Full opinion text
AMENDED FINDINGS OF FACT AND CONCLUSIONS OF LAW ROBERT E. JONES, District Judge. In this multidistrict litigation (“MDL”), the named plaintiffs, on behalf of themselves and other similarly situated current and former personal lines claims representatives (“CRs”) employed by defendant Farmers Insurance Exchange (“FIE”), bring a collective action under the Fair Labor Standards Act of 1938 (“FLSA”), 29 U.S.C. § 201 et seq, and class actions under seven states’ laws, alleging that they are owed overtime pay. Specifically, plaintiffs allege that they are entitled to recover overtime wages and liquidated damages from FIE because FIE inappropriately classified them as “exempt” from the federal and state overtime laws. I held a three-week bench trial from September 8 through 25, 2003, on the bifurcated issue of liability. On November 6, 2003, I issued Findings of Fact and Conclusions of Law (“F & Cs”) on liability, in which I concluded that FIE improperly classified auto physical damage CRs, certain property CRs, and certain other CRs as exempt from overtime under the FLSA and state laws, but properly classified the remaining CRs as exempt. I also concluded that FIE’s conduct was “willful” for statute of limitations purposes, and that FIE failed to meet its burden of proof on its good faith defenses to liability and liquidated damages. Following issuance of the F & Cs, on November 20, 2003, plaintiffs filed a request for clarification (# 534) of certain aspects of my decision. On December 15, 2003, defendant filed a motion for reconsideration and clarification (# 544). Plaintiffs’ request for clarification seeks mostly minor corrections or slight elaboration of certain findings and/or conclusions. FIE, on the other hand, raises several major issues. First, in response to plaintiffs’ motion, FIE argues that all of the state law overtime claims are preempted by federal law. I addressed that argument at an early stage in this MDL, ultimately denying FIE’s motion to dismiss the state law claims on the basis of federal preemption. I decline to revisit that issue. FIE also seeks reconsideration of the F & Cs concerning willfulness and good faith. Additionally, FIE seeks decertification and dismissal of the Michigan class action, based on a recent decision of the Michigan Court of Appeals, Allen v. MGM Grand Detroit, LLC, 260 Mich.App. 90, 675 N.W.2d 907, 2003 WL 22976658 (2003). On February 23, 2004, I heard oral argument on the motions. I have thoroughly reviewed the parties’ excellent memoranda and arguments, and have considered and reflected on my original F & Cs. Plaintiffs’ motion (# 534) and FIE’s motion (# 544) are granted in part and denied in part as set forth in these Amended Findings of Fact and Conclusions of Law. PROCEDURAL BACKGROUND On March 12, 2002, the Panel on Mul-tidistrict Litigation transferred certain actions to this court for coordinated or consolidated pretrial proceedings with an action already pending here, pursuant to 28 U.S.C. § 1407. After some preliminary proceedings, on September 9, 2002, I conditionally certified the FLSA claims to proceed ás a collective action and approved a form of Hoffmann-La Roche notice to be sent to all potential collective action members permitting them to consent to join or “opt-in.” Of 6100 notices sent to current and former FIE personal lines claims representatives, approximately 1170 opted in. In late December 2002, plaintiffs filed a motion to certify seven class actions under Colorado, Illinois, Michigan, Minnesota, New Mexico, Oregon, and Washington overtime pay laws. FIE objected to class certification and, in turn, filed extensive motions to dismiss directed at plaintiffs’ two claims under the Employee Retirement Income Security Act (“ERISA”) and four of the state law claims. The briefing on these complex motions took several months to complete. On April 15, 2003, a few days before the scheduled oral argument, the parties notified the court that they had resolved much of their dispute, and on April 18, 2003, the parties submitted a Stipulation Regarding Waiver of Right to Jury Trial, Certification of Class Action Claims, Dismissal of ERISA Claims and Other Matters (the “April Stipulation”)(# 422). Among other things, in the April Stipulation, (1) the parties agreed to waive their right to a jury trial on any issue and stipulated to a bench trial before this court on all issues in all actions. The parties also agreed to bifurcate the trial into a liability phase, to be followed, if necessary, by a damages phase (see April Stipulation, ¶¶ 1-3); (2) FIE stipulated to certification of the seven state law class actions, consisting of personal lines claims representatives in job codes CL52, CL03, CL65, CLA5, CLA6, and CLA7; (3) FIE stipulated that for purposes of the FLSA, Colorado, Illinois, Michigan, New Mexico, Oregon, and Washington claims, some class members worked more than 40 hours in some workweeks, and that for purposes of the Minnesota claim, some class members worked more than 48 hours in some workweeks; and (4) the parties agreed to settle and dismiss the two ERISA claims and to dismiss all defendants other than FIE with prejudice. See footnote one, supra; see also April Stipulation, ¶ 12. On May 19, 2003, I issued an order and findings certifying the seven state law classes (# 438). From the evidence at trial, it appears that the class members in the various state class actions number more or less as follows: Colorado (326); Illinois (336); Michigan (322); Minnesota (229); New Mexico (103); Oregon (294); and Washington (353). After the final pretrial conference, in which I received or rejected all exhibits and decided all motions in limine, I conducted a bench trial in the liability phase of the collective and class actions from September 8 through September 25, 2003. By effectively using our available courtroom technology, which included electronic presentation of exhibits, live testimony taken via video-conference, and presentation of excerpts of videotaped depositions, the parties were able to fully present their Power Point assisted opening statements, their witnesses, evidence, and Power Point assisted closing arguments in fourteen trial days, three weeks less than the anticipated minimum of six weeks. The critical issue in the liability phase of this MDL is whether FIE correctly classifies its “personal lines claims representatives” as administrative employees exempt from the overtime pay requirements of the FLSA and the seven state overtime laws at issue. For purposes of this litigation, “personal lines claims representatives” or “CRs” include only the following job titles and job codes: JOB TITLE JOB CODE Claims Representative CL52 Special Claims Representative CL65 Senior Claims Representative CL03 APD Claims Representative CLA5 Senior APD Claims Representative CLA6 Special APD Claims Representative CLA7 “APD” claims representatives (job codes CLA5, CLA6, CLA7) are those who handle auto physical damages claims not involving personal injury. The job categories CL52 (claims representative), CL65 (special claims representative), and CL03 (senior claims representative) include CRs who primarily handle property claims, ie., real property and contents damages claims, CRs who primarily handle bodily and personal injury liability claims, and CRs who adjust Foremost policies. In this opinion, I will refer to these four categories of CRs, which are the only categories at