Second Circuit Finds “Big Four” Audit Associates Exempt from FLSA

This article was written by Lawrence Brocchini, a Partner in the Firm.

In a decision on the scope of the “learned profession” exemption to the overtime requirement under the federal Fair Labor Standards Act, the United States Court of Appeals for the Second Circuit recently issued a ruling that certain “Big Four” audit associates possess a level of specialized knowledge and professional discretion exempting them from FLSA’s overtime requirement. The Second Circuit’s decision in, Pippins v. KPMG LLP, 795 F.3d 355 (2d Cir. 2014), is available here.

The suit was brought by “audit associates” – newly hired college grads – claiming that KPMG incorrectly classified them as exempt and wrongly denied overtime, despite the fact that the associates regularly worked more than 40 hours per week. FLSA requires employers to pay additional compensation to most employees who work more than forty hours per week. However, FLSA’s so-called “learned professionals” exemption, exempts employees employed “in a bona fide … professional capacity” from its overtime provisions.

Department of Labor regulations require that, to qualify for the “learned professionals” 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 DOL’s regulations also specify that certified public accountants, and even non-certified public accountants who perform similar work, generally meet the duties requirements for the learned professional exemption. However, the regulations exempt accounting clerks, bookkeepers and other employees who normally perform a great deal of routine work.

Thus, the audit associates contended that their work did not qualify because it was routine, closely supervised and did not require advanced education in accounting or professional judgment. Rather, they argued that they received all the training necessary to perform their functions from KPMG, rather than through a prior coursework, and that they do not exercise specialized knowledge or professional discretion in performing their duties because they primarily perform low-level, routine work.  In opposition, KPMG argued that the audit associates, while entry-level, perform tasks requiring the informed judgment characteristic of the accounting profession, and rely on skills and knowledge obtained through specialized prior education directed towards professional accountancy accreditation.

After analyzing a record largely agreed upon by the parties, the Second Circuit sided with KPMG, finding that “plaintiffs are, in the broad sense as well as through a fine-grained analysis of the Department of Labor regulations, not the type of worker that the FLSA was designed to protect.” Pippins, 759 F.3d at 252. Thus, because “audit associates are learned professionals who perform work requiring advanced knowledge requiring the consistent exercise of discretion and judgment, and who have customarily received this advanced knowledge through a prolonged course of specialized intellectual instruction,” they fall within the “learned profession” exemption. Id.

Pippins provides some direction on application of the “learned profession” exemption by courts within the Second Circuit. However, determining whether FLSA or its exemptions apply to employees, particularly junior employees just embarking on employment, generally turns on specific factual application and legal analysis.

This article is intended only as a general discussion of these issues. It is not considered to be legal advice or relied upon. We would be pleased to consider providing additional details or advice about specific situations. For additional information on this topic, please feel free to contact Lawrence Brocchini who regularly counsels clients in employment matters.