PricewaterhouseCoopers Case Is A Game ChangerBy Francine • Mar 19th, 2009 • Category: Audit Firm Management, Latest, PricewaterhouseCoopers, The Case Against The Auditors, Your Career
No, I’m not talking about the BDO International case or the Deloitte Parmalat case, although those two are game changers also. In those cases, the audit firms may lose their ability to hide behind the “global network” model as a way to avoid liability for what happens to one of their legal entities in a particular part of the world. Stuart Grant, the attorney who’s bringing the case against Deloitte, agreed with me during a conversation we had a few weeks ago, that a trial loss by BDO International will probably not force a “Sophie’s choice” for the industry – either give up trying to control offices all over the world or accept responsibility for the global nature of their business, invest in quality and take complete legal liability for the whole firm wherever it is operating. He may be right. If BDO International loses this case and their appeal in the original Banco Espirito Santo case, they will go out of business. They can neither afford the original judgement nor any additional judgement against their international umbrella firm.
Mr. Grant said during a webcast sponsored by SecuritiesDocket.com on February 24th, that a loss at trial by Deloitte in his Parmalat case may be the one that finally drives change, however reluctantly. He hopes it’s good change via improved quality and accountability for what happens in any firm in the “network.”
I’m less sanguine. Who knows? If a case against PricewaterhouseCoopers global firm for Satyam rolls in soon too, the risk of losing at trial in two Big 4 cases – and Satyam will go to trial – will weigh heavily, like a giant dumbbell dropped on their heads, heavy enough to force the breakup of the global firms as we know them.
What I am talking about here is a case that has been lightly publicized, except in its own world and in the local California legal environment.
That case is Campbell v. PricewaterhouseCoopers.
I’ve mentioned it before.
And I’ve mentioned the similar suits that were settled in Canada with very little fanfare in the US. As a result of the upheaval being visited on the professionals in all the firms right now by the thousands of cuts and terminations taking place right now, I’m getting all kinds of reports and updates about what’s going on all over the country.
One professional, on deck to join PwC after graduation this May in California, reports:
PwC informed us of a conference call scheduled for Thursday. So far this is what I have heard:
- New Hire salary reduced to $49k, my offer was for $52k. I have heard that PwC recently lost a class action lawsuit in California about overtime and I am now thinking that lowering the salary now, while the reason given is the economy, may be a way of combating what seems to be the inevitable of paying associates overtime.
- Annual review rankings changed from a scale of 1-5 to 1-3 with lower performers being let go.
- No raises for people moving into their second or third year at the same position, only for those being promoted
So far no info about start dates being pushed back
On March 25, 2008, the law firm of Kershaw, Cutter & Ratinoff, LLP obtained class certification in a lawsuit brought on behalf of unlicensed associates who were employed by PricewaterhouseCoopers (“PwC”) in California from October 2002 through July 2008.
The actual definition of the class certified by the court is: All persons employed by PricewaterhouseCoopers in California who, at any time during the period October 27, 2002 to the present, (a) worked as associates in the Attest Division of PwC’s Assurance Line of Service, (b) were not licensed as certified public accountants by the State of California for some or all of the period they worked in this position; and (c) were classified as exempt employees while working in this position (“Class” or “Class Members”).
Both the plaintiffs and PricewaterhouseCoopers (PwC) recently filed competing Motions for Summary Judgment. The plaintiffs’ motion sought a court determination that all PwC attest associates were improperly classified as exempt and PwC’s motion sought a decision that all Attest Associates were in fact exempt and not eligible for overtime. If PwC had been successful, the Class would have received nothing. On March 11, 2009 the court granted plaintiffs’ motion for summary adjudication on the issue of exemption. Class members are not exempt under the 2001 wage order. The court conversely denied in part PwC’s cross-motion, as it pertains to the exemption issue. However, the court granted in part PwC’s cross-motion for summary adjudication on the issues of waiting time penalties and punitive damages.
But the court noted that the determination regarding exemption is one involving a controlling question of law, that there is substantial ground for difference of opinion, and that an immediate appeal from the order will materially advance the ultimate termination of the litigation. Therefore, Judge Karlton certified the matter for interlocutory appeal pursuant to 28 U.S.C. § 1292.