issue in this MDL, as “APD CRs,” “Property CRs,” “Liability CRs,” and “Foremost CRs.” To make the scope of this decision abundantly clear, the FLSA collective action and the state law class actions do not include, and thus this decision does not apply to, the claims of CRs for any time during which they are or were employed by FIE in the state of California during the relevant class periods, FIE employees who are subject to the decision in Bell v. Farmers Ins. Exchange, 87 Cal.App.4th 805, 105 Cal.Rptr.2d 59 (2001), and FIE employees whose primary job assignment and duties categorize them as: • Supervisors, temporary or otherwise • Branch Managers, temporary or otherwise • Regional Managers, temporary or otherwise • Office claims representatives • General adjusters • Commercial lines claims representatives • Workers’ compensation claims representatives • Circle of Dependability (“COD”) auto shop coordinators • MED/PIP claims representatives • Malpractice claims representatives • Professional liability claims representatives • Environmental claims representatives With the above procedural background in mind, in Part I of this decision, I turn first to FIE’s argument concerning the Michigan class action. In Part II, I discuss the legal principles that will guide my analysis of the administrative exemption, followed by my findings and conclusions of law concerning the exemption. In Part III, I address the issues of willfulness and good faith. DISCUSSION PART I: THE MICHIGAN CLASS ACTION As noted above, FIE seeks decertification and dismissal of the Michigan class action. The viability of the Michigan class action has been an unsettled issue since the outset of this MDL. See, e.g., F & Cs, p.19 n.14 (citing Severn v. Farmers Insurance Exchange, Mich. Circuit Ct., County of Oakland, No. 01-0335558-CZ); F & Cs, p. 56 n.30. On December 18, 2003, in Allen v. MGM Grand Detroit, LLC, 260 Mich.App. 90, 675 N.W.2d 907, the Michigan Court of Appeals held that an employer subject to the overtime provisions of the FLSA is not also subject to Michigan overtime law if application of the FLSA does not result in a lower minimum wage. The court’s decision turns on statutory interpretation of Michigan law; specifically MCL 408.394, which provides: This act does not apply to an employer who is subject to the minimum wage provisions of the fair labor standards act of 1938[ ], 29 USC 201 to 216 and 217 to 219, unless application of those federal minimum wage provisions would result in a lower minimum wage than provided in this act. In Allen, the court of appeals reversed the trial court’s denial of the defendant employer’s motion for summary judgment on plaintiffs’ claims for unpaid overtime on the ground that “[d]efendant is an employer subject to the FLSA and application of the above referenced provisions [of the FLSA] to the present case does not result in a lower minimum wage.” Allen, 260 Mich.App. at 96, 675 N.W.2d at 910. Plaintiffs contend that the Allen opinion addresses a very narrow issue, whether the Michigan statute (“MWA”) covers an employer where the FLSA’s statute of limitations would result in an employee receiving a lower amount of unpaid wages. Plaintiffs argue that Allen does not address the question of whether an employer can be covered by the MWA where there are differences between the overtime exemptions provided by the MWA and the FLSA. According to plaintiffs, the Michigan exemption for administrative employees is more narrowly defined than the FLSA exemption. I have already made my findings concerning the applicability of the administrative exemption under the FLSA and state law to the CR categories at issue in this proceeding. The liability phase of this proceeding is complete, thus, fine distinctions between Michigan law and the FLSA with respect to the administrative exemption, if any, are immaterial at this juncture. Nonetheless, because dismissal of the Michigan class might leave certain class members, specifically, those who are not also members of the FLSA collective action, without a remedy, I decline to decer-tify and dismiss the class now that liability has been determined on the merits. PART II: ADMINISTRATIVE EXEMPTION A. THE FLSA COLLECTIVE ACTION 1. The FLSA The FLSA ordinarily requires employers to pay their employees time and one-half for work exceeding forty hours per week. 29 U.S.C. § 207(a)(1). The FLSA provides certain statutory exemptions from the overtime pay requirements. See 29 U.S.C. § 213(a)(1). In this MDL only the exemption for persons “employed in a bona fide * * * administrative * * * capacity” is at issue. 29 U.S.C. § 213(a)(1). The employer bears the burden of establishing that an employee fits within an exemption. Bothell v. Phase Metrics, Inc., 299 F.3d 1120, 1124 (9th Cir.2002)(quoting Donovan v. Nekton, Inc., 703 F.2d 1148, 1151 (9th Cir.1983)); Corning Glass Works v. Brennan, 417 U.S. 188,196-97, 94 S.Ct. 2223, 41 L.Ed.2d 1 (1974). Because the FLSA “ ‘is to be liberally construed to apply to the furthest reaches consistent with Congressional direction, * * * FLSA exemptions are to be narrowly construed against * * * employers and are to be withheld except as to persons plainly and unmistakenly within their terms and spirit.’ ” Bothell, 299 F.3d at 1124-25 (quoting Klem v. County of Santa Clara, 208 F.3d 1085, 1089 (9th Cir.2000)); see also Alvarez v. IBP, Inc., 339 F.3d 894, 904 (9th Cir.2003); Webster v. Public School Employees of Washington, Inc., 247 F.3d 910, 914 (9th Cir.2001). 2. The Regulations The FLSA delegates to the Secretary of Labor broad authority to “define[] and delimit[]” the scope of the administrative exemption. 29 U.S.C. § 213(a)(1). The'Department of Labor (“DOL”) has issued regulations interpreting the exception for administrative employees, to which I must give due deference. Auer v. Robbins, 519 U.S. 452, 461, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997). The DOL regulations outline both “long” and “short” tests for administrative employee status. See 29 C.F.R. § 541.2(a)-(e) (“long test”); 29 C.F.R. §§ 541.2(e)(2) and 54L214 (“short test”); see also Martin v. Cooper, 940 F.2d 896, 901 and 901 n. 4 (3d Cir.1991). In Martin, the court explained that the short test applies to employees who are compensated at a rate of not less than $250 per week, exclusive of board, lodging, or other facilities. In contrast to the long test, which requires that an employee “customarily and regularly” exercise discretion and independent judgment, the short test requires only that an employee’s duties include work involving the use of discretion and independent judgment. Martin, 940 F.2d at 901 n. 4 (quoting Donovan v. Tama Meat Packing Corp., 817 F.2d 54, 55 (8th Cir.l987)(emphasis added; internal quotations omitted)). Under the short test, which, as explained below, applies in this case, an “employee employed in a bona fide * * * administrative * * * capacity” is any employee: (a) who is compensated on a “salary basis” at a rate of at least $250 per week; and (b) whose “primary duty consists of * * * [t]he performance of office or non-manual work directly related to management policies or general business operations of his employer or his employer’s customers;” and (c)whose duties include work “requiring the exercise of discretion and independent judgment.” Bothell, 299 F.3d at 1125 (quoting 29 C.F.R. § 541.2). These criteria are “absolute”; FIE must prove all of these requirements before this court may hold that any or all CRs are exempt from coverage under the FLSA. See Bothell, 299 F.3d at 1125 (citation omitted); see also Bratt v. County of Los Angeles, 912 F.2d 1066, 1069 (9th Cir.1990). In Webster, supra, the court explained that the short test has two parts. The first, known as the “salary basis test,” is met by proof that FIE pays the CRs at least $250 per week on a salary basis. 