Bedeviled
Where exemption is
concerned, paralegals struggle to find the lesser of two evils.
By
Nancy Ritter
July/August
2002 Issue
It’s an unspoken secret within the paralegal profession. Under the law,
most legal assistants should be classified as nonexempt and paid time
and a half when they work more than 40 hours in the course of a
work-week. Yet, according to leading industry studies conducted by
national associations and Legal Assistant Today, only half of the
paralegals in the country are treated as nonexempt under the 1938
federal statute that governs workers in the United States and,
therefore, are being paid premium overtime wages.
Calling that a secret might be slightly
hyperbolic, but only slightly. The truth is many employers — large and
small, public and private — don’t understand how to interpret the
exemption regulations under the Fair Labor Standards Act (FLSA). Just as
likely, however, they are fudging or at least looking the other way when
they classify legal assistants under the federal wage and hour statute.
Why? One of the major reasons is money. No employer wants to pay time
and a half overtime unless it absolutely must. When it comes to the
private sector, the ability of law firms to bill out the services of
legal assistants is bolstered by considering them “professionals” who
offer more economical services than attorneys while still working under
attorney supervision.
And if truth be told, many paralegals
prefer to be classified as exempt (that is, exempt from the overtime
provisions of FLSA, though not exempt from other aspects of the federal
law, such as the Equal Protection Act), because many feel that
designation elevates the status of the profession. For many paralegals,
punching a time clock smacks of nonprofessional status, even if only in
their own minds.
The Devil Is
in the Details
For decades now, the federal government — through the U.S.
Department of Labor — has issued administrative opinions to the public
unequivocally stating the vast majority of legal assistants are not
exempt from wage and hour protections under FLSA and, therefore, should
be paid overtime. The labor department even has its own internal rule
book, the “Field Operations Handbook,” which investigators rely on when
making exemption decisions.
The handbook specifically states, “To
be exempt under Reg 541.3(a)(1), professionals must 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.”
Earning a paralegal certificate or
degree generally involves “two years or less” of study, the handbook
continues, and this doesn’t meet the requirement of a “prolonged course
of study” — which the Department of Labor has ruled is a “longer
intellectual discipline in a particular course of study as distinguished
from a general academic course otherwise required for a baccalaureate
degree.”
Does the Department of Labor mean to
say workers in the United States need to have more than a bachelor’s
degree to be eligible for the professional exemption under FLSA — and,
if so, why don’t the regulations specify such criteria?
In fact, the “Field Operations
Handbook” defines a “prolonged course of study” as “at least a
baccalaureate degree or its equivalent.”
According to the National Federal of
Paralegal Association’s (NFPA) 2001 Paralegal Compensation and Benefits
Report, nearly 50 percent of the paralegals working in the country today
have at least a bachelor’s degree, and 6 percent hold a master’s degree
or higher. Nonetheless, it’s the Department of Labor’s position that
paralegal work doesn’t require that level of education, and therefore
legal assistants are not eligible for FLSA’s professional exemption.
Here is the department’s explanation,
as found in the “Field Operations Handbook:”
“Paralegals generally perform a variety
of tasks, including legal research, interviewing clients and potential
witnesses and drafting legal documents. Although, absent the
availability of a paralegal, these tasks would be performed by an
attorney, the performance of such duties by a paralegal does not make
them ‘professional’ employees within the meaning of Reg 541. These tasks
require the use of skills and the following of specific procedures
rather than the exercise of discretion and independent judgment as
contemplated by the requirements in Reg 541 for exempt ‘administrative’
or ‘professional’ employees and can be performed by employees with
education and training below the college level.”
Yet, historically, there has been
little effort to force employers of paralegals to comply with the law.
Clearly the federal government has taken a position on the issue. So why
do so many employers continue to classify paralegals as exempt without
incident?
Arguably, there are a variety of
explanations for this: The regulations are rather complicated and far
too many employers don’t understand them. The Department of Labor has
been derelict in issuing specific guidelines for employers to follow
when classifying legal assistants under FLSA, and as a result, the legal
marketplace might well be littered with employers who are in violation
of FLSA. But most notably, when it comes to enforcement of federal law,
the Department of Labor’s understaffed Wage and Hour Division is busy
holding the feet of more egregious wage-and-hour violators to the fire.
FLSA, as it relates to legal assistants, is simply not on the priority
list.
