By Barry J. Miller and Hillary J. Massey
Seyfarth Synopsis: The Second Circuit has affirmed summary judgment for the employer, Aetna, in an exempt misclassification overtime claim brought by a nurse reviewer. Agreeing that the plaintiff was properly classified as a “professional” employee and thus exempt from the FLSA, the Second Circuit explained that clinicians who do not directly provide medical care qualify for the exemption if they make the final decision to approve payment for medical services.
Plaintiff Isett worked as an appeals nurse, reviewing claims for coverage of medical services for which Aetna had denied coverage, in order to determine whether to override the denial and approve payment for the services. Working remotely from home without much oversight, Isett reviewed patients’ medical files to determine whether the requested services were medically necessary, as defined in the insurance plans and clinical guidelines. If so, she approved payment without further review, thus binding Aetna to pay for the services.
If she determined that the services were not medically necessary, Isett was required to forward the appeal to a licensed physician for a final decision; Isett did not have authority to deny any claims without such further review. While not stated in the court’s opinion, it appears that Isett did not communicate with any medical provider to make her decisions. She reviewed only the paper medical files.
The Court of Appeals concluded that Isett was properly classified as an exempt professional employee. The court emphasized at the outset that the exemption must be given a fair, as opposed to narrow, reading, relying on the Supreme Court’s 2018 opinion in Encino Motorcars, LLC v. Navarro.
Because the plaintiff conceded that her work satisfied the second prong of the professional exemption (work in a field of science or learning), the opinion focused on the first and third prongs.
First Prong: Work Requiring Advanced Knowledge
The Court of Appeals noted that the exemption’s first prong requires work that includes the consistent exercise of “discretion and judgment,” but distinguished that standard from the requirement of the administrative exemption, quoting the applicable regulation: “the discretion and judgment standard for the professional exemption is ‘less stringent’ than the discretion and independent judgment standard of the administrative exemption.” The court noted that 1) the burden to satisfy the discretion standard is “not particularly stringent” and 2) the court reviews the discretion and judgment characteristic of the learned profession at issue, as opposed to the freedom of the particular plaintiff to deviate from an employer’s practices. The court relied heavily on its 2014 decision in Pippins v. KPMG LLP, in which a panel held that junior audit associates who performed entry-level accounting tasks under close supervision were properly classified as exempt professional employees.
The court concluded that Aetna satisfied prong one due to the ability of registered nurses in general to act independently, and of Isett in particular to act independently in reviewing clinical information and making a final approval decision or deciding to forward the file to a doctor. The court noted that Isett’s approval decisions were not reviewed, meaning that her work directly and finally affected the sums that Aetna was required to pay. The fact that Isett had a supervisor who would provide advice, if needed, did not sway the court from concluding that she acted independently.
The greatest battleground in the case may have been Isett’s argument that she did not exercise discretion and judgment because her work was governed by “step by step instructions” and guidelines. The court was not moved by this argument and noted that the application of those clinical guidelines required Isett to act independently based on the clinical data and her trained intellect to determine whether a proposed plan of care was appropriate.
Third Prong: Knowledge customarily acquired by a prolonged course of specialized instruction
In concluding that Aetna also satisfied the third prong, the court rejected Isett’s argument that her work could be performed by licensed practical nurses (“LPNs”) who were paid hourly. The court explained that its focus was on Isett’s actual job duties and not the minimum academic qualifications for the role. Noting that the third prong is satisfied if the employee’s primary duty “calls on advanced knowledge that is typically required through a prolonged course of study,” the court concluded that Isett’s job required making a “final decision” based on specialized instruction and clinical experience, as opposed to on the job training in utilization review. The court rejected Isett’s argument that specialized knowledge was required only to decide whether the clinical criteria are satisfied — a duty even the LPNs had — as opposed to making the final approval decision. The court explained that Isett could not break down her work into separate parts “described in the most banal way possible” to support that argument.
Notably, beyond observing that Isett was a registered nurse and relied on that body of knowledge and experience in performing her work, the court did not premise its conclusions on any specific facts pertaining to her prior training or other licensure or work experience, including whether she had ever performed direct clinical care.
Takeaway for Employers
This opinion is a decisive win for employers who classify their utilization review clinicians as professional employees. The Court of Appeals not only distinguished out-of-circuit cases involving similar positions as “mistaken” and “unpersuasive,” its opinion did not waiver or leave any room for doubt. Employers, at least in the Second Circuit, may take comfort that a “fair” reading of the professional exemption supports classification of utilization review clinicians as exempt.