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Entry-level accountants were overtime-exempt learned professionals

Entry-level accountants at a major accounting firm were learned professionals exempt from the FLSA’s overtime provisions, ruled the Second Circuit. Noting that the employees received substantial, specialized education as accountants, were designated as accountants by their employer, performed entry‐level accounting tasks, and were automatically promoted to a more senior accounting position after two years of satisfactory employment, the appeals court concluded that they qualified for the exemption. Further, they acted in a manner that reflected the knowledge and required judgment characteristic of work in that profession (Pippins v KPMG LLP, July 22, 2014, Lynch, G). The employees worked as “audit associates” at KPMG. They brought an FLSA collective action alleging that they regularly worked more than 40 hours per week but did not receive overtime compensation. KPMG countered that the employees worked as accountants, one of the learned professions specifically identified in the regulations, 29 C.F.R. Secs. 541.301(c), (e)(5), as “a field of science or learning,” so they were exempt from the FLSA’s overtime provisions. A district court concluded that because they were employed as accountants, the employees were exempt from the FLSA overtime provisions, and granted KPMG’s motion for summary judgment. The employees timely appealed. Professional exemption. To qualify for the FLSA’s “learned professional” exemption, “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.” The defining regulations impose a three‐pronged test to determine whether a primary duty qualifies for the exemption: the work must be (1) “predominantly intellectual in character, and . . . require the consistent exercise of discretion and judgment;” (2) in a “field of science or learning,” which includes accounting; and (3) of a type where “specialized academic training is a standard prerequisite for entrance into the profession.” All three prongs must be satisfied for the learned professional exemption to apply. Here, the employees did not dispute that they worked in the field of accounting, and that the second requirement for application of the exemption was satisfied. However, they contended that the other two requirements were not satisfied, arguing that their work does not require specialized academic training or involve the consistent exercise of advanced knowledge or professional judgment. Specifically, the employees contended that they received all the training necessary to perform their function after their arrival at KMPG, rather than through a prior course of intellectual instruction, and that they did not exercise specialized knowledge or professional discretion in performing their duties because they primarily performed low‐level, routine work. Learned professional. The parties agree that audit associates’ work is primarily concerned with tasks that contribute to the production of work product characteristic of the profession of accountancy. What the parties disputed was whether their work was so “pre-determined,” and whether supervision and review of work product by more senior employees was so pervasive that they never exercised the professional judgment characteristic of accountancy. Further, the parties disputed the extent to which the training, or the work actually performed by audit associates, was based on or required the educational background possessed by those hired for the job. The court noted the regulation explicitly identified “certified public accountants” and those who perform similar jobs duties as learned professionals. Thus, if the employees actually performed work in such capacity, there was little doubt that their work was “predominantly intellectual” for purposes of the exemption. Discretion and judgment. Comparing discretion and judgment in the context of the administrative exemption as opposed to the professional exemption, the Second Circuit concluded that a worker’s application of broad discretion in the course of general corporate decision‐making is of a different character than the professional discretion based on expertise in a particular field that is characteristic of the learned professions. Learned professionals need not exercise management authority to operate as professionals; what matters is whether they exercise intellectual judgment within the domain of their particular expertise. The court further noted that while administrative employees must show “independent judgment” to qualify for the exemption, the definition of the learned profession exemption omits that requirement. More importantly, the Secretary of Labor has recognized that the discretion and judgment standard for the professional exemption is “less stringent” than the discretion and independent judgment standard of the administrative exemption. Advanced knowledge. Turning next to the substance of the professional exemption’s “advanced knowledge” requirement, the Second Circuit observed as an initial matter that it had not yet had an occasion to elaborate on the meaning of this prong of the learned professional exemption. Central to the inquiry are “the importance of the duties, the frequency with which they require the employee to exercise discretion, and the relative freedom of the employee from supervision, as well as the percentage of time the employee spends performing them.” Analogous cases suggest that employees apply discretion in the application of advanced knowledge when they interpret and analyze information central to the practice of the profession. Application of advanced knowledge takes one of two forms: substantive interpretation of data; or meaningful decision‐making capacity characteristic of a member of the profession. 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. Thus, the appeals court concluded, the learned professional exemption applies if employees rely on advanced knowledge of their specialty to exercise discretion and judgment that is characteristic of their field of intellectual endeavor. Qualities of work. Because the accounting profession was explicitly identified in the FLSA regulations, the appeals court concluded that it was not necessary to inquire whether accountancy had a sufficiently intellectual character to qualify as a learned profession. Rather, it had only to identify what qualities are characteristic of the work of an accountant. In order to qualify as professional accountants, employees’ “primary duty” must be the deployment of “professional” skepticism” to ensure the integrity of the financial accounting process, and their individual tasks must typically involve the exercise of such skepticism. However, the occasional exercise of such judgment, which does not constitute a primary duty, will not suffice. Nor will an employee who deals with the tabulation of data demonstrate professional skepticism merely by noting and reporting irregularities or errors in the process of tabulation. The employees acknowledged that audit associates were expected to practice professional skepticism in the discharge of their duties. Here, the facts demonstrated that they practiced professional skepticism in the sense of the judgment characteristic of accountants. Contrary to the employees’ contention that they never employed advanced knowledge in their work, the agreed-upon facts indicated that judgment of the type characteristic of trained accountants was at least sometimes a part of their work. Audit associates occasionally occupied leadership roles, and a review of their typical tasks revealed that they regularly relied on advanced knowledge of accountancy and practiced the judgment and discretion characteristic of their profession.
By Ronald Miller, J.D.