Second Circuit Finds Auditors Exempt and Endorses Limits on Class Discovery

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While the number of class or collective action lawsuits has exploded, decisions from Circuit Courts of Appeal, particularly on procedural issues, are still infrequent enough to warrant comment. In Pippins v. KPMG, Case No. 13-889-cv (July 22, 2014), the Second Circuit issued a decision that is notable not only for its decision on the merits, but also because it approved of common sense limits on discovery imposed by the district court.

The Pippins case itself was a collective action involving the question of whether entry-level accountants qualified under the FLSA’s exemption for professional employees, 29 U.S.C. § 213(a)(1); 29 C.F.R. § 541.301. The regulations are clear that CPAs meet this exemption, but they also provide that employees such as “bookkeepers” and “accounting clerks” do not. The plaintiffs argued in essence that they were more like accounting clerks because, even though virtually all of them had accounting degrees and were eligible to take the CPA exam, they received their hands-on training through the employer and performed, they asserted, mostly “low-level, routine work.”

The district court granted summary judgment for the employer and the Second Circuit affirmed. It found that the professional exemption required a lesser showing of discretion and independent judgment than the administrative exemption but that, in any case, the exemption was satisfied when “workers rely on advanced knowledge of their specialty to exercise discretion and judgment that is characteristic of their field of intellectual endeavor.”

The court rejected the plaintiffs’ arguments that they did little more than walk through procedures and bring issues to the attention of more senior auditors. It also rejected a common tactic relied upon by plaintiffs challenging exemptions, the dissection of job duties into much smaller tasks to make them look unimportant, declaring: “Breaking down tasks into their component parts so that they can be described in the most banal way possible obscures the judgment that is called for in determining if workers are learned professionals.” The court found that the plaintiffs’ “fundamental error is to confuse being an entry-level member of a profession with not being a professional at all.” It similarly rejected arguments that the plaintiffs’ college instruction was not enough to perform their work and that they also needed training from their employer.

Thus, the Pippins decision is a good decision for employers seeking to rely upon the professional exemption for entry-level employees. But the court went on to address limits placed by the district court on discovery.

In a refreshing display of common sense, the district court had concluded that the central issue in the case was the application of the professional exemption and had limited discovery to that topic. This holding not only aided in case management, but likely saved all of the parties from having to go through some very expensive discovery and also deprived the plaintiffs of a club to hold over the defendant to pressure settlement. The court endorsed this approach as “sensible” and went on to note that limiting discovery to the threshold issue of the application of the professional exemption was not an abuse of discretion.

The Pippins decision is also notable in that it comes from a circuit in which many district courts have issued generally favorable decisions for employees. Further, the court’s own detailed analysis, and that of the district court, reflects the need to look beyond surface allegations of the performance of non-exempt work and to determine what tasks the plaintiffs are actually performing.

Class action discovery gets very expensive very fast, and unlimited discovery frequently takes on a life of its own. This second holding should provide support for common-sense limits on discovery when, as plaintiffs often assert to obtain certification, a single issue may dispose of an entire case.

The bottom line: The Second Circuit has issued a decision that is favorable both for the application of the professional exemption to entry-level professionals, and the imposition of common-sense limits on discovery in class action cases.

 

Topics:  Accountants, Appeals, Auditors, Class Action, Corporate Counsel, Discovery, Employer Liability Issues, Exemptions, FLSA, KPMG

Published In: Civil Procedure Updates, Electronic Discovery Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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