However, FLSA is getting more attention
lately. The newly appointed head of the Department of Labor’s Wage and
Hour Division, Tammy D. McCutchen, has stated publicly that revisions to
FLSA’s exemptions were going to be a priority of her tenure. If
McCutchen is true to her word, paralegals might need to drag the
profession’s best kept secret into the light of day for discussion,
debate, and for some hard decisions to be made.
The Fire and
the Frying Pan
That isn’t to say, of course, that government investigators
are likely to come swooping into the lobbies of law firms, public
agencies and corporate law departments waving subpoenas anytime soon.
Frankly, the federal government has its
hands full trying to reign in employers that violate child-labor laws
and the surprising number of garment and other sweatshop owners who are
downright Dickensian when it comes to paying employees for their work.
That isn’t to say, however, that the
labor department has turned a complete blind eye to the paralegal
conundrum. In the early ’90s, the Department of Labor went after a Texas
law firm with guns blazing.
The firm of Page & Addison employed 23
paralegals and didn’t pay them overtime, claiming them as exempt
“administrators” under FLSA. The Department of Labor slapped a federal
lawsuit on the firm — an action only infrequently taken due to financial
constraints. But it’s safe to say, when the Department of Labor does
take the time and expense of going to court, one of its primary
intentions is to broadcast a message to the rest of the industry in
question.
In the case of Department of Labor v.
Page & Addison (U.S. District Court, Northern District of Texas, No.
3:91-CV-3655-P), however, that message backfired. A Dallas jury handed
the government a huge defeat, rejecting its position that the law firm’s
paralegals should be paid overtime.
On March 10, 1994, the jury found the
23 paralegals were exempt under the law because they exercised the
discretion and independent judgment necessary to qualify them for FLSA’s
administrative exemption.
Smarting from that decision, the
government appealed to the 5th U.S. District Court of Appeals; then, six
months later, the Department of Labor did something that remains a
mystery to this day. It dropped the appeal.
Why? Did the Department of Labor’s move
signal an abandonment of its long-standing position that the majority of
legal assistants must be paid overtime?
No one at the Department of Labor was
willing to go on the record about the dropped appeal, except to say that
nothing in the agency’s decision should suggest a change of heart. And,
in fact, the labor department continues to pump out administrative
rulings, some stating paralegals generally don’t qualify for any of
FLSA’s exemptions.
The Exemptions
There are three ways — called “exemptions” — under which
employers of legal assistants can legally avoid paying the federal
minimum wage (which generally isn’t an issue), but more relevantly,
premium overtime compensation. These exemptions are referred to as the “EAP,”
or white-collar exemptions for executives, administrators and
professionals.
By all accounts, FLSA’s administrative
exemption is the most complex, the toughest one to implement, and not
surprisingly, the one that leads to the most litigation. Under section
541.2(e)(2) of FLSA, an employee may qualify for the administrative
exemption from mandated overtime if he or she is paid at least $250 a
week — that figure was set in the early ’70s and the federal government
has been promising for years to amend the regulation to bring it current
with inflation — and if:
- the employee’s primary duty consists
of the performance of office or nonmanual work directly related to
management policies or general business operations of the employer or
the employer’s customers; and
- the employee’s work requires the
exercise of discretion and independent judgment.
When it comes to these criteria of
FLSA’s administrative exemption, legal assistants almost never pass
muster, with the Department of Labor repeated ruling that the majority
of paralegal duties are more akin to production work than “directly
related to management policies or general business operations.” This
statement has been the Department of Labor’s mantra for years and was
most recently put forth in a Feb. 19, 1998 Wage and Hour Letter Opinion
that specifically addressed the duties of paralegals.
The professional exemption has
continuously eluded paralegals because the Department of Labor’s
position is based primarily on the theory that the position doesn’t
require the level of education established in its “Field Operations
Handbook.”
The Department of Labor’s requirements
for the third exemption — the ‘executive’ — are two-fold. Basically, the
paralegal must:
- regularly direct the work of two or
more people; and
- his or her primary duty must be
management of a “recognized department.”
Determining a worker’s “primary duty”
frequently is a hotly contested issue — entire lawsuits have been based
on it — but the Department of Labor generally holds that a paralegal
must spend at least 50 percent of his or her time in management duties
to meet this test.
Damnation
In the Feb. 19, 1998 administrative opinion letter — the last
known opinion sought regarding legal assistants — the Department of
Labor said paralegals don’t “perform work of substantial importance to
the management or operation of the business of his employer or his
employer’s customers.”