247 F.3d at 914. FIE has stipulated that all CRs are compensated at a rate of not less than $250 per week ($260 per week in Oregon). Defendant Farmers Insurance Exchange’s Amended Trial Stipulations, ¶¶ 6, 7. Moreover, the evidence established that plaintiffs are paid a salary, and plaintiffs do not seriously contend otherwise. Consequently, the first requirement for use of the short test, the “salary basis test,” is met. The second and more analytically difficult part of the short test is known as the “duties test.” Webster, 247 F.3d at 914. Despite some rhetoric early in the trial, the parties do not dispute that all CRs perform primarily “office or nonmanual work.” 29 C.F.R. § 541.2(a)(1); see also 29 C.F.R. § 541.203 (nonmanual work defined). The parties do dispute and, consequently, the focus of the remainder of this portion of my decision is on the two major prongs of the “duties test”: (1) whether the CRs’ primary duties consist of work of substantial importance “directly related to management policies or general business operations” of FIE or FIE’s customers; and (2) whether the CRs’ duties include work “requiring the exercise of discretion and independent judgment.” 29 C.F.R. § 541.2(a)(1) and (b). a. “Directly Related To” A key requirement for the administrative exemption is that an employee’s primary work be “directly related to management policies or general business operations of his employer or his employer’s customers.” 29 C.F.R. § 541.2(a)(1). The DOL regulations explain that the “directly related” phrase describes those types of activities relating to the administrative operations of a business as distinguished from “production” * * *. In addition to describing the types of activities, the phrase limits the 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. 29 C.F.R. § 541.205(a). With respect to “work of substantial importance,” the regulations further explain: As used to describe work of substantial importance to the management or operation of the business, the phrase “directly related to management policies or general business operations” is not limited to persons who participate in the formulation of management policies or in the operation of the business as a whole. Employees whose work is “directly related” to management policies or to general business operations include those whose work affects policy or whose responsibility is to execute or carry it out. * * *. (1) It is not possible to lay down specific rules that will indicate the precise point at which work becomes of substantial importance to the management or operation of a business. * * * 29 C.F.R. § 541.205(c) and (c)(l)(emphasis added). The so-called “administration/production dichotomy” arises from the “production” language of section 541.205(a). Because the regulations suggest a distinction between the administration of a business on the one hand, and the “production” end of a business on the other, courts have often strained to fit the operations of modern-day post-industrial service-oriented businesses into an analytical framework formulated in the industrial climate of the late 1940s. As the Ninth Circuit noted in Bot-hell, however, “the administration/production dichotomy is useful only to the extent that it helps clarify the phrase ‘work directly related to the management policies or general business operations,’ ” and cautioned that the distinction should “only be used as a tool towards answering the ultimate question, * * * not as an end in itself.” 299 F.3d at 1126, 1127. As Bot-hell further explained: Indeed, the regulation from which the dichotomy derives does not stand alone. Rather, the administrative exemption is explicated in a series of interpretive regulations, of which 29 C.F.R. § 541.205(a) is only one, attempting to clarify the elusive meaning of the term “administration.” * * * * * * * * * The other pertinent cases from our sister circuits similarly regard the administration/produetion dichotomy as but one piece of the larger inquiry, recognizing that a court must “con-stru[e] the statutes and applicable regulations as a whole.” * * * Indeed, some cases analyze the primary duty test without referencing the § 541.205(a) dichotomy at all. This approach is sometimes appropriate because, as we have said, the dichotomy is but one analytical tool, to be used only to the extent it clarifies the analysis. Only when work falls “squarely on the ‘production’ side of the line,” has the administration/production dichotomy been determinative. Bothell, 299 F.3d at 1126-27 (citations and footnotes omitted); but see Reich v. State of New York, 3 F.3d 581, 588 (2d Cir.1993) (disagreeing that “the production/administrative dichotomy has limited usefulness outside the manufacturing context”). In this MDL, I suggested to counsel before trial that I did not perceive that the administration/production dichotomy would be useful to my analysis because the CRs are service providers, not production workers. I reiterated this observation several times during trial, and nothing I heard in the evidence or arguments persuaded me otherwise. Giving due deference to DOL regulations interpreting the FLSA as I must, see Auer, supra, 519 U.S. at 457, 117 S.Ct. 905,1 find the administration/production dichotomy to be of no use in the decision before me. Consequently, I will make no further reference to the administration/production dichotomy analysis in this decision. In Bothell, the court explained that the “directly related” requirement is met “if the employee engages in ‘running the business itself or determining its overall course or policies,’ not just in the day-to-day carrying out of the business’ affairs.” Bot-hell, 299 F.3d at 1125 (quoting Bratt, 912 F.2d at 1070). The DOL has explained, however, that the “directly related” requirement is not limited to those whose work affects policy or who bear responsibility for executing policy or carrying it out. Instead, [t]he phrase also includes a wide variety of persons who either carry out major assignments in conducting the operations of the business, or whose work affects business operations to a substantial degree, even though their assignments are tasks related to the operation of a particular segment of the business. 