A class of special investigators sued Columbus, Ohio-based Nationwide Insurance claiming they were misclassified as exempt. The investigators earned fixed salaries averaging $75,000 per year and worked flexible schedules that sometimes exceeded 40 hours per week. Did the company owe them overtime?

What happened. In district court, the investigators claimed that they were not exempt from overtime because they did not perform work “directly related” to Nationwide’s “management or general business operations” and did not exercise “discretion and independent judgment” regarding “matters of significance,” as required for an administrative exemption under the Fair Labor Standards Act (FLSA).

The investigators argued that they were essentially “fact-gatherers” who performed routine investigative tasks under tight supervision and that their work was subject to rigid constraints imposed by the company’s auditing system. As a result, they were essentially “production” workers “because Nationwide’s ‘business’ is actually selling the promise of asset protection.” The plaintiffs lost their case and appealed.

What the court said. The 6th  Circuit Court of Appeals, which covers Kentucky, Michigan, Ohio, and Tennessee, upheld the full findings of the district court. The court found that the duties of special investigators, particularly “resolving the indicators of fraud” and “deciding when to refer claims to law enforcement,” involved exercising judgment. The court rejected the investigators’ claim that Nationwide’s auditing standards stripped them of autonomy, finding that “nearly all of the testifying [investigators] characterized their investigations as searches for truth,” and “‘truth’ is not an entirely objective concept.”

Nationwide’s investigators “use their experience and knowledge of fraud to distinguish the relevant from the irrelevant, fact from untruth, to resolve competing versions of events,” the court concluded. The court further confirmed that determining “the legitimacy or illegitimacy of suspicious claims … is a matter of significance to Nationwide.”

Finally, the court ruled that the investigators fell on the administrative side of the “administrative-production dichotomy” because their work was “directly related to assisting with the servicing of Nationwide’s business,” not producing policies, and “Nationwide is in the business of creating and marketing insurance policies.” Foster et al. v. Nationwide Mutual Insurance Co., 6th Cir., No. 12-3107 (3/21/2013).

Point to remember. FLSA’s administrative exemption covers employees who earn at least $455 and work in a “bona fide executive, administrative, or professional capacity” as reflected in the duties tests applied in this case.