On June 15, 2011, in Campbell v. PricewaterhouseCoopers, the Ninth Circuit Court of Appeals considered whether unlicensed junior accountants who perform auditing work were properly classified as exempt employees under California's professional or administrative exemption. While this is a state law decision, its rationale may be applied nationally to employers seeking to exempt similar types of employees under the Fair Labor Standards Act.

Section 1(A)(3) of various California Industrial Welfare Commission ("IWC") Wage Orders provides an exemption from the daily and weekly overtime requirements for employees who are (a) licensed or certified by the State of California and 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). Section 1(A)(2) also provides an administrative exemption for employees who perform work "under only general supervision" and whose work directly relates to the management policies or general business operations of the employer's business, among other things.

The court held that the plain language of the professional exemption ? specifically the word "or" contained within the regulation ? means that an employee need only satisfy either the licensed prong or the learned prong to be exempt. The court also found that these employees may satisfy the administrative exemption if they performed "white collar" work more than 50% of the time.

Case Background

PwC is an international accounting and professional services firm employing over 30,000 people in the United States. Two former PwC employees, Jason Campbell and Sarah Sobeck, worked as "Attest associates," performing audits for PwC clients. As Attest associates, Campbell and Sobek were responsible for, among other things, ensuring a client's financial statements were prepared in accordance with Generally Accepted Accounting Principles and identifying any deficiencies in a client's accounting practices. PwC classified Campbell and Sobek as exempt under the professional and administrative exemptions.

Campbell and Sobek filed a class action complaint against PwC, alleging it failed to pay them overtime wages and violated other provisions of the California Labor Code. Campbell and Sobek argued they were misclassified because they performed accounting work, but were not yet licensed. Since the accounting profession was listed as exempt under the licensed professional exemption, they contended it was the only professional exemption that could apply to them.

The district court granted Campbell and Sobek's motion for partial summary judgment on the grounds that unlicensed accountants categorically did not qualify for the professional exemption. The district court also held that PwC had not established a triable issue of fact supporting PwC's argument that Campbell and Sobek performed work "under only general supervision," an essential element of the administrative exemption.

The Appeal

The Ninth Circuit reversed, finding that unlicensed employees who perform accounting work are not categorically exempt from the learned professional exemption. Specifically, the court held that an employee may satisfy either the licensed or learned prong to be professionally exempt The court also noted that since the IWC exemptions at issue apply to individuals, and not generically 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 found that while the professional exemption contemplates three categories of employees (licensed, learned and artistic), nothing in the text of the Wage Order suggests the "licensed" category is exclusive. Instead, the court found that the structure of the professional exemption strongly suggests that the IWC intended for the "learned" category to cover some accountants. Section 1(A)(3)(e) supported this conclusion, as it makes clear the "learned" category should be construed in accordance with then existing federal regulations, which provided that if employees actually performed accounting work, they could fall within the professional exemption even though they were not licensed.

The court also held that PwC raised a triable issue of fact regarding the applicability of the 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 instead recognized that the former federal regulations incorporated by the California administrative exemption included 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 administratively exempt duties more than 50% of the time, they may satisfy the administrative exemption.

What Campbell Means For Employers

Campbell potentially has widespread implications for employers of unlicensed professionals. Its analysis could apply to medical school graduates working as residents at hospitals, first year law firm associates who are waiting to receive their bar exam results or lateral transfers from out of state law firms waiting for in-state bar admissions.

Although the Campbell decision is based on the California Labor Code, it could have nationwide implications since the California administrative exemption closely parallels its federal counterpart. In particular, the court's finding that audit work could relate directly to the management or general business operations of the employer or its customers could mean that these employees qualify for the same exemption under the federal Fair Labor Standards Act.

Employers should keep in mind, however, that it is the actual duties performed by employees that determine exempt status. As the court instructed, "each 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." These questions, and others, ultimately will determine whether the test of the exemption is met.