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Entry-Level Accountants Exempt Under FLSA’s Professional Exemption

By Jonathan T. Swain and Samantha J. Wood  8/21/2014
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An employer properly classified entry-level audit professionals at a major accounting firm as exempt under the “learned professionals” exemption of the Fair Labor Standards Act (FLSA), the 2nd U.S. Circuit Court of Appeals held.

The FLSA excludes from its overtime provisions certain classes of workers, including those employed as learned professionals. The “learned professional” exemption requires that the workers’ primary duty 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 regulations impose a three-prong test to determine whether a job’s 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; and 3) of a type where specialized academic training is a standard prerequisite for entrance into the profession. The regulations make clear that certified public accountants, and others who perform similar duties, generally meet the duty requirements for the learned professional exemption, but accounting clerks, bookkeepers and others who perform routine work generally do not qualify.

In this case, former employees, who worked as “audit associates,” sued KPMG LLP, alleging that they regularly worked more than 40 hours per week, yet did not receive overtime compensation as required under the FLSA. KPMG moved for summary judgment, arguing that the plaintiffs were exempt from the FLSA overtime provisions because they were accountants, one of the learned professions specifically identified in the regulations as “a field of science or learning.” The plaintiffs disputed this classification, arguing that while their work was in a field of science or learning, their work did not satisfy the first and third prongs of the primary duty test, as their work did not 1) require the consistent exercise of discretion and judgment because they performed the lowest level of auditing tasks, followed guidelines and instructions, and received supervision from senior members of the team; and 2) require specialized academic training because they received all the training necessary to perform their job at KPMG.

The District Court for the Southern District of New York agreed with KPMG, and granted its motion for summary judgment.

The 2nd Circuit affirmed, holding that the audit associates qualified as learned professionals. First, the court addressed whether the audit associates’ work was predominantly intellectual in character and required the consistent exercise of discretion and judgment. The court held that this prong can be satisfied even if employees are expected to follow guidelines and even when the ultimate judgment is deferred to higher authorities so long as the employees’ specialized knowledge pervades the performance of the work. The court found that the audit associates’ specialized knowledge pervaded the performance of their work, as they were required to exercise professional skepticism and deviate from guidelines when a situation or fact was beyond the bounds of normal procedure. 

Finally, the court addressed whether the work performed by the audit associates required the educational background possessed by those hired for the job. KPMG required audit associates to be either eligible or nearly eligible to become licensed as certified public accountants. The plaintiffs argued that while the core accounting education audit associates generally received might be helpful, such education was not necessary to perform their work, as they received all of the necessary knowledge through KPMG’s internal training. The court found, however, that KPMG’s internal training itself required an understanding of accounting and audit functions, and therefore the required educational background was necessary for the job.

Because all three prongs of the learned professional exemption were satisfied, the court held that the audit associates were exempt from the FLSA’s overtime pay requirements.

Pippins v. KPMG LLP, 2nd Cir., No. 13-889 (July 22, 2014).

Professional Pointer: This case establishes that even when employees are closely supervised and follow established guidelines, their profession can still qualify as a “learned profession.”

Jonathan T. Swain is president of the law firm of Lindner & Marsack S.C., the Worklaw® Network member firm in Milwaukee, Wis. Samantha J. Wood is an attorney with the firm.

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