Mitchell v. Pemco Mut. Ins. Co.

• Decision Date: 28 August 2006
• Docket Number: No. 55834-0-I.,55834-0-I.
• Citation: 142 P.3d 623,134 Wn. App. 723
• Court: Washington Court of Appeals
• Parties: Norm MITCHELL, individually and on behalf of all others similarly situated, Appellant, v. PEMCO MUTUAL INSURANCE COMPANY and Pemco Insurance Company, Respondent.

142 P.3d 623

134 Wn. App. 723

Norm MITCHELL, individually and on behalf of all others similarly situated, Appellant, v. PEMCO MUTUAL INSURANCE COMPANY and Pemco Insurance Company, Respondent.

No. 55834-0-I.

Court of Appeals of Washington, Division 1.

August 28, 2006.

William D. Brandt, Salem, OR, Simon Henri Forgette, Attorney at Law, Kirkland, WA, Mark E. Griffin, Griffin McCandlish, Portland, OR, for Appellant.

Harry J.F. III Korrell, Michael Reiss, Eric B. Martin, Davis Wright Tremaine LLP, Seattle, WA, for Respondent.

COLEMAN, J.

¶ 1 Norm Mitchell is the representative in this class-action suit against his employer, PEMCO. Mitchell alleged that the three categories of claims adjusters in the class were improperly classified as administrative employees exempt from overtime pay. PEMCO conceded that one type of adjuster was not exempt, and the court found that the other adjusters — casualty and property adjusters — in the class were properly classified as exempt. Because substantial evidence supports the court's finding that casualty and property adjusters are exempt, we affirm.

FACTS

¶ 2 Mitchell represents a class including three types of PEMCO claims adjusters: casualty adjusters, property adjusters, and auto physical damage (APD) adjusters. Before 2001, PEMCO treated all three types of adjusters as exempt from overtime pay under the administrative exception to the Washington Minimum Wage Act (MWA), RCW 49.46.010. In 2001, the California Court of Appeals concluded in Bell v. Farmers, 87 Cal.App.4th 805, 105 Cal.Rptr.2d 59 (Cal.Ct.App.) (2001), that all categories of Farmers' personal lines adjusters were entitled to overtime. After this case was decided, PEMCO evaluated the exempt status of its own adjusters. PEMCO reclassified APD adjusters as nonexempt, but casualty and property adjusters remained exempt.

¶ 3 On March 4, 2002, APD adjuster Alan Frye filed a class-action complaint against PEMCO, alleging identical claims as those made in this case. Before the class was certified, Frye settled the case individually and his suit was dismissed. Before he settled, however, Frye filed a motion to permit intervention by Mitchell as the class representative. The trial court denied the motion without prejudice.

¶ 4 Mitchell filed his own complaint on January 9, 2003, with the same class definition and time period as was used in Frye's complaint. In October 2003, the trial court granted Mitchell's motion for class certification, which defined the class as all APD, casualty, and property adjusters employed as of March 4, 1999 (three years prior to the date Frye filed suit). In November 2003, the court granted PEMCO's motion to redefine the start of the class period from March 4, 1999, to January 9, 2000.

¶ 5 The suit proceeded to trial in November 2004. The trial consisted of two phases: In the first phase, the court determined the issue of PEMCO's liability for overtime. In the second phase, the court determined whether the adjusters were entitled to double damages for PEMCO's willfulness in failing to pay overtime. (A third phase, to determine the amount of damages, has not yet occurred.)

¶ 6 Before the first phase, PEMCO stipulated to Mitchell's case in chief and conceded that its failure to pay overtime to class members was not the result of carelessness and inadvertence. PEMCO also withdrew its affirmative defense that APD adjusters were exempt employees.

¶ 7 After a bench trial, the court found that APD adjusters were not exempt and thus, were entitled to double the amount of overtime pay they were legally entitled to, but found that casualty and property adjusters were exempt because they were employed in a bona fide administrative capacity. Mitchell appeals the judgment in favor of PEMCO as to the casualty and property adjusters and also appeals the court's clarification of the starting date of the class period.

ANALYSIS

Burden of Proof

¶ 8 The trial court found that PEMCO had proved by a preponderance of the evidence that the adjusters fit within the administrative exemption. Mitchell argues that case law has established that employers asserting an employee is exempt must prove that the employee fits within the terms of the exemption "plainly and unmistakably" — a higher burden of proof than preponderance of the evidence. PEMCO argues that no case law establishes a "plainly and unmistakably" burden, and thus, the typical preponderance standard was properly applied.

