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Isett v. Aetna Life Insurance Co.

United States Court of Appeals, Second Circuit

January 14, 2020

Sharon Isett, individually and on behalf of all other similarly situated individuals, Plaintiff-Appellant,
v.
Aetna Life Insurance Company, Defendant-Appellee, Aetna, Inc., Aetna Health of California, Inc., Aetna Medicaid Administrators, LLC, American Health Holding, Inc. Defendants.

          Argued: October 31, 2019

          On Appeal from the United States District Court for the District of Connecticut

         Plaintiff-Appellant Sharon Isett ("Isett") appeals from an award of summary judgment entered in the United States District Court for the District of Connecticut (Robert N. Chatigny, Judge) in favor of her employer, Defendant-Appellee Aetna Life Insurance Company ("Aetna"). The question presented in this case is whether Isett, a registered nurse who does not work in a clinical setting, but who reviews Aetna's denials of claims for insurance coverage of medical services; determines whether the requested services are in fact medically necessary; and, if so, approves such claims without further review from a physician, is a professional employee exempt from the Fair Labor Standards Act's ("FLSA") overtime-pay requirement or a non-professional employee entitled to overtime compensation. Therefore, in this appeal, we address the applicability of the FLSA's professional exemption to an employee who acts in a manner consistent with the central characteristics of the profession at issue but does so outside of that profession's traditional employment setting.

         On de novo review, we conclude, as the District Court did, that Isett is an FLSA-exempt professional and, therefore, the judgment in favor of Aetna is AFFIRMED.

          Adam W. Hansen, Apollo Law, LLC (Eleanor E. Frisch, Apollo Law, LLC; Rachhana T. Srey, Nichols Kaster, PLLP, on the brief), Minneapolis, MN, for Plaintiff- Appellant.

          Matthew W. Lampe (Wendy C. Butler, on the brief) Jones Day, New York, NY, for Defendant-Appellee.

          Before: Cabranes, Raggi, Circuit Judges, and Korman, Judge. [*]

          José A. Cabranes, Circuit Judge.

         Plaintiff-Appellant Sharon Isett ("Isett") is a registered nurse who sued her employer, Defendant-Appellee Aetna Life Insurance Company ("Aetna") for unpaid overtime compensation under the Fair Labor Standards Act ("FLSA").[1] Isett now appeals from a judgment entered on September 30, 2018, in the United States District Court for the District of Connecticut (Robert N. Chatigny, Judge) in favor of Aetna, on the grounds that Isett is a professional who is not entitled to overtime compensation under the FLSA. On appeal, Isett challenges the District Court's conclusion that her duties qualify for the professional exemption.

         Under the FLSA, employees who work more than forty hours per week generally are entitled to additional compensation for those excess hours.[2] There are certain employees, however, who are not eligible to receive this additional compensation. Among these exempt employees are "professionals," those who work in a bona fide professional capacity.[3] Professionals are those workers who use specialized knowledge in a field of science or learning, which is typically obtained through intellectual instruction that generally results in an academic degree.[4]

         Ordinarily, registered nurses are classified properly as professionals.[5] The question presented in this case is whether a registered nurse who does not work in a clinical setting, but who reviews denials of claims for insurance coverage of medical services; makes determinations of whether the requested services are in fact medically necessary; and, if so, approves such claims where appropriate without further review from a physician, is a professional employee exempt from the FLSA's overtime-pay requirement or a non-professional employee entitled to overtime compensation. Therefore, in this appeal, we address the applicability of the FLSA's professional exemption to an employee who acts in a manner consistent with the central characteristics of the profession at issue but does so outside of that profession's traditional employment setting.

         On de novo review, we conclude, much for the same reasons stated in the District Court's careful and well-reasoned decision, that the professional exemption applies. Accordingly, the September 30, 2018 judgment in favor of Aetna is AFFIRMED.

         I. BACKGROUND

         We draw the facts, which are undisputed, from the District Court's recitation and the record before us.[6]

         A. The Parties' Relationship

         Isett worked as an appeals nurse consultant in Aetna's National Clinical Appeals Unit from 2011 to 2016. Most employees in the National Clinical Appeals Unit fall under one of three job categories: (1) appeals nurse associates ("nurse associates"), who must hold a certificate as licensed practical nurses and are paid on an hourly basis, including overtime premiums; (2) appeals nurse consultants ("nurse consultants"), like Isett, who must hold a license as registered nurses, are paid on a salary basis, and are classified as exempt from the FLSA's overtime protections; and (3) medical directors, who are physicians.

         Nurse associates and nurse consultants, jointly, "appeals nurses," are responsible for reviewing claims for health insurance benefits that one of Aetna's departments initially denied. More specifically, appeals nurses review appeals seeking authorization for medical services not yet rendered which are transmitted to the Appeals Unit when a clinical determination of medical necessity is required. This process is known as "utilization review."

         On any given appeal where utilization review is conducted, appeals nurses must review the patient's file, which typically includes the patient's clinical information and the documentation from the initial review resulting in the claim's denial. The appeals nurses then locate the relevant criteria in Aetna's clinical guidelines and apply the criteria to the information in the file to analyze whether the requested services are medically necessary. Any conclusions must be documented in a template form provided by Aetna.