29 C.F.R. § 541.205(c)(emphasis added). Relying on 29 C.F.R. § 541.205(c)(5), FIE suggests that the regulations themselves resolve the issue before this court, whether CRs are exempt administrative employees. That subsection states that “[t]he test of ‘directly related to management policies or general business operations’ is also met by many persons employed as advisory specialists and consultants of various kinds, * * * claim agents and adjusters, * * 29 C.F.R. § 541.205(c)(5)(emphasis added). The regulatory history of the DOL regulations is contained in a series of reports, known as the Stein Report (1940), the Weiss Report (1949), and the Kantor Report (1958). See 68 Fed.Reg. 15561. The “claim agent” language first appeared in the 1940 Stein Report. In noting that job titles alone are “of little or no assistance in determining the true importance of an employee to the employer,” the Stein Report gives as one illustration that the term “claim agent.” may cover a great variety of employees. A claim agent who settles claims for damages which in no case amount to more than five or ten dollars obviously performs mere routine work. On the other hand, a claim agent for a large oil company who is given authority to settle claims that amount to several thousand dollars must use discretion and judgment, and has the authority to affect the welfare of his employer in the most substantial degree. Plaintiffs’ Exh. 2384, Stein Report, p. 25 (footnote omitted). The “claim agent” language in 29 C.F.R. § 541.205(c)(5) was included as an example in the interpretive regulations issued in 1949, and has remained unchanged since. In the introductory statement to the 1949 interpretive regulations, the DOL gave the following “few words of caution * * * in connection with the use of the illustrations”: The exempt or nonexempt status of any particular employee must be determined on the basis of whether his duties, responsibilities, and salary meet all the requirements of the pertinent section of the regulations * * *. The employee’s title or class specification is of no significance in determining whether he meets these tests. The use of any job titles in the illustrations contained in this sub-part should not be construed to mean that employees holding such titles are either exempt or nonexempt, or that they meet any one of the specific requirements for exemption. In any specific case it is the actual work performance, the responsibilities, and salary of the individual employee which determines lohether a particular test has been met or whether the exemption applies. 29 U.S.C. § 541.99(c)(1949)(emphasis added). Thus, although the DOL’s use of the phrase “claim agent and adjusters” in the regulations is interesting, it does not resolve any issue before this court. As DOL notes in the regulations and as I said at the beginning of trial, my decision does not rest on job titles, job descriptions, or generalities; instead, my decision necessarily rests on a determination of what the FIE CRs actually do in performance of their jobs. b. “Discretion and Independent Judgment” The second major requirement for exempt administrative status is that the employee’s primary duties include “work requiring the exercise of discretion and independent judgment.” 29 C.F.R. § 541.205(e)(2). That requirement is satisfied if the employee “has the ability to compare, evaluate, and choose from possible courses of conduct. The requirement ‘implies that the person has the authority or power to make an independent choice, free from immediate direction or supervision and with respect to matters of significance.’ ” Bothell, 299 F.3d at 1129 {quoting 29 C.F.R. § 541.207(a)). Acknowledging that “[i]n one sense almost every employee is required to use some discretion and independent judgment,” the DOL regulations clarify that “the discretion and independent judgment exercised must be real and substantial, that is, they must be exercised with respect to matters of consequence.” 29 C.F.R. § 541.207(d)(1). Further, the regulations caution against misapplication and misunderstanding of the term discretion and independent judgment, noting “(1) [cjonfusion between the exercise of discretion and independent judgment, and the use of skill in applying techniques, procedures, or specific standards; and (2) misapplication of the term to employees making decisions relating to matters of little consequence.” 29 C.F.R. § 541.207(b). The regulations give the following example of the distinction between the use of skills and the exercise of discretion and independent judgment: An employee who merely applies his knowledge in following prescribed procedures or determining which procedures to follow, or who determines whether specified standards are met or whether an object falls into one or another of a number of definite grades, classes, or other categories, with or without the use of testing or measuring devices, is not exercising discretion and independent judgment within the meaning of § 541.2. This is true even if there is some leeway in reaching a conclusion, as when an acceptable standard includes a range or a tolerance above or below a specific standard. 29 C.F.R. § 541.207(c)(1). DOL also has clarified that “discretion and independent judgment” does not necessarily imply that an employee’s decisions must “have a finality that goes with unlimited authority and a complete absence of review”: The decisions made as a result of the exercise of discretion and independent judgment may consist of recommendations for action rather than the actual taking of action. The fact that an employee’s decision may be subject to review and that upon occasion the decisions are revised does not mean that the employee is not exercising discretion and independent judgment * * *. 29 C.F.R. § 541.207(e)(1). 3. November 2002 DOL Opinion Letter In November 2002, after the cases in this MDL were filed, the DOL issued an opinion letter in response to an inquiry by the National Association of Mutual Insurance Companies stating, in essence, that insurance claims adjusters perform work that is administrative in nature. Exh. 1464 (WH Deputy Admin. Op. (Nov. 19, 2002)); see Exh. 1463 (letter of inquiry). The 2002 opinion letter is consistent with earlier DOL opinion letters on similar topics. See Exh. 1463 (attachments). Opinions of the DOL, like DOL regulations, are entitled to persuasive value if the position of DOL is thoroughly considered and well reasoned. See, e.g., Webster, supra, 247 F.3d at 914 n. 2 (citing Auer, supra, 519 U.S. at 461, 117 S.Ct. 905); see also Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944). The 2002 DOL opinion letter is thorough, well reasoned, and, in this court’s view, an accurate interpretation of the regulations at issue in this MDL; thus, it is entitled to deference, at least with respect to the interpretation of the regulations themselves. Beyond that, however, the opinion is of little value to my decision in that the facts presented to DOL for consideration blend all categories of CR and attribute the same duties and responsibilities to all CRs across the board, without regard to factual differences between APD, property, and liability claims adjusters, or, indeed, any of those categories of CR not involved in this litigation as described earlier in this decision. Consequently, the opinion letter, which is based “exclusively on the facts and circumstances” presented to the DOL, fails to distinguish between categories of claims adjusters. As the complete evidentiary record before me demonstrates, the differences in the types of claims adjusting are more significant than the similarities for purposes of analyzing exempt status. As I stated before, my decision must be based on evidence of what the CRs in this MDL actually do, not on opinions issued in regard to facts and circumstances not before this court. 4. Case Law Few of the cases on which the parties rely specifically address the exempt status of insurance claims representatives. In Bell v. Farmers Ins. Exchange, 87 Cal. App.4th 805, 105 Cal.Rptr.2d 59 (2001), a California appeals court affirmed a trial court decision that rejected FIE’s administrative exemption defense under California law. The Bell court applied the administrative/production dichotomy to the record before it, ultimately concluding that the claims representatives were restricted to routine and unimportant work or, on matters of greater importance, acted as mere conduits of information to supervisors. 