Unlicensed Accountants May Be Exempt

September 1, 2011  |  From HRCalifornia Extra

Companies that employ unlicensed accountants, engineers and other professionals just got some good news.

The Ninth Circuit reversed a 2009 decision by ruling that unlicensed accountants are not categorically ineligible for either California’s learned professional exemption or administrative exemption exemptions. The Ninth Circuit's decision means that employers can potentially classify these employees as exempt.

A lower court ruled in 2009 that unlicensed accountants could not qualify for California’s learned professional exemption or administrative exemption.

The Ninth Circuit sent the case back to the trial court to determine whether the facts actually supported application of either exemption.

Junior Accountants File Class Action Lawsuit

Approximately 2,000 junior accountants filed a class action lawsuit against global accounting firm PricewaterhouseCoopers LLP (PwC), alleging that the company owed the accountants overtime pay. These junior accountants help perform audits for PwC clients but do not possess CPA licenses.

The unlicensed junior accountants argued that PwC improperly classified them as exempt employees and failed to provide them overtime pay. The junior accountants argued that their work did not involve the exercise of independent judgment and that they engaged in rote and menial work — comparing one number to another.

As a result, the junior accountants believed they should have been classified as nonexempt employees. PwC argued that the junior accountants met the professional and administrative exemptions and that the company could classify them as exempt. Campbell v. PricewaterhouseCoopers LLP, No. 09-16370 (9th Cir. June 15, 2011)

Under California law, a professional employee is exempt from overtime pay if he/she: (a) Is licensed or certified by California state government and primarily engages in the practice of one of the following recognized professions: law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting. (b) Is primarily engaged in an occupation commonly recognized as a learned or artistic profession.

The lower court held that the junior accountants categorically could not qualify for the professional exemption because only licensed accountants were covered. The Ninth Circuit disagreed, noting that employees who did not have a license could still be classified as exempt if they met the various requirements for a "learned" profession under section (b).

The Ninth Circuit warned that allowing the lower court decision to stand would produce “significantly troubling results.” The Ninth Circuit found that the lower court’s reasoning did not only apply to unlicensed accountants, but, if allowed to stand, could potentially open the floodgates for hundreds of thousands of other unlicensed professional employees to take their employers to court and demand overtime pay: “California employers would likely have to pay mandatory overtime to the following hypothetical professionals: a recent medical-school graduate working as a resident at a hospital; a first-year associate at a California law firm who has taken the California bar exam but not yet received his results; a law clerk on the supreme Court of California who is waiting until after her clerkship to take the bar exam.”

The Ninth Circuit’s warning echoed a similar argument made by the California Chamber of Commerce, the Employers Group and the United States Chamber of Commerce in a friend of the court brief filed in November of 2009.

Actual Job Duties

The junior accountants argued that they basically sat at computers and executed routinized, non-discretionary steps; comparing one number to another to see if the numbers match.

PwC argued that the junior accountants performed analytical work integral to the company’s auditing and other professional services. PwC claimed that the junior accountants are required to exercise discretion and independent judgment during auditing engagements. PwC said that failure to adequately perform tasks can result in significant costly liability.

Though the court found that unlicensed junior accountants may qualify as "learned professionals," the employer must still show that these employees’ actual job duties meet the specific requirements of the “learned professional” test. The court emphasized that "[e]ach case will require a fact-specific inquiry into whether the unlicensed accountant meets the subsection's various benchmarks — e.g., engaging in work that is 'predominantly intellectual and varied in character."

The court sent the case back to the trial court for a factual determination of whether the junior accountants’ actual job duties met this requirement.

Administrative Exemption Analysis

The Ninth Circuit also disagreed with the lower court’s decision that the junior accountants could never qualify for the administrative exemption. One requirement of the administrative exemption test is that the employee works "only under general supervision." Another is whether the work is of "substantial importance" to the management or business operations of either the employer or the employer’s clients. The Ninth Circuit ruled that deciding whether the junior accountants met these tests requires an intense factual inquiry into the employees' daily work, and, again, a categorical exclusion is not appropriate.

"While we recognize Plaintiffs are on the low end of PwC’s hierarchy, we see no authority that would bar their audit work from meeting this test as a matter of law."

Best Practices

  • Carefully review employee classifications to ensure they meet all the criteria for exempt employees established under the law.
  • Use HRCalifornia's Exempt/Nonexempt wizard or one of the five Exempt Analysis Worksheets that best fits the situtaion you face.
  • Review training manuals, job descriptions, and policies and procedures to make certain they support your job classifications.
  • Regularly audit employees’ actual job duties to ensure that the employees still meet their classification.
  • Be prepared to submit documentation, such as job descriptions, job procedures and detailed training documents, as evidence. Proper documentation will support an employer’s classification of an employee if a lawsuit is filed.
  • Review HRCalifornia's extensive Law Library for information on exempt versus nonexempt employees. If you have any doubts on an employee’s job classification, initially classify him/her as nonexempt and seek advice of counsel.