of the employer or the employer's customers. 29 C.F.R. § 541.214. This requirement encompasses those types of activities relating to the administrative operations of a business as distinguished from `production' or, in a retail or service establishment, `sales' work. Id. § 541.205(a). The administrative operations of the business include the work performed by so-called white-collar employees engaged in `servicing' a business as, for example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control. Id. § 541.205(b). The directly related requirement also limits the [administrative] exemption to persons who perform work of substantial importance to the management or operation of the business of his employer or his employer's customers. Id. § 541.205(a). Accordingly, the directly related component of the short test requires that the employee's duties: (1) involve the administrative operations of the business, as distinct from production or sales work; and (2) be of substantial importance to the business or its customers. CCS is in the business of processing claims brought by policyholders and other claimants against the insurance policies of its insurance company clients. MDAs handle 60% of all claims processed by CCS. A large percentage of those claims involve auto damage totaling less than $10,000, which MDAs investigate, adjust, and settle with only minimal oversight. In so doing, MDAs are required to analyze data and draw[ ] conclusions which are important to the determination of . . . [CCS's] policy. 29 C.F.R. § 541.205(c)(3). Consequently, MDAs play a significant role in the claims-adjusting service CCS provides to its insurance-carrier clients. MDAs are at the front lines of CCS's auto claims adjusting operation; they spend most of their time in the field and represent the face of CCS to the claimants and mechanics with whom they interact. See id. § 541.205(b). Investigating, estimating, and ultimately settling auto damage claims is obviously work of substantial importance to GCS's business operations and is the core service it provides to its customers. [3] Id. § 541.205(a). Indeed, the plaintiffs have not mounted a serious challenge to GCS's claim that an MDA's duties are of substantial importance to its business. As such, they have essentially conceded the point. See United States v. Duran, 407 F.3d 828, 844 n. 7 (7th Cir.2005). The plaintiffs do argue, however, that the duties of an MDA are not properly characterized as administrative for purposes of the first aspect of the directly related requirement. They contend MDAs are the postindustrial equivalent of production workers and thus are not involved in CCS's administrative operations. The plaintiffs are correct that the directly related test seeks to distinguish exempt administrative work from nonexempt production or sales work. 29 C.F.R. § 205(a); Kennedy, 410 F.3d at 372. But their attempt to cast MDAs as service-industry production workers founders for two reasons. First, the plaintiffs make too much of the fact that CCS does not actually underwrite or sell insurance policies. The gist of the plaintiffs' argument is that CCS produces claims-processing services (though not the underlying policies) and therefore MDAs are essentially responsible for producing CCS's product. This argument hinges on a distinction between in-house claims processing by insurance companies, which the plaintiffs view as ancillary to the production of the policies themselves, and outsourced claims processing of the type performed by CC S, which they interpret as a product unto itself. Under the Department of Labor's interpretive regulations, however, this distinction is immaterial, as administrative operations of a business may be those of the employer or the employer's customers. See 29 C.F.R. § 541.205(a), (d) (emphasis added). CCS's customers are insurance companies in the business of selling policies, and employees who process claims against those policies are performing an administrative function for CCS's customers (i.e., a task that administers the policies produced by the insurers). This conclusion is reinforced by a Department of Labor opinion letter involving a claims specialist who processed claims on behalf of a contracting insurance company. DOL Wage & Hour Div. Op. Ltr. FLSA2005-25, at 4 (Aug. 26, 2005). The administrative exemption turns on how employees spend their day, not who signs their paycheck. See 29 C.F.R. § 531.205(d). It would be strange to conclude that a claims-processing employee at a third-party service company like CCS is entitled to overtime while his in-house counterpart at XYZ Insurance Co. is not. Indeed, the 2004 regulations make it clear that insurance claims adjusters generally meet the duties requirements for the administrative exemption, whether they work for an insurance company or other type of company.  29 C.F.R. § 541.203(a) (2006) (emphasis added). Second, the so-called production/administrative dichotomya concept that has an industrial age genesisis only useful by analogy in the modern service-industry context. The typical example of the . . . dichotomy is a factory setting where the `production' employees work on the line running machines, while the administrative employees, work in an office communicating with the customers and doing paperwork. Shaw v. Prentice Hall Computer Publ'g, Inc., 151 F.3d 640, 644 (7th Cir. 1998). The analogy is not terribly useful here, particularly given that the 2004 regulations suggest a more traditional meaning of production. The new regulations state that the directly related test is met by employees who assist[ ] 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) (2006). MDAs are obviously neither working on a manufacturing line nor producing anything in the literal sense. They are service providers, and the service they pro vide is the administration of insurance claims. This is the main business of CCS's Claims. Division. See DOL Wage & Hour Div. Op. Ltr. FLSA2005-25, at 4; see also Haywood v. N. Am. Van Lines, Inc., 121 F.3d 1066, 1072 (7th Cir.1997) (employee who settled customer complaints against moving company meets directly related test because her employment activity was ancillary to the employer's moving business). We have no difficulty concluding that the duties of MDAs directly relate to CCS's administrative operations. This conclusion is supported by an interpretive regulation that lists claim agents and adjusters as examples of positions that will generally satisfy the directly related part of the short test. See 29 C.F.R. § 541.205(c)(5). MDAs may lack some of the responsibilities traditionally associated with claims adjustingthey do not, for example, make liability and coverage determinations, see id. § 541.203(a) (2006)but inspecting, appraising, and settling property damage claims are core adjuster functions. See id.