87 Cal.App.4th at 828, 105 Cal.Rptr.2d 59. The trial court decided Bell on summary judgment, on a record, which, as described by the court of appeal, “confirm[ed] the accuracy of FIE’s own description of the claim representatives’ responsibilities as being restricted to ‘the routine and unimportant.’ ” 87 Cal.App.4th at 828, 105 Cal. Rptr.2d 59. The record before me permits no such generally-applicable description. Moreover, although Bell discusses the FLSA, it was decided under California, not federal, law. And Bell’s, focus on the administrative/production dichotomy appears to have skewed the court’s overall view of FIE’s business activities and the CRs’ place in those activities. I thus find Bell to be of little guidance on the factual and legal issues before me, except with respect to its role in the analysis of willfulness and good faith, as discussed later in this decision. Palacio v. Progressive Insurance Company, 244 F.Supp.2d 1040 (C.D.Cal.2002), and Jastremski v. Safeco Insurance Companies, 248 F.Supp.2d 743 (ND Oh.2003), also were decided on summary judgment. In each case, the district court found that the plaintiff insurance claims representative was an exempt administrative employee under the FLSA. Neither case involved FIE or a fully developed record as exists in this case. Consequently, although Palacio and Jastremski are interesting and offer some insight, particularly Jastremski’s discussion of the 2002 DOL opinion letter, they offer little insight with respect to the FLSA exemption issues before me. B. THE STATE LAW CLASS ACTIONS As stated in my Order and Findings Certifying State Law Classes (# 438), the administrative exemption test under the state wage laws is substantially similar to, if not identical in some instances, to the FLSA test. See Order and Findings, pp. 10-11. Consequently, my liability findings and conclusions on plaintiffs’ FLSA claim apply to plaintiffs’ state law claims. Any specific differences between the various state laws in the area of damages will be addressed, if necessary, in future proceedings. C. FINDINGS OF FACT RE: ADMINISTRATIVE EXEMPTION Having outlined the underpinnings for my analysis of the administrative exemption, I turn now to my factual findings. I will begin with findings that pertain generally to all CRs, then move to findings specific to each of the three categories of CRs, APD, property, liability, Foremost, and Multi-Line. General Findings of Fact The following findings of fact apply to all categories of CRs, unless noted otherwise. 1. The FLSA and state law class members are current and former CRs of FIE who were employed within the relevant class periods in one or more of the following FIE job classifications: CL52, CL65, CL03, CLA5, CLA6, or CLA7. With the exception of the Illinois representative plaintiff, Heather Tan, the claims of the representative plaintiffs are typical of the claims of the represented classes. 2. FIE is an employer that is subject to the overtime pay provisions of the ELSA and the comparable overtime provisions of the laws of Colorado, Illinois, Michigan, Minnesota, New Mexico, Oregon, and Washington. 3. FIE is a reciprocal or inter-insurance exchange providing insurance pursuant to the California Insurance Code and is owned by its policyholders. A reciprocal exchange consists of “subscribers” who exchange contracts with one another and provide insurance among themselves. 4. As required by California law, at the time of applying for insurance, subscribers of FIE appoint Farmers Group, Inc., as their exclusive “attorney-in-fact.” Farmers Group, Inc., acts as FIE’s agent in performing or securing some or all of certain services and facilities necessary for FIE’s management, including human resources, accounting, payroll, marketing, development and pricing of insurance products, financial and regulatory auditing, underwriting, actuarial functions, and data processing. Many FIE employees also perform some of these same services and functions. 5. FIE performs all the functions of an insurance company, including selling insurance policies, contracting with agents who sell policies and service customers, procuring and selling reinsurance, and adjusting, settling, and otherwise resolving claims made on its policies. Thus, although FIE CRs adjust claims, FIE is not a claims adjusting company and its business is not restricted to selling claims adjusting services. 6. The “Farmers Insurance Group of Companies” is a registered service mark. Over 20 insurance companies, known as “domestics” and which are subsidiaries of FIE and two affiliated entities, Fire Insurance Exchange and Truck Insurance Exchange, use this service mark. In 2000, FIE and the two affiliated exchanges acquired Foremost Company of America, which issues certain specialty policies. See footnote 7. Foremost CRs became FIE CRs on January 1, 2001. Approximately 190 members of the current classes are or were CRs handling Foremost claims. 7. FIE’s customers consist of domestic insurance companies and FIE policyholders. In handling a claim, a CR works for both the insurance company that insured the risk and the policyholder. 8. In 2002, FIE had over four million policies in force and annual premium revenues in excess of $3.8 billion. 9. Approximately fifty percent of FIE’s 10,000 employees are employed as CRs. FIE maintains somewhere between 120 and 160 branch offices. 10. All FIE CRs receive home office training, including some standardized training and some training that is not standardized. The training is a general, rather than detailed, overview because of differences between jurisdictions concerning coverage, liability, reserves, etc. 11. The parties agree that the job of an FIE CR is claims handling/adjusting. All CRs are classified in one of three different positions, CR, Senior CR, and Special CR, depending largely on experience and performance. The normal route of promotion is from CR to Senior CR, then to Special CR. Promotions are carried from one personal line to another; for example, a Senior APD CR who switches to property insurance will become a Senior Property CR, even though the CR has no prior property experience. Within any particular line of insurance, the job duties of CR, Senior CR, and Special CR are substantially the same. 12. The work of a CR is nonmanual work, except occasional manual work that is ancillary to the CR’s primary job duties. 13. CRs are compensated at a rate not less than $250 per week ($260 per week in Oregon), on a salary basis, exclusive of board, lodging or other facilities. 14. The average annual salaries (not including bonuses and the value of other benefits) of the FLSA opt-in CRs for the years 1998 to 2002 ranged from $36,819 in 1998, to $42,366 in 2002. The median annual salaries (not including bonuses and the value of other benefits) of the FLSA opt-in CRs for the years 1998 to 2002 ranged from $34,400 in 1998, to $41,758 in 2002. In the relevant time period, rookie CRs earned salaries in the mid-20s, veteran CRs earned salaries up to the mid-60s. 15. The FLSA collective action members and the Colorado, Illinois, Michigan, New Mexico, Oregon, and Washington class members worked more than 40 hours in some workweeks during the respective class periods. The Minnesota class members worked more than 48 hours in some workweeks during the Minnesota class period. 