How should employers classify junior accountants who perform accounting work but do not hold a CPA license? The Ninth Circuit has provided an answer: employers may, depending on the nature of the work performed, classify these employees as exempt from overtime pursuant to California’s “learned professional” and administrative exemptions. While this decision is based on state law, its rationale may be applied nationally to claims brought under the Fair Labor Standards Act that challenge the exempt status of junior accountants and similar professionals.
The language of the professional exemption provides that it applies to any employee who is (a) licensed or certified by the State of California and is primarily engaged in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching or accounting (commonly referred to as the licensed professional exemption), or (b) primarily engaged in an occupation commonly recognized as a learned or artistic profession (commonly referred to as the learned professional exemption).
In Campbell v. PricewaterhouseCoopers, the Ninth Circuit considered whether a class of junior accountants who performed audits for PwC clients were properly classified as exempt from overtime under the learned professional exemption. The plaintiffs argued that they were misclassified because they were not yet licensed but were engaged in the accounting profession. Plaintiffs’ position was based on the idea that since the accounting profession was listed as exempt under the licensed professional exemption, this was the only professional exemption which could apply. Anyone who performs accounting work but does not hold a license, cannot be exempt under the learned professional exemption.
The Court disagreed. Specifically, the Court held that the plain language of the exemption – specifically – the word “or”, indicates that an employee may satisfy either the licensed prong or the learned prong of the professional exemption The Court also noted that since all of the IWC exemptions apply to individuals and not to professions as a whole, it would be illogical to conclude that the IWC intended to exclude the entire accountancy (or any other) profession from the learned professional exemption.
The Court rejected the idea that the exemption’s overall structure requires a contrary interpretation. The Court found that while the exemption contemplates three categories of employees which could fall within the exemption (licensed, learned and artistic), nothing in the exemption’s text or structure suggests that the licensed category is exclusive from the remaining two categories. Instead, the Court found that the structure of the professional exemption strongly suggests that the IWC intended for subsection (b) to cover some accountants. It noted that subsection (e) mandates that subparagraph (b) should be construed in accordance with the then existing federal regulations which provided that if employees actually performed accounting work, they could fall within the professional exemption.
The Court did not overlook the widespread implications of a contrary decision either. For example, adopting Plaintiffs’ view would mean that employers would likely have to pay mandatory overtime to people such as medical school graduates working as residents at hospitals and first year law firm associates who are waiting to receive their bar exam results. These widespread implications, the Court held, could not be what was intended when the IWC created the professional exemption.
The Court also found that PwC was not precluded from relying on California’s administrative exemption. Acknowledging that “Plaintiffs are on the low end of PwC’s hierarchy”, the Court saw “no authority that would bar their audit work from meeting the test of the administrative exemption.” The Court recognized that the former federal regulations incorporated by the administrative exemption included white-collar employees such as tax consultants whereas examples of non-exempt employees included primarily clerical jobs such as bookkeepers. Accordingly, the Court found that if PwC proved that the junior accountants performed “white collar” functions more than 50% of their time, it might succeed in establishing they met the test of the administrative exemption.
Although the Campbell decision is based on the California Labor Code, it could have nationwide implications since the California exemption closely parallels the federal regulatory definition of the administrative exemption. In particular, the Court’s finding that audit work could relate directly to the management or general business operations of the employer could mean that these employees qualify for the same exemption under the federal Fair Labor Standards Act.