The Ninth Circuit Court of Appeals has held that the professional and administrative exemptions to California’s overtime provisions could apply to unlicensed accountants.

The decision is welcome news for employers of other types of unlicensed professional employees, too. As the court pointed out, a contrary ruling would have opened the door for hundreds of thousands of these California employees to bring lawsuits seeking overtime pay.

Read on to learn why the Ninth Circuit declined to make such a sweeping ruling, and what this means for you.

Junior Accountants Sue for Overtime Pay

PricewaterhouseCoopers (PWC) is an international accounting and professional services firm with California offices in Irvine, Los Angeles, Sacramento, San Diego, San Francisco, and San Jose. It divides its professional services into three subdivisions: Attest, Systems Process Assurance, and Transactions.

The Attest (or audit) group has seven tiers of job titles, ranging from partner down to associate. Employees in the top five tiers must hold certified public accountant (CPA) licenses, but the bottom two (senior associates and associates) don’t have to be licensed.

Two named plaintiffs represented a class of about 2,000 California employees who sued PWC for violations of the state’s overtime laws. The class is composed of junior accountants currently or formerly employed by PWC in its California offices as associates. These associates do not or did not then have CPA licenses but helped perform audits for PWC’s clients.

Because PWC is not based in California, the class action lawsuit was filed in federal court. Before trial, the district court ruled that the employees did not fall under the professional or administrative exemptions to the overtime laws. That meant a jury wouldn’t get to consider the question of whether the employees were exempt—and therefore ineligible for overtime—because the judge had already ruled that they were not.

The Ninth Circuit reversed this ruling, concluding that the exemption issue must be resolved at trial, not by the district court judge. Here’s why.

Unlicensed Employees Can Be ‘Professionals’

Under California law, the professional exemption from overtime applies to any employee who is (among other qualifications):

• licensed or certified by the state and is primarily engaged in the practice of law, medicine, dentistry, optometry, architecture, engineering, teaching, or accounting, or
• primarily engaged in an occupation commonly recognized as a learned or artistic profession

The district court ruled that unlicensed accountants are “categorically ineligible” for the professional exemption simply because they don’t qualify under the first prong, which it found was the only prong that covered accountants. In other words, an unlicensed accountant, as a rule, could never be primarily engaged in a learned or artistic profession.

The Ninth Circuit rejected this interpretation. It held that accountants, licensed or not, did not have to qualify under the first prong and could meet the requirements of the second prong. For example, they could do so if they engage in work that is “predominantly intellectual and varied in character” or “that requires knowledge of an advanced type in a field or science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study” (as described in the California Code of Regulations).

The court noted, however, that not every unlicensed accountant would do so; rather, each case will require a fact-based inquiry into whether the employee meets all of the professional exemption’s requirements.

Administrative Exemption Also Could Apply

The district court also found that the administrative exemption applied to the employees. It determined that their work during audits was performed under only “general supervision,” one of the statutory requirements for the exemption.

But as the Ninth Circuit pointed out on appeal, the general supervision requirement has received little interpretation, and there were numerous factual disputes in this case about the nature and scope of PWC’s supervision. Therefore, a jury should decide this issue.

The court also considered another exemption requirement, whether the employees’ work “directly related” to PWC’s or its clients’ management policies or general business operations—whether their work was of “substantial importance” to management or business operations. It again deferred to a jury because of the many factual disputes concerning what the employees actually did during audits.

Actions Speak Louder than Words

Throughout its opinion, the Ninth Circuit emphasized that an employee’s exemption will ultimately depend on his or her actual duties and other qualifications. The state Division of Labor Standards and Enforcement has similarly stressed that job titles are not determinative of whether someone is exempt, as titles don’t necessarily accurately reflect duties. Campbell v. PricewaterhouseCoopers, LLP, 9th Cir. Court of Appeals No. 09-16370, (2011)

Practice Tip: The fact-specific inquiry that’s required to determine whether an exemption applies could help you defeat a wage and hour class action. That’s because class action status may not be appropriate when numerous individualized inquiries about employees’ duties and responsibilities are necessary to resolve claims.