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A federal judge has dismissed a FLSA class action lawsuit where the theory was the group of employees was improperly classified as exempt.  There were more than one thousand current and former KPMG LLP employees who could have potentially been class members.  The liability would have been, to put it mildly, geometric.  The case is entitled Pippins et al. v. KPMG LLP, and was filed in the Southern District of New York.

The judge concluded, in granting the defendant’s summary judgment motion, that the workers fell within the professional exemption and thus there was no legal obligation to pay them overtime. Many of the opt-ins possessed undergraduate and, in some cases, graduate degrees in accounting, business or finance.  They also received training from the Company and were all ready to sit for the CPA exam, which influenced the Court to reach its conclusion.  A CPA is, by definition, exempt under the FLSA regulations.

Judge McMahon noted that the “audit associates are not bookkeepers or clerks and they should not be treated as anything less than the professionals they both are and aspire to be.”  Waxing almost philosophically, the Court also pronounced that “they are well-educated and they are well-compensated.  They are not the sort of employees the FLSA was intended to protect.”

The case had been conditionally certified in early 2012, as the granting of this conditional certification is not an onerous burden for the plaintiffs.  The action gets more intense, however, and the burden to sustain the class more difficult as the defendant-employer then mounts a decertification attack or, as here, proffers a single magic-bullet theory to eliminate any and all putative plaintiffs.  In analyzing the employees fell within the exemption, the Court examined their actual job duties and concluded that there were performing audits at a professional level of expertise and meeting certain professional standards.  That, coupled with their educational achievements, compelled the Court to rule as it did.

Although the employees performed some clerical tasks, the Court found that these were minor duties and the “primary duty” of the employees remained their professional accounting work.  In a similar vein, if this “clerical work” is closely, integrally related to the “professional” work, it becomes part and parcel of the professional work being performed.

I applaud this result.  It is a rarity that plaintiffs mount a class action where there is a seemingly obvious defense, i.e. the professional exemption.  I imagine the thinking of the plaintiffs’ lawyers was that the amount of clerical work allegedly being done would so overwhelm any professional work performed, as to destroy the “primary duty” element of the exemption.

Not the case.  In this case.

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The Second Circuit Court of Appeals has reversed a lower court and held that a regional director of advertising sales for the Elite Traveler magazine was non-exempt under the Fair Labor Standards Act. The Court rejected the contention that the employee fell within the administrative exemption. The case is entitled Reiseck v. Universal Communications of Miami Inc.

In the 1990s, there was a rash of cases involving inside sales people and whether they fit within the administrative exemption. Courts have held that such employees are “white collar production employees” in that they are really only “producing” the goods of the employer and not engaging in the ancillary, back-office kinds of duties that are deemed administrative under the FLSA. In this case, the Second Circuit continued that line of reasoning.

The Court found that as the primary duty of the employee was selling advertisements to individual customers and not promoting sales generally, the employee was only a producer, not an administrative employee.

The magazine was free and thus advertising sales made up the predominant component of its revenue. There were salespeople who sold advertising space and, significantly, a marketing staff that was charged with the primary function of creating promotional material to increase advertising sales. The Court determined that the employee was not involved with the market creation work, as she was selling specific advertising space and advertising sales were a critical source of revenue, the Court therefore concluded that advertising space was the Company’s “product.”

As the employee’s primary duty was the sale of that product, she was a sales employee, not an administrative employee. This was the Court’s conclusion notwithstanding that there was evidence that Ms. Reiseck developed new clients with the goal of increasing advertising sales generally. Her primary duty remained selling specific advertising space to clients.

I have often commented on the grayness of the administrative exemption. There is a continuing, if you will, eternal, tension between whether an employee is merely producing goods (whatever those good may be) or is performing the more esoteric duties that support and comprise the business. Those duties are administrative, but precise definitions are difficult to come by. Fair warning to the employer----if you choose the administrative exemption, be prepared to defend it (probably in court).
 

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