         If the request for coverage does not meet the relevant criteria, the appeals nurses must forward the appeal to a medical director for further review and a final decision. Similarly, if the appeals nurses conclude that it is unclear whether the request meets the relevant criteria, the appeal is forwarded to a medical director. Only medical directors are authorized to deny insurance coverage for medical reasons.

         Despite all these similarities in the work of the appeals nurses, only nurse consultants can authorize insurance coverage. Subject to some minor exceptions depending on, for example, the subject matter of the requested benefit, whenever a nurse consultant concludes that a request satisfies the relevant criteria in Aetna's clinical guidelines, the nurse consultant also will approve the request for coverage without further review. By contrast, if a nurse associate reaches the same conclusion, Aetna requires the nurse associate to forward the appeal to a nurse consultant or a medical director to review the work and make the final decision regarding coverage. In short, nurse consultants, unlike nurse associates, are authorized to make a final affirmative determination of medical necessity, thereby approving coverage for a patient's requested service and binding Aetna to pay for the service.

         Isett worked remotely from home without much day-to-day oversight. On average, she would speak to her supervisor over the phone approximately less than once a week and never met her supervisor in person. In performing her work, Isett relied on her knowledge and experience as a registered nurse, as well as Aetna's in- house training.

         B. Procedural History

         Isett filed the complaint in this case on behalf of herself and all other similarly situated individuals, alleging that Aetna unlawfully misclassified her as exempt from the FLSA's overtime protections. Twenty-eight employees joined the action as opt-in plaintiffs. Aetna answered, arguing that Isett was classified properly as exempt under the FLSA's professional and administrative exemptions.[7] At the direction of the District Court, Isett and Aetna filed cross-motions for summary judgment addressing only the application of both exemptions to Isett's individual claim.

         On September 30, 2018, the District Court granted Aetna's motion for summary judgment and denied Isett's cross-motion for partial summary judgment. The District Court held that the professional exemption applies to Isett's job and thus declined to address the applicability of the administrative exemption; it thereupon entered final judgment in favor of Aetna and dismissed the case. By stipulation of the parties, the 28 opt-in plaintiffs were dismissed without prejudice. This appeal followed.

         II. DISCUSSION

         On appeal, Isett challenges the District Court's conclusion that the FLSA's professional exemption applies to her job as a nurse consultant and argues that Aetna failed to prove, in the alternative, that her job qualified for the administrative exemption. We affirm the District Court's judgment that Isett was classified properly as exempt under the professional exemption, and likewise, decline to address Aetna's alternative argument regarding the administrative exemption's applicability.

         A. The FLSA and the Professional Exemption

         Congress enacted the FLSA to protect "the minimum standard of living necessary for health, efficiency, and general well-being of workers."[8] The FLSA seeks to accomplish this broad purpose, in part, by requiring that employees who work more than forty hours per week be compensated for those excess hours at a higher rate.[9] The FLSA, however, also excludes certain classes of employees from its overtime-pay requirement. One of those exempted classes consists of any "employee employed in a bona fide . . . professional capacity."[10]

         Although the FLSA does not define the term "professional capacity," Congress authorized the Secretary of Labor ("Secretary") to "defin[e] and delimi[t]" the scope of the professional exemption.[11] The Secretary's regulations provide, in relevant part, that a "professional" is any employee whose primary job duty requires "knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction."[12] Accordingly, to qualify for the exemption, the employee must satisfy a "primary duty test" consisting of three factors or prongs: (1) the work requires "advanced knowledge," (2)"in a field of science or learning," (3) "customarily acquired by a prolonged course of specialized intellectual instruction."[13]

         Regarding the professional exemption's application to nurses, the Secretary's regulations provide that "[r]egistered nurses who are registered by the appropriate State examining board generally meet the duties requirements for the learned professional exemption."[14] By contrast, "licensed practical nurses or other similar health care employees . . . generally do not qualify as exempt learned professionals because possession of a specialized advanced academic degree is not a standard prerequisite for entry into such occupations."[15]

         "All three prongs" of the primary duty test "must be satisfied for the learned professional exemption to apply."[16] Moreover, the employer bears the burden of proving that the employee qualifies for the exemption.[17] In interpreting the scope of the FLSA exemptions, we stated as recently as 2014 that the "FLSA exemptions are to be 'narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit.'"[18] Thereafter, however, the Supreme Court characterized this "narrow-construction principle" as "flawed," as it mistakenly presumes "that the FLSA pursues its remedial purpose at all costs," notwithstanding that the FLSA "exemptions are as much a part of the FLSA's purpose as the overtime- pay requirement."[19] As a result, the Supreme Court instructed that we "have no license to give the [professional] exemption anything but a fair reading."[20] We do so here.[21]

         Isett does not dispute the fact that her work as an appeals nurse consultant is "in a field of science or learning," as required by the second prong of the primary duty test.[22] She does argue, however, that Aetna failed to prove that her job as a nurse consultant satisfies the first and third prongs. Therefore, Isett asks us to decide whether a nurse consultant uses "knowledge of an advanced type" that is "customarily acquired by a prolonged course of specialized intellectual instruction."[23]

         With respect to the first prong, Isett contends that nurse consultants do not perform work requiring advanced knowledge because they are not practicing registered nurses and do not perform the clinical duties that give nursing its professional character. Isett characterizes utilization review as "more routine mental work than predominantly intellectual in character."[24] Aetna, in response, asserts that Isett mischaracterizes her job. It contends that nurse consultants use the advanced knowledge typical of other registered nurses in approving insurance coverage for medically necessary services.

