For those of us who work with employees in highly specialized
fields, it is important to never lose track of the recurring issue
of whether exempt classification of employees for overtime purposes
is appropriate. While all employers should make it a practice to
evaluate the classification of employment positions, employers in
the professional and technical industries, such as engineers,
architects and contractors, should pay close attention to whether
the professional exemption correctly applies to certain skilled
employees.
California employers have the burden to prove that an exemption
applies, which is not always an easy one to prove. This has become
particularly important when authorities, such as the U.S. Department of Labor and California Division of
Labor Standards Enforcement, have been auditing firms that
frequently work on prevailing wage jobs. A mistake in this area can
be costly and jeopardize the firm's ability to obtain
government contracts.
By way of background, there are three primary exemptions that an
employer will consider in classifying its employees: (1) executive,
(2) administrative and (3) professional exceptions. While there are
common requirements among all exemptions, this article addresses
some key issues regarding the professional exemption, which
professional and technical firms often apply to a large portion of
their employees.
The professional-exempt employee will usually be among the
"enumerated" professions, such as law, medicine,
dentistry, optometry, architecture, engineering, accounting and
teaching. (See, Wage Order 4 of the Industrial Welfare Commission
[IWC].) For example, in prior guidelines of the IWC,
"engineering" in the list of enumerated professions was
intended to exempt licensed civil, mechanical and electrical
engineers from the overtime rules, but not apply to junior
engineers or drafters. In the architecture and engineering fields,
employers are confronted with the question of how to classify an
unlicensed architect or engineer who is otherwise performing exempt
functions but lacks the license to do so. Some fairly recent court
decisions have suggested that the exemption might apply to such
individuals if certain conditions are met.
Certainly, if an employer proves that the employee is licensed in
California and practices one of the enumerated professions, the
matter is usually resolved and the exemption is established.
However, where the individual is unlicensed but still falls within
one of the enumerated professions, the inquiry becomes far more
detailed. To obtain exempt status, the employer must instead prove
that the employee is exempt under the learned or artistic category
of the professional exemption. Two court decisions specifically
examined whether unlicensed individuals who worked in any of the
enumerated professions would be completely ineligible to qualify as
professional-exempt employees because they lacked the requisite
licenses.
The 2011 decisions of Campbell v. Price Waterhouse Coopers LLC and
Zelasko-Barrett v. Brayton-Purcell LLP addressed the issue among
unlicensed lawyers and accountants. Both courts determined they may
still qualify as exempt following a detailed evaluation of the
whether their actual job duties and educational backgrounds met the
criteria of a learned or artistic professional. This was the case
even though the applicable IWC wage orders seemingly required
licenses for members of the enumerated professions.
More specifically, for the unlicensed employee to be exempt, the
work must either require knowledge of an "advanced" type
in a field of science or learning customarily acquired by a
"prolonged course" of specialized intellectual
instruction and study, or is original and creative in character in
a recognized field of artistic endeavor where the results depend
primarily on the invention, imagination or talent of the
employee.
The "prolonged education" requirement involves a field of
science or learning that is "customarily" acquired by a
prolonged course of intellectual instruction or study that cannot
be obtained at the high school level. Thus, the exemption is
restricted to employees with specialized academic training. The
employee must usually have at least a baccalaureate degree or its
equivalent, which includes a longer intellectual discipline in a
particular course of study as opposed to a general academic course
otherwise required for a baccalaureate degree. The exemption
necessarily involves not only an assessment of the educational
background of the employee and whether the employee is actually
applying the prolonged course of intellectual instruction to the
job, but also involves a careful analysis about whether the
employee is exercising independent judgment and discretion and
working under limited supervision, among other criteria to satisfy
the exemption.