16. The majority of CRs operate as “virtual adjusters,” working in the field out of their homes. A CR’s business card typically lists the CR’s home address and the CR’s own telephone and fax numbers. FIE provides CRs with home phone lines, computers and software, cellular phones, printers, and fax machines. FIE also assigns CRs company cars, and pays the portion of automobile insurance not attributable to personal use. 17. All CRs are supervised by supervisors and branch managers. 18. CRs with no authority or low levels of authority may be assigned the same cases as those with higher authorities. Assignment of claims largely is left to the discretion of the supervisor or branch manager, who assigns claims based upon a variety of criteria, including geographic location, type of claim, and the CR’s experience level. In certain areas of the country, geographic location is the most important factor affecting assignment of claims. CRs in rural areas are more likely to handle more than one type of claim at a time, acting as “multi-lines CRs.” Foremost CRs also may handle more than one type of claim, e.g., material damage and bodily injury/liability, under the Foremost policies. 19. In general, a CR’s duties with respect to any particular claim include representing FIE to policyholders, claimants, and others involved in the claim’s resolution {e.g., witnesses, vendors, body shops, outside experts, police, fire personnel, attorneys, claims representatives from other companies, judges, arbitrators), determining policy coverage, planning the handling of and investigating the claim, which includes inspecting the subject of the loss, setting or recommending reserves, recognizing and advising FIE regarding any fraud indicators, subrogation potential, and underwriting risk, estimating the claim, negotiating settlements, and documenting the file. The CR’s duties may also include, as necessary, obtaining the assistance of experts, dealing with attorneys, and participating in mediation, arbitration, or trial. 20.In general, every CR must evaluate coverage issues. The evidence showed that with the computer Customer Restoration Network (“CRN”), CRs receive many claim assignments in which the issue of whether the policy was in force at the time of loss has already been resolved (denoted as “SOK” or status okay). The CR must evaluate all other coverage issues, however, such as whether the cause of loss is covered or excluded under the policy, whether a person qualifies as an “insured” under the policy, whether the subject of the loss is covered, and whether any deductibles apply. If the CR determines that a claim is covered, no supervisor approval is required before the CR proceeds to resolve the claim. If the CR determines that the claim is not covered, he or she refers the ultimate decision to deny the claim to a supervisor. In many cases, the CR will give the supervisor a draft denial letter along with the recommendation to deny coverage. Coverage decisions are of substantial financial importance to FIE and are important to FIE’s reputation with the insurance-buying public. A CR’s erroneous determination of coverage will result in payment of claims that FIE is not legally obligated to pay; an erroneous denial of coverage, even on claims of relatively low value, may expose FIE to legal action and extra-contractual damages in many jurisdictions. 21. The CR plans and carries out the investigation of assigned claims and documents the investigation. This includes deciding, for example, whether and what photographs may be necessary, what documentation, such as police reports, should be obtained, and whether to retain expert assistance in determining the cause of loss. All CRs are expected to follow a same day contact rule, which requires some type of contact with the claimant on the day of assignment. The type of contact required varies with the type of claim. 22. The evidence showed that although the CR is responsible for planning and conducting the investigation, CRs are expected to follow certain procedures and guidelines, which may be subject to audit. With the advent of electronic files through the CRN, some supervisors regularly post “to do lists” directly into CRs’ electronic claims files. Rarely, if ever, does a supervisor “reinvestigate” a claim, and most quality assurance (“QA”) audits are performed on closed, that is, completed, files. 23. CRs handling liability claims, certain types of property claims, and APD claims are responsible for setting reserves, a requirement for compliance with state laws. To set a reserve, the CR must estimate FIE’s exposure on the claim before the CR has completed his or her estimate of damages. Before institution of CRN, CRs would submit a form setting forth the estimated reserve amount, which was then put into the system by a supervisor or clerical employee. With CRN, the CR sets or recommends reserves directly and electronically, generally without first seeking supervisory approval. Setting reserves is a matter of substantial financial importance to FIE’s business operations. Too low of a reserve can result in state-imposed penalties; to high of a reserve affects FIE’s surplus. 24. As part of the investigation and evaluation of claims, CRs watch for indications of fraud or arson and for subrogation potential, and evaluate whether the policyholder presents an unusual underwriting risk. CRs do not have the ultimate authority to act on or make decisions concerning these issues, but advise management of their findings and determinations. These job duties are financially important to FIE. For example, the evidence revealed that in 2002, CR diligence in identifying and referring fraud for investigation kept FIE from paying approximately $60 million in fraudulent claims. CR subrogation referrals yielded another $330 million in savings in 2002. 25. In most cases, CRs must estimate the settlement value of each claim. Estimating software for the different categories of claims came into use at different times during the different class periods. The software programs are discussed more fully below. FIE expects CRs to use estimating software whenever possible or appropriate. The estimating software acts as a price database, calculator, and organizational tool, much like parts catalogs, advertisements, vendor quotes, and jury verdicts, and usefulness largely is dependent, in many cases, on the quality of the information the CR develops before turning to the estimating software. A CR’s estimate of the settlement value of a claim is a matter of financial importance to FIE. See No. 28, below. 26. Once the CR determines the estimated value of a claim, in most cases the CR negotiates a settlement. Depending on the type of claim, negotiations may involve the policyholder, claimants, other claims representatives, attorneys, public adjusters, auto body shops, contractors, and others. 27. FIE gives almost all CRs an authority amount within which they may settle claims without the approval of a supervisor. The amount of authority assigned is within the discretion of the branch manager, but may not exceed his or her own authority level. As a general rule, less experienced CRs have lower authority levels. If a CR determines that the settlement value of a claim exceeds his or her authority, the CR seeks supervisor approval for additional authority. In most cases (75-100 percent of the time, depending on the witness), the supervisor accepts the recommendation without conducting any independent investigation into the loss. A CR’s negotiation of a reasonable settlement is a matter of substantial financial importance both to FIE and to the policyholder. 