Lawyer as Employer – Who in Your Office is Entitled to Overtime?
Editor’s Note: This is the second in a six-part series examining how employment law issues specifically affect law firms. Next week, the authors will focus on issues involving office managers and hourly document review lawyers.
In our last article, we provided a self-audit for lawyers to assess their proficiency as employers. The next two articles cover many of the pay-related issues common to law firms. We begin with an overview of federal and state overtime requirements, including relevant exemptions, plus an analysis of one hard-to-classify employee: the paralegal.
As you probably know, the Fair Labor Standards Act (FLSA) and Connecticut’s wage and hour laws require most employees (called “non-exempt”) receive minimum wage plus overtime at time-and-a-half for all hours worked each week over 40.
Also, employers must maintain records of all hours worked by non-exempt employees. “Exempt” employees are exempt from those requirements. In a law firm, where 9-5 hours are not the norm, it is important to know who is exempt and who is not, especially with rising wage and hour investigations and class actions.
While several exemptions exist under the FLSA and Connecticut statutes, the ones most relevant to law firms are the “executive,” “administrative,” and “learned professional.” As lawyers, we know words have different meaning in the law than in everyday life. So you should not be surprised that under the FLSA, your firm’s “administrative professionals” (i.e., secretaries) are likely neither “administrative” nor “professional” employees. Qualifying as exempt requires passing two tests: the salary test and the primary duties test.
The salary test is usually straightforward: exempt employees in Connecticut must receive a minimum salary of $475 per week. As a salary, it must be paid regardless of the number of hours worked and may be subject to only a few statutorily permitted deductions (e.g., full-day absences for reasons other than sickness or accident).
The primary duties test requires careful analysis and is where many employers make mistakes. To qualify as exempt, employees’ duties must match those in the statutory definition of “executive,” “administrative,” or “learned professional.”
In general terms (there are extensive regulations), executive employees primarily manage the business, and regularly direct the work of two or more employees. Administrative employees perform office work directly related to management policies or general business operations of their employer and regularly exercise discretion and independent judgment. Learned professionals primarily perform work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study. Lawyers performing lawyer work are a classic example of learned professionals.
But What About Paralegals
Consider a paralegal with a two-year legal studies degree and eight years of experience in legal research and analysis. Ninety percent of the paralegal’s time is spent analyzing facts, identifying the legal issues involved, and then providing an interpretation of the law in memorandum format for attorneys to review. Although attorneys suggest deadlines, the paralegal works very independently.
Ten percent of the paralegal’s time is spent reviewing new materials, analyzing costs of current resources used in the department, drafting plans for cost savings for the department, training various personnel on the use of legal resources and legal research in general, and performing other miscellaneous tasks. Exempt? According to a 2006 opinion letter by the U.S. Department of Labor, the answer is no.
The Labor Department first evaluated whether the administrative exemption applied and found the work was not “directly related to the management policies or general business operations” of the firm. Examples of qualifying work include tax, accounting, auditing, and human resources activities. Thus, administrative work is different from the “production” work of the business. Since what the paralegal did was part of the firm’s “product,” it did not qualify as administrative.
Also, there was no discretion in “matters of significance” such as the formulation, interpretation, or implementation of management policies or operating practices. The Labor Department stated, “It has long been the position of the [department] that the duties of paralegal employees and legal assistants generally do not involve the exercise of discretion and independent judgment of the type required by the administrative exemption.”
Are Paralegals ‘Professionals?’
Citing a specific regulation on paralegals, the Labor Department found the learned professional exemption generally does not apply because although many paralegals have four-year degrees, “an advanced specialized academic degree is not a standard prerequisite for entry into the field.”
One bit of good news is paralegals with “advanced specialized degrees in other professional fields [e.g., law, science, or medicine] and [who] apply advanced knowledge in that field in the performance of their duties” may qualify as learned professionals. The regulation provides as an example an engineer/paralegal providing “expert advice on product liability cases or to assist on patent matters.”
Incidentally, although this did not come up in the opinion letter, paralegals might meet the executive exemption if they are supervisors (supervising at least two employees) and spend the majority of their time doing this.
If you just realized your 60-hours-a-week paralegal is non-exempt, you’re probably wondering what to do. Employers in similar situations have used several approaches, but suffice it to say, this must be handled delicately.
In close cases, minor changes in duties may satisfy an exemption. However it is likely the paralegal will need to be reclassified. In that case, how you communicate the change can help minimize exposure.
Also remember not to create a “smoking gun” by documenting possible violations. Consider working with employment counsel to develop the best strategy for your specific circumstances.