In the case of a seasoned engineer or architect who has practiced
for several years, there is a decent chance the exemption will
apply notwithstanding the absence of a license. However, firms
often face challenges is proving the exemption for the unlicensed
junior engineers or architects who do not have the requisite skill
and experience to exercise the independent judgment and discretion
under limited supervision. These individuals often work under close
supervision of a principal and do not have the experience to make
final critical decisions or even recommendations on which the
principal relies. Given the enhanced burden of establishing the
exemption where the employee is not licensed, it can be difficult
to satisfy the learned or artistic professional exemption for the
junior employee. Several firms elect to mitigate the risk of a
wage-and-hour lawsuit by classifying such employees as hourly
nonexempt, with the express understanding that the employee will
grow into the position and begin to work independently such that
the position would be reclassified as exempt in the future.
Similarly, often architects, and more particularly engineers, will
be performing various inspection duties on prevailing wage or other
jobs. The DOL and California Division of Labor Standards
Enforcement have been auditing engineering firms with the focus to
some extent on whether the engineer on a job site is performing
engineering functions or on the other hand, whether the work is
predominantly manual, nonexempt work that would not satisfy any
exemption. Where the engineer is not licensed and is performing
inspection functions, as noted above, the firm will have the
enhanced burden of proving that the employee is engaged in the
activities of a learned or artistic professional. Remember, under
California wage-and-hour laws, the employer has the burden to prove
exempt status, which will be driven mainly by the actual job duties
performed and the amount of time on a daily basis that the employee
performs such duties.
In the engineering context, for example, inspection duties by an
unlicensed engineer can involve manual work, such as traveling a
job site and testing to ensure compliance with construction plans.
The question arises whether these individuals are actually
performing engineering duties. There are occasions where a firm
will engage several inspectors who perform essentially the same
duties on a job site. Whether an employee is treated as exempt will
hinge only on whether he or she has an engineering degree. If the
duties are the same, a court may conclude that the position does
not require the advanced degree and the exemption could be lost
depending on the circumstances. It therefore becomes critical that
the employer conduct a fact intensive evaluation of the actual
duties performed to show exempt status.
Moreover, another requirement to prove exempt status is that the
employee be paid on a salary basis. The employee must be paid a
minimum salary of at least two times the minimum wage for full-time
employment, which currently amounts to a salary of $37,440. Often
audits by the Division of Labor Standards Enforcement or DOL reveal
payroll records that reflect the employee is not paid on a salary
basis, but rather has his or her pay deducted depending on the
quality or the quantity of work performed. In the case of
professional services firms that are required to account for hours
worked on the timesheet, there can be a compulsion to deduct from
the salary where the timesheets submitted to the client reflect
fewer than, for example, eight hours of billable work on a given
day. Remember, the essence of the exemption is that the employee
receives the same salary for every pay period, regardless of the
quality of work or the quantity of hours worked. Thus, there may be
times when an employee's timesheet is light but that should not
result in a deduction in pay. If that is the case, then the pay is
driven by the number of hours actually worked, which is
inconsistent with exempt status. Only nonexempt employees are paid
for the actual hours worked. Instead, the employer may address lack
of productivity through counseling and discipline as opposed to
deductions from compensation.
On the other hand, often professional services firms choose to pay
exempt employees for extra hours worked in a given workweek, such
as when a project is heavy and many of the professionals are
working longer hours. Provided the policy is well-documented and
consistently administered to mitigate risk of disputes over whether
extra time should be paid, the employee will not lose exempt status
by virtue of receiving the extra time pay. Similarly, the salary
basis requirement does not prevent the employer from breaking down
an employee's salary into an hourly rate for purposes of
computerizing payroll, bidding work or otherwise. It is critical
that he or she receives the predetermined amount of salary during
each pay period. These rules also do not prevent an employer from
requiring exempt employees to punch a time clock or record the
amount of hours worked, such as for billing purposes, so long as
the compensation is not actually calculated based on the number of
hours listed in the time sheets.
These fairly recent developments are staunch reminders to firms
practicing in the professional services field to evaluate whether
their employees meet an applicable exemption. This is particularly
important given the increase in prevailing wage projects that have
been accompanied by more government scrutiny over the wage-and-hour
practices of employers. Professional services firms should be
updating their classifications as necessary and consulting with
their human resources professionals or employment law specialists
to ensure compliance.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.