28. On average, each CR pays approximately $1 million in claims per year. The average APD claim is $2,800-3,000, the average property claim is $3,000-4,000, and the average liability claim is $6,500-8,000. FIE pays an average of $7-8 billion in claims per year. 29. FIE provides CRs with written guidelines for handling claims, including training materials, manuals, quality assurance guides, and forms. Some procedures are mandatory, some are merely recommendations and guidelines. Some guidelines are necessitated by state regulations; FIE generates others to ensure that CRs provide quality claims handling to policyholders, to protect FIE from claims of unfair claims practices, and to ensure FIE fulfills its obligations to its policyholders while preserving its financial assets. FIE’s “best practices” are guidelines, but can become quality assurance issues if not followed. 30. The parties agree that all CRs’ claims files may be subject to QÁ audits. FIE has a “zero tolerance” for overpayment and a settlement philosophy of “we pay what we owe, nothing more, nothing less.” To this end, FIE has a QA program and conducts QA audits. One type of audit is a closed file audit, which is an audit of a statistical sample of recently closed files, 95 out of 8,000 files per year per branch office. The main goals of the closed file audits are to identify trends, to determine lost economic opportunity or “LEO” (a subjective assessment of the difference between what was paid and what could have been paid if a CR correctly handled and documented a claim), and to ensure that CRs are following best practices. The QA compliance goal for best practices is 91 percent. The QA goal for “leakage” or overpayment is two percent for APD and liability, and slightly more than two percent for property. FIE supervisors also conduct case reviews, which are audits of pending files at the local level, at various intervals. Additionally, supervisors may conduct “ride-alongs,” in which they accompany CRs as they perform their work. 31. The evidence also showed that in catastrophic loss situations, such as hurricanes, tornadoes, floods, wildfires, and the like, any CR may be called upon to be part of a “CAT team,” that is, a team sent to adjust the catastrophic losses. CAT team members receive extra compensation, but not overtime pay. 32. The parties also agreed at trial to the following: a. CRs do not hire or fire other employees. b. CRs ordinarily do not supervise other employees. c. CRs do not evaluate other employees. d. CRs do not prepare payroll. e. CRs do not oversee employee benefit administration. f. CRs do not make company budget decisions. g. CRs have some authority to purchase services, including expert services, in connection with evaluating claims. CRs do not make ordinary purchases of FIE office supplies, except to the extent that a CR purchases office supplies for his or her own use. h. CRs do not design insurance products. I.CRs do not price insurance products. j. CRs do not engage in sales and marketing, except with respect to the creation of good will for FIE. k. CRs do not develop and plan advertising. l. CRs generally do not obtain legal counseling for FIE except with respect to specific claims. m. CRs generally do not engage in financial planning for FIE except with respect to their claims handling duties. n. CRs do not engage in regulatory oversight of FIE. o. CRs do not make investment decisions for FIE. p. CRs may give input into claims handling procedures but do not otherwise develop FIE procedures or policies for claims handling. q. CRs do not have a duty to review other CRs’ claims files. r. CRs do not have ultimate authority to deny claims coverage, but do recommend to their supervisors if denial of coverage is appropriate. s. CRs do not have ultimate authority to initiate fraud investigations but do recommend to their supervisors if a fraud investigation is appropriate. Specific Findings of Fact: APD CRs In addition to the above general findings of fact, I make the following specific findings pertaining to APD CRs: 33. An APD CR handles auto physical damages claims. APD CRs make the majority of claims payments per year. As a general proposition, the basic job of an APD CR is estimating the claim, which involves looking at the vehicle, photographing it, using personal observation or software to determine if the vehicle is a total loss or if not, the cost to repair or replace with new or used parts, using experience to determine the number of hours for repair, and paying the claim. The assessments required of an APD CR in performing the job of auto physical damage claim adjusting largely are objective and technical. An APD CR must, however, have good communication skills, because he or she must deal with, among others, insureds, rental car companies, claimants, body shops, and tow companies. 34. Upon assignment of a claim, an APD CR must contact the policyholder, locate, inspect, and photograph the vehicle and, if necessary, obtain the policyholder’s permission to obtain a tear down to verify damage. 35. In APD claims in which reserves are required, the CR recommends a reserve, but generally does not set it. 36. When an APD CR is assigned a claim, whether the policy is “SOK” ordinarily is predetermined and appears on the CRN screen. With respect to other coverage issues, the CR must watch for special equipment that might require coverage endorsements. 37. APD CRs consider subrogation potential, noting only “yes” or “no” on each file. APD CRs also look for fraud indicators and underwriting risk, and can refer files as appropriate to a supervisor for investigation. Additionally, APD CRs must learn to recognize and document, on a factual basis, pre-existing damage. These duties may require the CR to assess credibility. 38. APD CRs refer 20 to 30 percent of claims to Circle of Dependability (“COD”) shops. The COD shops speed the claims process by handling repairable vehicles in certain types of claims, bypassing the CR and doing the substance of the CR’s work. The APD CR first determines coverage, looks for fraud indicators and subrogation potential, then if appropriate refers the claim to a COD shop for an estimate. The COD shop writes estimates, repairs the vehicle, and sends a bill. The COD shops do not handle total loss claims, coverage issues, or claims in which there are fraud indicators, pre-existing damage, or subro-gation potential. If the vehicle is a total loss, the claim is sent back to CR. 39. With the exception of total losses, an APD CR’s basic options in negotiating an APD claim are to repair or replace the damaged parts. Additionally, to control costs, FIE directs APD CRs to consider the following: a. Whether to offer an appearance allowance for superficial damage; b. Whether to use new “OEM” (original equipment manufacturer) parts or “like kind and quality” aftermarket parts, or to use salvaged or rebuilt/reconditioned parts; c. Whether a shop discount might be available; d. Whether to purchase certain parts from specialty shops; and e. Whether to assess “betterment” or depreciation where repairs improve the original condition of the damaged vehicle. See Exh. 1021 (APD Follow-Up Training Guide (1997)), p. 4. 