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Second Circuit Finds Entry-Level Accountants Exempt From FLSA Overtime

The U.S. Court of Appeals for the Second Circuit has ruled that entry level accountants seeking unpaid overtime under the Fair Labor Standards Act (FLSA) are exempt from FLSA’s overtime requirements because they fall within the statutory exemption for “learned professionals.” Pippins v. KPMG LLP, Docket No. 13-990-cv (2nd Cir. July 22, 2014).

Several former KPMG employees who had been employed as “Audit Associates” brought the lawsuit claiming that they regularly worked more than 40 hours per week, yet did not receive overtime pay as required by FLSA. KPMG argued that the plaintiffs met the exemption in 29 C.F.R §541.301 because they worked as accountants, one of the specified learned professions identified in the regulations as “a field of science or learning.” The statutory test qualified employees for the exemption if their work was (1) predominantly intellectual in character and required the consistent exercise of discretion and judgment, (2) in a field of science or learning, which includes accounting, and (3) a type that entailed “specialized academic training as a standard prerequisite for entrance into the profession.” 

The plaintiffs contended that Audit Associates were the most junior members of engagement teams, that they received instruction and training through KPMG itself, and not specialized academic training, and they primarily performed low-level routine work, rather than work that involved specialized knowledge or professional discretion. As Audit Associates, their typical duties consisted of inventory observation (the counting, recording, and checking of client’s physical inventory), walkthroughs (reviews with clients of the clients’ procedures for financial reporting), and preparation of work papers (documents which enumerate the audit process and review client controls). The plaintiffs contended that they fit within the non-exempt regulatory category of “accounting clerks, bookkeepers, and other employees who normally perform a great deal of routine work.” 29 C.F.R. §541.301(e)(5). 

The Court of Appeals upheld the trial court’s determination, disagreeing with what it termed “the plaintiffs’ trivializing characterization of their work.” Slip op. at 25. “Breaking down tasks into their component parts so that they can be described in the most banal way possible obscures the judgment called for in determining if workers are learned professionals.” Id. at 28. The court noted that Audit Associates, even as the most junior members of an audit team, were required to apply “appropriate professional skepticism . . . an attitude that includes a questioning mind and a critical assessment of audit evidence” (id. at 21) and that the “tasks performed by Audit Associates are the quintessential activities that form the basis for an audit opinion” (id. at 28), qualities that were the essence of the accounting profession. The court further noted that the requirement for “specialized academic training” was met because Audit Associates were generally required to be eligible to become licensed as Certified Public Accountants, and that the vast majority of Audit Associates had accounting degrees. 

The court thus firmly rejected the plaintiffs’ attempt to turn FLSA from “a shield to protect unwary workers” into “a sword by which [professionals] at the pinnacle of accomplishment and prestige in [their profession] may obtain a benefit from their employer for which they did not bargain.” Id. at 43. 

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About this Author

Vincent Gentile, Commercial Litigation Lawyer, Drinker Biddle
Partner

Vincent E. Gentile litigates a broad range of civil and commercial matters from trial through appeal. He has represented major corporate clients in complex, multiparty cases and individuals and small businesses in both state and federal courts.

Vince concentrates his practice on financial litigation including defense of accountants and auditors, and on shareholder disputes involving closely held corporations, including shareholder "oppression" cases and appraisal actions. He successfully tried and defended an appeal on one of the early seminal...

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