Tax Consultants Were Not Exempt Under the FLSA

By Andrew J. Adams June 24, 2020
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​Property tax consultants were doing work related to the production of the business's commodities, rather than assisting in the running of the business or administering its business affairs. Therefore, they were not exempt from the overtime requirements of the Fair Labor Standards Act (FLSA), according to the 5th U.S. Circuit Court of Appeals.

Seasonal property-tax consultants filed a collective action against their employer, Patrick O'Connor & Associates LP, seeking unpaid overtime wages under the FLSA. The consultants worked for O'Connor's property tax department, using premade client files and a proprietary algorithm to generate a range of potential tax values. Consultants would then use the values to negotiate for reduced tax assessments on behalf of O'Connor's clients. The consultants never created any files of their own, performed any independent research or communicated with clients.

Consultants were also required to attend formal and informal protest hearings, where they were required by O'Connor to submit the lowest value contained in the file, as generated by the algorithm. At the formal hearings, the consultants had some ability to raise their submission after the initial proposal but were prohibited from entering into agreements on behalf of clients.

Each consultant was assigned approximately 65 files per day, with each file containing 50 to 100 pages of information. Consultants were required to review and prepare the files, with the expectation that their total hours worked would be as high as 60 to 90 hours a week.

The consultants filed a lawsuit seeking unpaid overtime wages under the FLSA. After a four-day trial, the court entered judgment for the consultants in the amount of $286,671. O'Connor appealed and the 5th Circuit affirmed.

The 5th Circuit noted that its finding was based on the FLSA's administrative exemption tests: "(1) the employee must be compensated on a salary or fee basis at a rate of not less than $455 per week (now $684); (2) the employee's primary duty must be work directly related to the management or general business operations of the employer or the employer's customers; and (3) the employee must exercise ... discretion and independent judgment with respect to matters of significance."

In order to qualify for the exemption, all the tests must be satisfied. O'Connor could not satisfy the second test, which distinguishes between work directly related to assisting with the running of the company and work related to the production of the business's products or services. The consultants did not help run or service any business, supervise or manage other employees, provide actual tax advice, help with any regulatory or legal compliance, or consult with clients. O'Connor attempted to rely on the job title "consultant," but the focus of the exemption is on the duties performed by those employees and not merely the titles they hold. The court found the consultants' duties fell squarely on the production side of the test, which meant they were not exempt from the FLSA's overtime requirement.

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O'Connor also argued that the overtime damages should be assessed under the fluctuating-workweek method, rather than the overtime rate of 1.5 times the employee's regular rate of pay. The 5th Circuit rejected this argument because there was no clear mutual understanding between O'Connor and the consultants about how they would be paid. The court pointed to the lack of a policy clearly indicating whether the consultants' salaries or commissions could be docked or reduced and the finding that consultants were not provided guidance on how to complain about their compensation as evidence of a lack of mutual understanding.

Fraser v. Patrick O'Connor & Associates LP, 5th Cir., No. 18-20687 (April 3, 2020), technical revision (April 7, 2020).

Professional Pointer: When an employee's duties are production in nature, rather than related to the management or operation of the company, that employee will not satisfy the administrative exemption to overtime for hours worked in excess of 40 per week. Classification of positions under the FLSA requires a full analysis of job duties and responsibilities, not just position title, and errors can be costly.

Andrew J. Adams is an attorney with Skoler, Abbott & Presser, P.C., the Worklaw® Network member firm in Springfield, Mass.

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