What all this legalese means is that the plaintiffs and their law firm are winning so far. But if the Ninth Circuit Court of Appeals accepts the appeal it could take as long as a year to get a ruling either affirming or reversing the lower court decision. It is clear, however, that PwC is feeling the impact of this most recent decision. Which is why PwC may be preparing themselves by modifying new hire and Associate compensation packages to include an overtime component if required. But you’ll never hear that from PwC.
According to Bill Kershaw, the lawyer for the plaintiffs, PwC is currently declining to negotiate, and has signaled their intent to pursue all remedies available to the firm on appeal. I suspect they are very nervous about being the ones who kill the golden goose laying the golden eggs – uncompensated overtime in the US for the whole industry.
Granted, if this particular case is successful for the plaintiffs, it will cover only a specific limited set of professionals (Associates in the Attest practice in PwC in California.) But the pattern and precedent that will be set, both legal and moral, will definitely have a ripple effect throughout the firms – all the firms, everywhere in the US.
You might recall that the Big 4 accounting firms have already caved, without going to trial, in Canada. As I said to Mr. Kershaw, what happened in Canada stayed in Canada and was barely noticed here, had no effect on the firms’ policies in the US. This is for two reasons, in my opinion. The first is the popular notion amongst many conservatively-minded business people in the US that Canada is a socialist country. What happens there in the employment law arena is an anomaly.
The second is that the audit firms will never give up their sacred super-leveraged model without being dragged kicking and screaming to do so. And PwC is, probably based on my experience with them, deathly afraid and embarrassed to be the one that will make them all have to do it.
The summary judgement decision is a great read, if you are curious at all about how the firms say and do what they need to do to avoid admitting liability, that they’re plain defenseless and wrong. I reminded Mr. Kershaw of the bonehead move PwC made earlier in the case of allowing their lawyers to say they did not know who was licensed.
Take a look at this response to one of the most important points of fact in the complaint and tell me what you think is wrong with this picture…
“Answering paragraph 4 of the Complaint, PwC admits Plaintiffs are individuals and residents of the State of California. PwC further admits that Plaintiffs were employed by PwC as “associates”in PwC’s Assurance Line of Service. PwC is without knowledge or information sufficient to form a belief as to the truth of the allegations concerning Plaintiffs credentials or degrees, licensing status by a state or federal agency, test status or “Certified Public Accountant” or “CPA” designation from the State of California, and on that basis denies such allegations. PwC admits Plaintiffs bring this action as a proposed class action on behalf of themselves and certain current and former California employees of PwC. Except as so admitted, PwC denies each and every allegation ofthis paragraph in the complaint. “
Hey Jude Curtis, PwC Chief Ethics, Risk and Compliance Officer: Shouldn’t you guys know who is licensed in each state, each and every state where your professionals work and travel, and whether a particular person has proper credentials and degrees to be an auditor?
The March 11, 2009 decision also has a really funny, PwC-kind-of-quirky part. You have to have been there to appreciate the richness of this argument especially as it relates to a limited class of staff consisting of only Associates, the lowest level of staff other than interns. I take that back. Maybe PwC is not so unique amongst the firms in making most moves lately, both internally and for clients, for an ulterior, liability-paranoid, partner-self-interested reason. However, while I was at PwC, I told a lot of folks that the practice described below was a crock of shit, an abdication of responsibility on the part of the PwC partners for running their own practice. It’s not some kind of enlightened form of participatory, inclusive management. I was branded a troublemaker, even by some staff, and a “consultant” who just didn’t get it.
Defendant identifies a limited range of purportedly administrative work class members perform on behalf of PwC. This includes supervising junior associates, participating without authority in hiring and recruiting, participating in internal committees, such as the “great place to work” committee, evaluating the performance of people class members supervise, and proposing draft engagement budgets…PwC’s argument is that these tasks, coupled with performance of other exempt work, warrant exemption. This argument fails because the court has held that class members are not engaged in any other form of exempt work. Class members are therefore not exempt under the administrative exemption. Accordingly, class members are not exempt, and plaintiffs’ motion for summary judgment is granted.
PwC was claiming, amongst other things, that the Associates’ participation in the internal committees is an example of how they participate in the management of the firm. If it was not so ludicrous as to make me laugh out loud and nearly spit my latte at the screen of my black MacBook, it would be pathetic.
Counsel for PricewaterhouseCoopers in this class action law suit: Orrick, Herrington and Sutcliffe, a Global Law Firm.
Great. Maybe they can use them in the Satyam suit against PwC global that’s on its way.
Internal photo courtesy of IMDB.com.