Every year, the Department of Labor
issues these opinion letters, which are often referred to as
administrative rulings, to employers seeking the agency’s guidance on
how specific employees in any number of professions should be classified
under FLSA. Are the employer’s employees nonexempt and therefore paid
overtime when they work more than 40 hours a week? Or exempt and
therefore not paid for overtime compensation?
Most of the prior administrative
opinions related to paralegals — like the 1998 ruling — contain recycled
language that explains the labor department’s reasoning:
“It has long been our opinion that
paralegals’ and legal assistants’ duties do not exercise the discretion
and independent judgment of the type required by [the regulations]. It
continues to be our opinion that these employees’ duties involve the use
of skills rather than discretion and independent judgment.”
So, what, precisely, does the federal
government mean by “discretion and independent judgment?” And does it
think paralegals don’t use it?
“The term,” said Michael Ginley, the
former director of the Department of Labor’s Office of Enforcement
Policy, “is interpreted to mean the person has the authority or power to
make an independent choice, free from immediate direction or supervision
with respect to matters of significance.”
Ginley, who headed the Enforcement
Policy office at the Department of Labor when the 1998 administrative
opinion on paralegals was issued, said the question is not an easy one
to answer based on the government’s previous position. Adding to the
complication was the 1998 decision regarding Page & Addison.
He said the three levels of legal
assistant work about which the law firm was inquiring in the early 1990s
decidedly didn’t meet the government’s criteria for an administrative
exemption.
This work included a senior legal
assistant who conducted presentations at meetings, trained and
supervised other paralegals, interviewed clients, performed legal
research, acted as a liaison to outside counsel and performed a host of
other duties that most legal employers and employees alike would
consider highly substantive (See “Distinctions” on Page 49).
While drafting documents and pleadings,
and interviewing clients and witnesses certainly involves some judgment,
Ginley added in the ruling, such tasks don’t demand the level of
discretion and independent judgment necessary for the employer to claim
an administrative exemption from FLSA’s overtime compensation mandates.
“These duties,” he concluded, “involve
the use of skills and procedures” — like production work.
Pat Elliott, CLAS, whose term as president of the National Association
of Legal Assistants ends in July, took issue with that.
“I would agree that paralegals don’t
use legal discretion or legal judgment,” she said. “But we certainly
exercise procedural and strategic discretion and judgment.”
Damned if You
Do …
NALA’s Elliott said she would not be surprised if only a
small percentage of legal assistants are truly eligible for any of the
exemptions from FLSA, as the Department of Labor currently defines them.
A couple of years ago at its national
convention, NALA discussed the exempt-nonexempt question and found the
membership split down the middle on how legal assistants should be
classified, Elliott said.
Likewise, Debbie Repass, immediate-past
vice president of NFPA’s Profession Development Committee, said her
group has not fully grappled with the exemption issue.
She noted what she calls as a
“Catch-22” concerning the whole exemption quandary. The government
thinks in a rather pigeonholing fashion on such issues, Repass said, and
as long as there is no standardization of education and training for
paralegals, it’s unlikely the Department of Labor will regard most legal
assistants as eligible for an FLSA exemption.
“Welcome to Uncle Sam’s world,” she
added.
The problem isn’t insignificant either.
According to NALA’s 2000 National Utilization and Compensation Survey
Report, 26 percent of the paralegal-respondents reported they worked
overtime at least once a week; although 21 percent of them did receive
comp time, 35 percent were paid no overtime compensation. Nineteen
percent of the legal assistants said they worked overtime at least once
a month, with 20 percent of them receiving comp time and 33 percent paid
nothing.
And a surprising number of NALA survey respondents — 27 percent —
reported they worked overtime nearly every day; 16 percent were given
comp time, but nearly half (48 percent) said they never received
overtime compensation from their employers.
Legal assistants who favor nonexempt
status under FLSA say they are not paid a high enough salary to
compensate them for working more than 40 hours a week.
In fact, Legal Assistant Today
reported in its 2001 Salary Survey that there is only a $498 annual
difference between the average salaries of exempt and nonexempt
paralegals — with the nonexempt legal assistants actually earning more
based on its sampling.
As Dorene Ridegway, former chairwoman
of NFPA’s Ad Hoc Committee on Exempt/Nonexempt Status, has stated, “Some
paralegals are not convinced that they gain the financial rewards,
status and the perceived professional image that goes along with
exemption from the [FLSA].”
Yet the fact remains that none of the
professional associations representing legal assistants has taken a hard
look at the exempt-nonexempt issue.
Mary Ellen Perkins, president of the
Legal Assistant Management Association (LAMA), acknowledged that her
organization has not studied the matter in-depth.
