Junior Accountants Found Exempt From Overtime Rule

, New York Law Journal

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Entry-level accountants are learned professionals who are exempt from the requirement that companies pay overtime under the Fair Labor Standards Act, a federal appeals court has ruled.

Handing a win to KPMG, the U.S. Court of Appeals for the Second Circuit said the accountants met the standard laid out in regulations under the FLSA's overtime provisions in 29 U.S.C. §§213(a)(1).

Judges Pierre Leval (See Profile), Guido Calabresi (See Profile) and Gerard Lynch (See Profile) affirmed the ruling of Southern District Judge Colleen McMahon (See Profile) in Pippins v. KPMG, 13-889-cv.

The FLSA requires higher rates of pay for employees who work more than 40 hours a week, but it exempts those who are employed "in a bona fide … professional capacity."

To qualify for the "learned professionals" exemption under regulation 29 C.F.R.§541.301, "an employee's primary duty must be the performance of work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction."

Lynch, writing for the court, said the issue was whether the exemption was met at KPMG, where the junior employees "received substantial specialized education as accountants, were designated as accountants by their employer, performed entry-level accounting tasks and are automatically promoted to a more senior accounting position after two years of satisfactory employment."

Lynch said the audit associates claimed that two requirements in the regulation were not met, arguing that the basic work they did in their first two years did not require specialized academic training or involve "the consistent exercise of advanced knowledge or specialized judgment."

The associates claimed they received all the training they needed only after they arrived at KPMG. They also claimed their "low-level, routine work"required no specialized knowledge or professional discretion because they followed a template for the audits and senior colleagues at the firm had to clear their work.

But Lynch said KPMG's answer was the associates do, in fact, have to exercise informed judgment and "rely on the skills and knowledge obtained through specialized prior education directed toward professional accountancy accreditation."

Both sides agreed the associates were the most junior members of "engagement teams" that produced audits containing what Lynch said was "most critically, the auditor's opinion," and that their work was always reviewed and processed by more senior members before being assimilated into final reports.

Where the sides differed was the extent to which their training and work was based on educational background. Lynch said the court had yet to "elaborate on the meaning of the 'advanced knowledge' prong of the learned professional exemption.

"As the regulation explicitly identifies 'certified public accountants' and those who 'perform similar job duties' as learned professionals … if the plaintiffs actually worked in such a capacity, there is little doubt their work was 'predominantly intellectual' for the purposes of the exemption," Lynch said. "The regulation cautions, however, that 'accounting clerks, bookkeepers, and other employees who normally perform a great deal of routine work generally will not qualify as exempt professionals.'"

The plaintiffs argued their "routine" jobs did not require the level of discretion and judgment required for the FLSA exemption, but Lynch said "the fact that audit associates spent some time performing 'nonjudgmental' or 'clerical and administrative' tasks … does not in itself defeat their classification as learned professionals."

"Similarly, workers may be found to exercise professional judgment even when their discretion in performing their core duties is constrained by formal guidelines, or when ultimate judgment is deferred to higher authorities," he said.

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