40. APD CRs use CCC software to estimate damage to vehicles. CCC has two programs: Pathways is used to estimate damages to repairable vehicles; Total Loss is used to determine the actual cash, or market, value of a totaled vehicle. The CCC programs cost FIE $8 million annually. A CR’s use of CCC is subject to QA audit. 41. The Pathways software is similar to parts catalogs, in that it contains a pricing database, but has the advantage of time savings and increased accuracy. Pathways does not assess subrogation potential, fraud, underwriting risk, and pre-existing damage, nor does it make credibility determinations. 42. With CRN, administrative information pertinent to the claim, including the vehicle identification number (“VIN”), is automatically entered into the CCC program. The VIN number pre-loads the majority of the vehicle’s standard options, and the CR enters the remaining options. When the CR selects a part to replace, Pathways calculates the cost of the part and certain labor costs {e.g., painting, refinishing, etc.) automatically. Pathways also normally notifies the CR if an aftermarket part is available. If the CR changes the default prices, the reason must be documented. If the vehicle is to be repaired, the CR must determine the repair time and enter it manually. When repair costs approach a total loss, Pathways generates a pop-up warning based on averages. 43. Total losses account for 30 to 50 percent of an APD CR’s claim files. Exh. 1029 (Total Losses (1997)), p. 2. APD CRs can use the Total Loss program to make total loss estimates, but must use good judgment in deciding whether CCC is the best tool for evaluating a total loss. Total Loss complies with many state regulations, but a state may require more or a different evaluation. The CR uses Total Loss to establish a vehicle’s actual cash value. In general, the CR enters the condition of a totaled vehicle using a condition matrix that FIE provides, documenting any deviations. Total Loss estimates the cost to repair, then gives comparable vehicle values. The CR then contacts salvage yards to get a salvage value. If the cost of repair plus the salvage value is greater than the actual cash value, the vehicle is totaled. Total losses that reach or exceed policy limits are often difficult to negotiate and settle, and require a very detailed evaluation. 44. In estimating antique, specialty, or older automobiles, the CR often cannot use Pathways or Total Loss, and must instead put together the estimate manually. 45. The evidence showed that in an average workweek of 38% hours, APD CRs can settle as many as four claims per day. However, many APD CRs routinely are assigned six or more claims per day. With the CCC software, it is possible for a CR to investigate and settle some claims in one hour, plus drive time. Specific Findings of Fact: Property CRs In addition to my general findings of fact, I make the following specific findings pertaining to Property CRs: 46. Property CRs adjust two kinds of claims: building (or structure) and contents. About 35 percent of Property CRs have authority levels in the range of $5,000 in check authority for buildings, $4,000 in check authority for contents, and $8,000 in estimating authority. Many Property CRs handle their claims over the telephone without leaving the office, and are nonexempt employees not involved in this litigation. 47. When a Property CR is assigned a claim, the initial coverage determination of SOK ordinarily has been made. SOK, which means that the policy was in force on the date of the loss, is only a starting place in the coverage determination. The Property CR must first check the policy to determine, among other things, whether the loss is covered, whether the building is covered, whether any limits apply, whether the policy is contents only, whether the insured is a renter, landlord, or homeowner, and whether any endorsements apply. Coverage determinations usually are routine but, of course, some coverage determinations are complicated. Supervisors ordinarily decide questionable coverage issues. 48. As part of the property claims procedures, the CR must determine the cause and origin of the loss. To do this, the CR must talk to the insured and, as appropriate, investigate, photograph, measure, and diagram the location and/or call in experts. This process, known as “scoping” the claim, helps the CR determine the source and object of the damage and ascertain what happened. Property CRs have guidelines for documenting files with photographs, detailed diagrams, customer contacts within 24 hours, physical verification of large inventories, and other guidelines, which are subject to QA audit. 49. After the initial investigation, the CR recommends a reserve, which the supervisor normally accepts. The evidence showed that because reserves are important to FIE’s financial health, Property CRs do not simply set the reserve at their settlement authority. Instead, CRs must talk to insureds about their views of the damage and scope of the loss. The CR is the only person who meets the insured, and must set the reserve based on his or her best judgment as to the extent of the covered loss. In estimating and negotiating a property claim, the CR may be required to consider such items as repairing, cleaning, or replacing clothing, replacing food, methods of repair and alternatives to repair or replacement of buildings and exterior or interior building materials, cash as an alternative to repair, claims for additional living expenses, and the like. 50. Property CRs must evaluate potential subrogation and watch for indicators of theft, fraud, and arson, and refer files for further investigation if appropriate. These assessments may involve taking statements, which CRs are trained to do, and may require credibility determinations. Property CRs must also give underwriting risk advice on every structure inspected, which may require photographs and documented reasons. 51. Property CRs use two software programs as estimating tools. Xactimate, which estimates structure claims, is used in approximately 50 percent of all property claims. Xactimate pricing is updated quarterly by CD distribution or internet download. Where applicable, VIA, another software program, is used to estimate contents claims. 52. If the CR uses Xactimate through CRN, CRN pre-loads SOK and any deductibles. The CR is then prompted to set a reserve before performing the Xactimate workup. In obtaining information to enter into Xactimate, the CR may be required, if necessary, to bring in outside experts, for example, structural engineers to address foundation issues, arborists to assess replacement values of trees, and as mentioned, cause and origin experts. Property CRs are not however, permitted to “abandon the claim to experts” and must manage expenses and define duties. 53. Xactimate has proven to be a reliable source for standardization of property claims. Nevertheless, each claim must be evaluated on its own merits because the CR still must determine depreciation, or the normal useful life of materials, by reference to a chart, and certain items cannot be priced through the Xactimate database. In such an event, the CR must price items through use of other resources, such as vendors. Additionally, the CR may sometimes change Xactimate pricing to reflect the local area if the change is within the CR’s authority level