Audit Associates Qualify for the Learned Profession Exemption Under FLSA
Article appeared in The Daily Record
The Second Circuit held in Pippins v. KPMG LLP, (No. 13-889-cv, decided on 7/22/2014), audit associates for a large accounting firm were learned professionals exempt from the FLSA overtime requirements because they performed work requiring advanced knowledge and that required consistent exercise of discretion and judgment, and that they had customarily received this advanced knowledge through a prolonged course of specialized intellectual instruction.
Plaintiffs-Appellants were employed as Audit Associates by their employer, KPMG LLP. They brought this action on behalf of themselves and others similarly situated, alleging that they regularly worked more than forty hours per week yet did not receive overtime compensation as required by the FLSA. KPMG LLP argued that because plaintiffs worked as accountants, one of the learned professions specifically identified in the regulations as “a field of science or learning,” they were exempt from the FLSA overtime provisions, and thus were not entitled to overtime compensation.
The Court examined the advanced knowledge requirement to determine if Audit Associates practice professional skepticism, in the sense of judgment characteristics of accountants. Here, the Court held:
“Plaintiffs’ fundamental error is to confuse being an entry-level member of a profession with not being a professional at all. Audit Associates are the most junior members of the team, and it is hardly surprising that they do not make high-level decisions central to KPMG’s business. Yet unlike the administrative worker or executive exemptions to the FLSA, the learned profession exemption does not require that the professional reach conclusions that guide or alter the course of business. The critical question is whether the workers act in a manner that reflects knowledge and requires judgments characteristic of a worker practicing that particular profession. Here, by testing controls, performing inventory reviews, and ultimately replicating the audit process in each work paper, Audit Associates clearly did so by engaging with the audit process in a critical manner.”
The Court also considered whether Audit associates are learned professionals who employ advanced knowledge of accounting that is customarily acquired by a prolonged course of specialized intellectual instruction. Plaintiffs argued that while the core accounting education Audit Associates generally received might be helpful…. such education was not necessary to allow them to perform their work. They contend that Audit Associates learn the skills they need through initial training and on-the-job instruction provided by KPMG.
In contrast, the Court indicates that the Plaintiffs admit that the Audit Associates hired by KPMG are generally required to be either eligible or nearly eligible to become licensed as Certified Public Accountants, and that in actual fact the vast majority of Audit Associates had accounting degrees and were eligible to take the CPA exam. Further, “an examination of the training materials in the record make sufficiently plain that the average classics or biochemistry major could not understand the materials, or develop the requisite understanding of the audit function, on the basis of a brief training period.”
The Court holds “that Audit Associates while early in their career, are precisely the types of professionals the regulations seek to exempt from FLSA — well compensated professionals at a top national accountancy practice, performing accountancy tasks. They are learned professionals, and are exempt from the FLSA overtime requirements.”
This case also provides a reminder that FLSA was created to work as a shield to protect unwary workers, not 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!
Here, Audit Associates are deemed learned professionals who perform work requiring advanced knowledge requiring consistent exercise of discretion and judgment, and who have customarily received this advanced knowledge through a prolonged and specialized intellectual instruction. They are learned professionals, and exempt from the FLSA overtime requirements.