         As to the third prong, Isett contends that her job did not require specialized academic instruction and could be performed by anyone with proper training. Isett states that nurse associates, who are licensed practical nurses and possess only a year of technical education, can-and do-perform utilization review. Aetna responds that nurse associates do not perform the same job as nurse consultants.

         B. Standard of Review

         We review Isett's challenge to the District Court's "grant of summary judgment de novo, resolving all ambiguities and drawing all reasonable inferences" in her favor.[25] We will affirm a summary judgment "only if there is no genuine dispute as to any material fact and . . . the movant is entitled to judgment as a matter of law."[26]

         The question of whether the professional exemption applies in particular circumstances "is a mixed question of law and fact."[27]Specifically, the question of how an employee spends her "working time is a question of fact" and the question of whether an employee's primary duty excluded her "from the overtime benefits of the FLSA is a question of law."[28] Because the parties agree that the relevant, material facts are not disputed-particularly, how Isett spent her working time-we turn to the legal question of whether her primary duty as a nurse consultant placed her beyond the FLSA's overtime protections.

         C. First Prong of the Primary Duty Test

         1. The Advanced-Knowledge Requirement

         We take up first Isett's argument that her primary duty as a nurse consultant does not require advanced knowledge for purposes of the professional exemption.

         The Secretary of Labor's regulations define "work requiring advanced knowledge" as "work which is predominantly intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical or physical work."[29] The regulations further explain that an employee performing such work "generally uses the advanced knowledge to analyze, interpret, or make deductions from varying facts or circumstances."[30]

         In Pippins v. KPMG, LLP, in 2014, we first addressed the meaning of the "advanced knowledge" prong and explored its contours by interpreting the phrase "discretion and judgment," which "does not receive further elaboration in the regulations."[31] We noted that there is a similar term-"discretion and independent judgment"-in the Secretary's regulations defining the administrative exemption.[32] The term "discretion and independent judgment" in the context of administrative work is manifested by, among other things, the "authority to commit the employer in matters that have significant financial impact . . . to waive or deviate from established policies and procedures without prior approval," or "to negotiate and bind the company on significant matters."[33]

         We declined to import that definition into the professional exemption because professional "discretion and judgment" is "of a different character" altogether, as it is based on expertise, special knowledge, or talents characteristic of the profession at issue.[34] We agreed with the Secretary's 2004 interpretation of her own regulations that "the discretion and judgment standard for the professional exemption is 'less stringent' than the discretion and independent judgment standard of the administrative exemption."[35]

         With this background in mind, Pippins held that junior audit associates who perform "entry-level accounting tasks" under close supervision and who "are automatically promoted to a more senior accounting position after two years of satisfactory employment" use "advanced knowledge" in their work and are properly classified under the professional exemption.[36]

         As relevant here, the principal lessons of Pippins are two-fold. First, the burden of satisfying the professional exemption's advanced- knowledge requirement by application of the "discretion and judgment" standard is not particularly stringent, at least when compared to the "discretion and independent judgment" standard applicable to administrative employees. Second, the advanced- knowledge inquiry does not take place in a vacuum. In conducting the inquiry, we do not necessarily look to the freedom of an employee to deviate from the employer's policies. Rather, "the professional exemption requires the exercise of [discretion and] judgment characteristic of the learned profession at issue."[37]

         We have not yet had occasion to apply the analytical framework of Pippins, or to elaborate on its scope, in the context of professional work performed in non-traditional settings (e.g., a registered nurse conducting utilization review for an insurance company). Accordingly, we take this opportunity to clarify that, with respect to the first prong of the primary duty test, the rule of Pippins is best understood as follows: an employee uses "advanced knowledge" for purposes of the professional exemption under the FLSA if the employee acts in a manner that requires the discretion and judgment characteristic of an employee practicing the profession at issue.

         Therefore, in applying the advanced-knowledge requirement, we conduct a two-step inquiry: (1) we identify what qualities or skills are characteristic of the profession at issue (in this instance, registered nursing); and (2) we determine whether these distinctive qualities or skills are manifested in the performance of the employee's primary duty (here, conducting utilization review and approving insurance coverage for medically necessary services).

         2. Step One: The Advanced-Knowledge Requirement as Applied to Registered Nurses

         There is no dispute that registered nurses typically use advanced knowledge in the exercise of their profession.[38] Indeed, the work of registered nurses is predominantly intellectual in character, as they use their special knowledge and skills to analyze, interpret, or make deductions from varying circumstances relating to each individual patient.[39] For that reason, the Secretary's regulations provide that "[r]egistered nurses who are registered by the ...


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