Massive Award in Overtime Lawsuit

In a verdict that could increase pressure on companies to change their overtime pay practices, Farmers Insurance Exchange was hit with a $90-million judgment Tuesday for cheating claims adjusters out of years of premium pay for long hours.

The award, ordered by an Alameda County Superior Court jury against the Los Angeles-based company, is believed to be the biggest of its type and may exceed $130 million when interest and attorneys’ fees are added, said Steven G. Zieff, a San Francisco lawyer representing the 2,400 adjusters in the class-action lawsuit.

“I’m elated,” Zieff said. “It’s a vindication of the workers’ right to overtime. Farmers has ignored the courts’ prior orders that these folks are entitled to overtime, and the jury has spoken. The people are entitled to be paid for all of their hours.”

The size of the compensatory award stunned employment experts and lawyers who had been closely following the lawsuit because of the large number of plaintiffs involved and because it went to a jury trial instead of settling.

“The award is shocking,” said Jim Kuns, a senior consultant with the Employers Group, a Los Angeles-based association representing 5,000 California businesses.

Experts predicted the size of the award would encourage more exempt white-collar workers to file lawsuits demanding overtime and ought to prompt California employers to review their pay practices.

“That’s a pretty substantial judgment,” said David Lewin, a professor and Neal H. Jacoby management chair at UCLA’s Anderson School. “There will be more [lawsuits]. Like in wrongful termination and employment discrimination cases, once plaintiffs’ lawyers see there is a verdict for plaintiffs, there is less of an incentive for them to settle and more of an incentive to go to a trial.”

Farmers issued a statement saying it was disappointed in the award and would appeal. The state Supreme Court had rejected Farmers’ request that it review the lower court’s earlier finding that the company was liable for overtime for current and former adjusters working in California since 1993.

According to a survey conducted for the trial, the typical Farmers adjuster makes $30,000 a year and works 50 hours a week, Zieff said. The award represents $37,500 per plaintiff. The amount that each plaintiff actually receives will be determined by a judge based on tenure and other factors.

“I’ll feel vindicated when they change their policy and stop screwing their employees,” said Joyce Moses, a former adjuster who now works as a teacher in the San Fernando Valley.

Moses said she regularly worked nine-to-11-hour days, plus a few hours on Saturdays to keep up with a workload that she viewed as unrealistic. She said adjusters complained frequently about the amount of work but got no relief.

“I had to work on the day I got married,” she said. “My supervisor made me work a half day. It was not a pleasant experience working for them.

“The money doesn’t mean anything to me,” she said. “The employees are so unhappy. I just hope that this makes it so they don’t treat other people as poorly as they’ve treated me and my colleagues.”

Farmers is one of hundreds of employers embroiled in overtime class-action lawsuits in California, which has strict rules on who gets paid overtime and who is exempt. In California, exempt employees must spend more than half their time on duties that are intellectual, managerial or creative and that require the use of discretion and independent judgment.

“Even if it were to be overturned later, it should stand as a warning to California employers to carefully analyze the exempt status of their employees,” said Kuns of the Employers Group. “We’re constantly getting calls from employers about [overtime exemptions] based on information they receive from headquarters back East, which don’t have the same rules we have here. It’s significantly different here.”

Until now, most white-collar overtime class-action lawsuits settled short of trial for fractions of what workers claimed they had coming. Since January, Rite Aid Corp., U-Haul Co. and Taco Bell agreed to settle cases for $25 million, $7.5 million and $13 million, respectively. None of the companies admitted any wrongdoing.

Starbucks is the latest high-profile target of overtime litigation as managers filed two lawsuits against the Seattle-based coffee purveyor in the last three weeks. The company issued a statement last week saying it had done nothing wrong.

The Farmers case stood apart because the case went to trial and because it challenged the administrative exemption to overtime laws as opposed to the managerial exemption. Legal and employment experts were watching the case because of its potential to spread class-action overtime lawsuits to millions of administrative workers.

The suit contended that adjusters are the equivalent of insurance production workers, that they exercised very little discretion and so they ought to be paid overtime. An Alameda judge agreed, and in March an appellate court upheld that ruling.

In its statement, Farmers said it was “disappointed and concerned” about the verdict and hopes the state Supreme Court will take up its appeal.

“It is a vital subject, which affects thousands of adjusters employed by Farmers and hundreds of other companies,” the statement said. “Field claims adjusters . . . have historically been treated as exempt employees throughout the country. The verdict in this case has the effect of setting California adjusters apart from their peers in other states.”

The company said that by being exempt, the adjusters are able to set their own hours and are treated as professionals.

“Some significant disadvantages to being classified as nonexempt include having to keep time cards, working a regular 9-a.m.-to-5-p.m. schedule, accounting for all hours worked to a supervisor and being treated as an hourly worker rather than a professional,” Farmers said.

The statement said the company would “continue to comply with all laws, regulations and court decisions regarding its claims adjusting force, while also seeking final clarification of this important issue through the courts of appeals.”