PricewaterhouseCoopers Headed For A Trial In California Overtime Case

By • Jun 17th, 2011 • Category: Audit Firm Management, PricewaterhouseCoopers, Pure Content, Regulators, Laws, Standards, Regulations, The Case Against The Auditors, Your Career

I wrote yesterday in Forbes on the decision by the Ninth Circuit Court of Appeals in California regarding the PricewaterhouseCoopers Attest (Audit) Associates overtime case.

It’s a complicated case and it’s not over yet.

It’s also another case, like Satyam, that I’ve followed for a while – almost as long as I’ve been writing this blog.

Here’s an excerpt from the first article I wrote about it in October of 2007.  The case started in 2006.

With echoes of pending actions against E&Y and KPMG in Canada, PwC has now been served in the first Big 4 suit to make it to the class certification stage, according to the firm representing the plaintiffs, Kershaw, Cutter & Ratinoff…According to CFO.com“…under California law, only certified public accountants can properly be classified as exempt from receiving overtime.”

“For years, the Big 4 accounting firms have ignored Federal and State laws mandating the payment of overtime to unlicensed accountants,” said Bill Kershaw, the KCR attorney representing the plaintiffs. “This is in stark contrast to smaller accounting firms, many of whom comply with California’s overtime law and pay overtime to their unlicensed associates as non-exempt employees.”

In June of 2008, I wrote about it again:

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?

Lawsuits are tedious. They take forever. Judges often reverse each other. It’s almost never over when you think because there’s almost always an opportunity for an appeal. Those who think an injustice has been done often only give up when they run out of money or die.

The latest twist in this case was a reversal by the Ninth Circuit Court of Appeals of a lower court decision that handed a partial summary judgement to the plaintiffs – more than 2000 PwC attest associates in California who claim they are owed overtime under California law.

Yesterday, the Ninth Circuit Court of Appeals decided that the lower court had erred in granting partial summary judgment because it misconstrued the statute. The lower court erred by finding that all of the enumerated professions, including accountants, were precluded as a matter of law from presenting evidence that their employees could meet the professional and administrative exemption requirements.

From yesterday’s decision:

PwC has viable defenses under the professional exemption and the administrative exemption. Neither exemption is categorically inapplicable to unlicensed accountants as a matter of law, and PwC has established material fact questions on whether Plaintiffs fall under either exemption. The exemption defenses must be resolved at trial.

The case is now headed to trial unless something happens before that. There’s one thing about litigation that everyone agrees on. Anything can, and sometimes does, happen.

Read the rest in Forbes.

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2 Responses »

  1. As the 9th Circuit noted, neither exemption is categorically inapplicable to unlicensed accountants as a matter of law in California. However, in Nevada, the learned professional exemption does not exist under NRS. Although the administrative exemption might survive summary judgment, applying Nevada law, the courts could easily dispose of those issues concerning the professional exemption as a matter of law – under NRS, a professional is an employee who is 1) licensed by the state, AND 2) practicing in a field that requires licensure. Thus, had the plaintiffs been unlicensed employees working for a public accountig firm in Nevada, Bill Kershaw and his team (and his clients)may have prevailed on summary judgment for the professional exemption. However, I am not aware of any slaves to the public accounting industry filing suit.

    Could it be that Nevada lacks competent attorneys, or is it that the salaried exempt abuse has gone on for so long that 1) it may be expected, and 2) that public accounts simply are not aware of the FLSA, or the state’s particular overtime laws? I believe both are contributing factors as to why the issue is not being pressed in states like Nevada. Interestingly enough, in Nevada, employers who require unlicensed employees to practice in a field that requires a Mevada license under NRS have been, in some instances, guilty of practicing that profession without a license. See the Nevada Supreme Court’s decision re Glen Learner.

    In light of the licensure requirement in Nevada, it seems as if an employer, such as a public accounting firm, would could cut walk down the primrose path to oblivion in defending an overtime lawsuit brought by unlicensed employees: the professional exemption defense would fail as a matter of law because the NRS unambiguously states that a professional must be 1) licensed in the State of Nevada. If they are not licensed, even though they may be practicing in the field (illegally), they are not considered a “Professional” and the “learned professional exemption” does not exist. Thus, the professional exemption defense will fail as a matter of law.

    Because an administrative employee must (1)both (a)perform work directly related to management policies or general business operations and (b)customarily and regularly exercise discretion and independent judgment, AND (2)customarily and regularly exercise (a)discretion and independent judgment on (b)significant matters in order to be considered in a bona fide administrative capacity, a firm would walk the primrose path to oblivion in their defense, in which case they would have to admit that the employee was advising clients on their own, but under the direction of the employer (Partners) and consequentially engaging in the practice of accounting without a license. However, the courts seem to rule that when it comes to advising clients, they are not engaged in performing work directly related to the management of the firm’s business (e.g. Choosing to take on a publicly traded corporation or not). maybe this explains why the large corporate mines in Nevada ( Newmont, Barrick, and others) were allowed to illegally take tax deductions they were not entitled to for the last decade – PWC was having their unlicensed audit and attest associates advise the mine managers and the controllers of those corporations to engage in illegal activites.

    This too may explain reasons underlying the failure of AIG, and others. The licensure requirement was Intended to protect the public from important work for society being conducted by incompetent people. Yet, it seems that ENRON, Worldcom, and the latest financial crisis have been forgotten or willfully ignored so employees can participate in involuntary servitude as a result of being labeled “salary exempt” prior to the employee, and the employer, even experiencing what the employees job duties actually are. In most cases in this economy, the prospective employee has very little bargaining power, and they are not in a position to actually see what their job duties will be when offered the position: it is usually take it, or leave it, and just a letter stating your job title: “Staff Accountant” at a salary of $35,000 per year. Given the 60-100 hour work weeks they are required to work, the employer also gets away with paying the employee less than minimum wage, while also tasking them with menial duties that won’t apply to their required audit hours necessary to become licensed. This practice ensures they can retain employees at a very low cost to the firm.

    Nonetheless, the administrative exemption defense might be hard to defeat on summary judgment, in which case the EMPLOYER would have to present the evidence demonstrating the unlicensed employee CLEARLY satisfied all of those elements. This seems highly unlikely, as decisions regarding the firm’s business direction is guided by the partners, and at a very minimum, the office manager.

    In cases involving employees who work for producers of goods, these employees most certainly would prevail. As a great example of sound legal reasoning see Brock v. National Health Corp.

  2. […] the Campbell v. PwC case, PwC will have an opportunity to prove, if they choose to go that route, that duties performed by […]

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