“Frankly, our members run the gamut on
this — some want to be considered exempt and some don’t,” she said,
adding that this lack of consensus makes it nearly impossible for an
organization to devise an official position.
Fire and
Brimstone
Although many expected the jury’s decision in Addison — and
the government’s dropping of its appeal — to prompt a rash of lawsuits
around the country by law firms seeking to solidify their exemption of
paralegals from overtime pay, that didn’t happen. And, despite the
Department of Labor’s continuing position that the majority of legal
assistants are not exempt, neither are paralegals — either individually
or through their professional organizations — flocking to the courts,
seeking overtime compensation.
Of course, there is always the
possibility that the labor department could decide to change current
regulations to exempt paralegals, as a class, from the overtime
requirements of FLSA — in which case the agency likely would schedule
comment periods and hearings. If that were to happen, LAMA’s Perkins
queried, would legal assistants themselves come to a consensus, adopt a
formal position, and lobby the labor department?
There has been some movement in the
direction of an internally initiated change in Washington.
In its most recent regulatory agenda —
that is, the game plan announced by federal agencies every six months —
the Department of Labor said it intended to take a close look at the EAP
exemptions in an effort to bring them more up-to-date with the modern
workforce.
And, in her first major address after
her recent appointment by the Bush administration to head the Department
of Labor’s Wage and Hour Division, McCutchen reiterated her strong
commitment to put revisions to FLSA’s white-collar exemptions on her
to-do list.
Still, many doubt this is likely to
happen anytime soon, as history has witnessed over two decades of the
Department of Labor’s promising to overhaul the country’s white-collar
exemption regulations — then missing every deadline.
As the director herself acknowledged
this spring, “Every administration since Carter’s [1976-80] has tried to
amend Part 541 [the white-collar exemption standards] . . . and none has
succeeded.”
Still, McCutchen promised to make
distinctions between exempt and nonexempt workers clearer for employers
to understand, adding she would try to minimize the economic impact of
any changes to FLSA regulations.
If new regulations are issued, would
legal assistants continue to be categorized as nonexempt, compelling
private and public employers to pay them overtime?
Elliott said she would be concerned if
the Department of Labor not only refuses to change its position, but
starts enforcing its position that the majority of paralegals are
nonexempt and demanding that employers pay overtime.
“I worry about that having the
potential to drive salaries down,” she said. “And I worry how that might
affect the number of paralegal positions, if employers decide that it’s
better for their bottom line to give substantive work to associates to
whom they don’t have to pay overtime.”
Then, again, will the Department of
Labor take a more enlightened look at the role paralegals play in the
delivery of legal services, determining that they are indeed
professionals — and bringing under the umbrella of the law the thousands
of employers that currently consider legal assistants exempt?
One way or the other, Elliott said, the issue is hot for debate and it
might be time for paralegal professional organizations to take a hard
look at the issue.
Distinctions
On Feb. 19, 1998,
Page & Addison wrote to the U.S. Department of Labor’s Wage and Hour
Division, requesting a determination on how to classify three paralegal
employment categories: Legal Assistant II, Legal Assistant I and Senior
Legal Assistant. Here are some of the duties of each, as described by
the employer:
Legal Assistant II:
- maintaining
files
- summarizing
depositions
- running errands
and copying cases
- preparing trial
exhibits and notebooks
- cite-checking
briefs
- drafting letters
- performing legal
research
- selecting
articles for in-house publications and distribution to clients
- dealing directly
with clients on matters of substance
- drafting basic
discovery requests.
Legal Assistant
I:
The same duties as a Legal Assistant II, plus:
- finalizing legal
documents without the guidance of attorneys
- meeting and
interviewing clients
- tracking and
reporting on pending legislation
- acting as a
liaison to outside counsel
- initiating,
coordinating and developing new procedures or policies
- preparing oral
presentations for meetings
- drafting factual
memoranda for attorneys.
Senior Legal
Assistant:
The same duties as a Legal Assistant I, plus:
- conducting oral
presentations at meetings
- training and
managing legal assistants.
The Department of
Labor ruled the positions of Legal Assistant I and II didn’t qualify for
any of the three FLSA exemptions; therefore, paralegals in those
positions should be paid time-and-a-half their regular hourly rate for
every hour worked more than 40 a week. With respect to a senior legal
assistant, the Department of Labor said the employer didn’t provide
enough information to determine if that position might qualify for the
executive exemption, saying that, depending on other duties, it was
unclear whether the paralegal spent more than 50 percent of his or her
time in management duties.
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