¶ 9 The MWA requires employers to pay overtime wages to employees who work more than 40 hours per week unless the employees work in a "bona fide executive, administrative, or professional capacity." RCW 49.46.010(5)(c). Such exempt employees must be paid on a salary or fee basis. WAC 296-128-520(4). Courts review the applicability of an MWA exemption under a "clearly erroneous" standard:

"Exclusions pertaining to MWA coverage should be construed strictly in favor of the employees so as not to defeat the broad objectives for which the act was passed. Employers asserting an exclusion have the burden of proving their employees fit plainly and unmistakably within its terms. Whether an exception applies in a particular case should be reviewed pursuant to the `clearly erroneous' standard.

"A finding is `clearly erroneous' when, although there is evidence supporting the court's finding, `the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.'"

Tift v. Nursing Servs., 76 Wash.App. 577, 582, 886 P.2d 1158 (1995) (quoting Goff v. Airway Heights, 46 Wash.App. 163, 166, 730 P.2d 691 (1986), rev'd on other grounds sub nom. Chelan Cy. Deputy Sheriffs' Ass'n v Chelan Cy., 109 Wash.2d 282, 745 P.2d 1 (1987)).

¶ 10 Mitchell argues that this quotation establishes that an employer asserting an MWA exemption — such as PEMCO — is held to a "plain and unmistakable" burden of proof. Neither Tift nor any subsequent case, however, holds an employer to an elevated burden of proof. Tift explains the process by which a trial court determines whether an employee is exempt from the MWA: "The ultimate finding as to employee status is not simply a factual inference drawn from historical facts, but more accurately, is a legal conclusion based on factual inferences drawn from historical facts." Tift, 76 Wash.App. at 582, 886 P.2d 1158. Here, the trial court determined the facts related to the casualty and property adjusters' jobs by the standard burden of proof — a preponderance of the evidence. Having made those determinations, the court then concluded that the adjusters plainly and unmistakably fit the administrative exemption. This approach is consistent with Tift, and we therefore conclude that the trial court applied the correct burden of proof.

Exemption Status of Casualty and Property Adjusters

¶ 11 Mitchell argues that regardless of the burden of proof applied, the trial court erred in concluding that PEMCO met its burden to prove that its casualty and property adjusters were exempt. This court reviews de novo the trial court's conclusion of law that the adjusters were exempt and applies a clearly erroneous standard of review to the trial court's findings of fact as to employee status. See Tift, 76 Wash.App. at 582, 886 P.2d 1158.

¶ 12 There are two tests that an employee must meet to be exempt from the MWA's overtime provisions as an administrative employee: the duties test and the salary basis test. Webster v. Public Sch. Employees of Wash., Inc., 148 Wash.2d 383, 386, 60 P.3d 1183 (2003). "When construing provisions of the Washington Minimum Wage Act, this Court may consider interpretations of comparable provisions of the Fair Labor Standards Act of 1938 [29 U.S.C. Sec. 201 et seq.] as persuasive authority." Inniss v. Tandy Corp., 141, Wn.2d 517, 524, 141 Wash.2d 517, 7 P.3d 807 (2000).¹

A. Duties Test

¶ 13 Washington's MWA regulations and the federal Department of Labor (DOL) regulations² set out a multi-factored definition of the duties of exempt administrative employees, and the parties here dispute the applicability of two of these factors. Employees can be defined as administrative if: first, their "primary duty consists of the performance of office or non-manual field work directly related to management policies or general business operations of his employer or his employer's customers," and second, they "customarily and regularly exercise discretion and independent judgment." WAC 296-128-520(1), (3); see also 29 C.F.R. § 541.200. We discuss these two factors below.

1) Work Directly Related to PEMCO's General Business Operations

¶ 14 Mitchell does not dispute that casualty and property adjusters perform office work, but argues that the adjusters' work is not directly related to the management policies or general business operations of PEMCO or PEMCO's customers. Mitchell claims that PEMCO's general business is to write and sell insurance policies and that the adjusters' work — which is servicing, not writing or selling policies—does not therefore relate to PEMCO's general business operations.

¶ 15 The DOL regulations explain the meaning of this exemption factor, specifically that the

phrase "directly related to the management or general business operations" refers to the type of work performed by the employee. To meet this requirement, an employee must perform work directly related to assisting 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).

¶ 16 The casualty and property adjusters who testified at trial described job duties that fit within the administrative exemption as explained by the DOL regulations. Although the adjusters worked only in the claims department of PEMCO, the adjusters serviced PEMCO's policyholders and claimants, representing the company and negotiating settlements. The adjusters...