Watch Your Neck on ‘White-Collar’ Exemption for Legal Assistants
By Jim Priest and Steve J. Coleman

You’re sitting in your office at your desk, working hard on solving a problem for your client. Then, without warning, your legal assistant sweeps into the room, lays a resignation letter on your desk and announces an intention to leave for a better opportunity.

Before you regain your composure your assistant lays another document on top of the resignation letter. As you begin to focus your eyes on the Excel spreadsheet your bewildered brain slowly begins to grasp what the document represents. It is a summary of all the overtime your assistant has worked over the past three years and, at the bottom of the page, is the final figure of the overtime wages allegedly owed: $50,000. As you gasp for breath and words your assistant exits your office with a smile of confidence and announces, “You’ll be hearing from my lawyer!”

This scene, perhaps less dramatically played out, has been repeated in a number of law offices over the years. An assistant to whom you paid a good salary and whom you thought was not entitled to overtime pay, makes a demand for wages as they leave your firm or company. Most lawyers believe legal assistants, paralegals, administrative assistants and legal secretaries are exempt from overtime wages. In fact, they may not be. This article explores the question of whether legal assistants are entitled to overtime under new Department of Labor regulations.

THE NEW REGULATIONS

On April 23, 2004, the Department of Labor published its final rules outlining the highly anticipated revisions to the executive, administrative, and professional exemptions (“white-collar exemptions”) of the Fair Labor Standards Act (“FLSA”). The revisions, which became effective on Aug. 23, 2004, sparked a flurry of action in the legal community as employment lawyers across the country scrambled to digest the changes and advise their clients. One issue overlooked by some lawyers is the potential impact of the revised exemptions on themselves as an employer.

Last year nearly one-half of the legal assistants in the United States were designated by their employer as exempt from the overtime requirement of the FLSA.1 This percentage seems high given the traditional position of the Labor Department that legal assistants are entitled to overtime. The recent revisions may generate new litigation concerning the exempt status of legal assistants. Legal employers who have not carefully assessed the compensation packages and job functions of their assistants substantially increase the risk of an overtime claim.

THE REAL WORLD

Depending upon the size of the operation, legal employers often employ one or more “assistants.” Some have received certifications as paralegals and certified legal assistants. Others may be administrative assistants or secretaries. Some are empowered to perform lawyer-like tasks such as cite check briefs, draft letters, contact clients and perform research. Others may perform more administrative tasks: scheduling appointments, keeping calendars, docketing and clerical work. This practice of using assistants is beneficial to both lawyers and clients by allowing lawyers to spend more time developing strategy and addressing complex legal issues while saving clients money as they are billed at lower rates for assistants’ work. But the practice has some potential dangers.

Most lawyers compensate their assistants on a salary basis. This pay arrangement, along with the “professional” nature of the work performed by the assistants has led some legal employers to assume the assistants are exempt from the overtime compensation requirement of the FLSA. This assumption has been supported by a significant portion of the legal assistant community. Many assistants believe their designation as “exempt” demonstrates professional respect and distinguishes the assistant as an indispensable member of the legal team. “Exempt” status may increase job satisfaction and in turn, performance. This was illustrated by the case of Reich v. Page & Addison2 where the U.S. Department of Labor sued a Dallas law firm asserting the firm’s legal assistants were non-exempt employees entitled to overtime compensation. Armed with the support of its legal assistant team, who maintained their jobs required skill and judgment, Page & Addison successfully defended the case by convincing the jury that their legal assistants fell within the administrative exemption of the FLSA.3 A key to the successful defense was the virtually unanimous support the firm received from its legal assistants who resented the department’s attempts to characterize them as (in their words) “glorified secretaries.”4

Despite the jury decision in Reich, the U.S. Department of Labor has issued opinion letters evaluating the status of legal assistants and has continually maintained that most assistants are not exempt and must be paid overtime. In addition, many members of the legal assistant community are not willing to forego overtime pay in exchange for intangible “status” benefits. These two factors, along with the increased attention resulting from the recent revisions, create a substantial risk to legal employers who misclassify their assistants as exempt.

Legal employers can reduce their exposure by reviewing the revisions to the white-collar exemptions5 and evaluating the compensation packages and job functions of their legal assistants. In order to accurately evaluate the exempt or non-exempt status of their legal assistants, employers must understand the basic overtime requirement of the FLSA and the revisions to the white-collar exemptions.

OVERTIME REQUIREMENTS

The FLSA applies to any individual employee whose work regularly involves them in commerce between states.6 Thus, nearly all employees are covered by the FLSA.

The basic overtime requirement of the FLSA entitles “non-exempt” employees to receive overtime pay at a rate of time and one-half for hours worked in excess of forty hours per week.7 The FLSA exempts certain categories of employees from overtime. Three categories of exempt employees: executive, administrative and professional,8 are often assumed to encompass legal assistants. While it is possible that a legal assistant could fall within one of these white-collar exemptions, legal employers should first review the stringent requirements of each of the revised exemptions before concluding their assistant is exempt.

The FLSA does not define the terms “executive,” “administrative,” or “professional.” As a result, the U.S. Department of Labor has developed several tests that focus on compensation and job duties to define these exemptions.9 The tests for each exemption are essentially comprised of three components: 1) salary basis; 2) salary level; and 3) duties performed. The revisions to the white-collar exemptions modify these tests and therefore potentially impact every legal employer.

Salary Basis. In order to be deemed exempt under the revised white-collar exemptions, an employee must be paid on a salary basis. An employee is considered to be paid on a salary basis when the employee is paid a predetermined amount of compensation on a weekly or less frequent basis that is not subject to reduction because of variations in the quality or quantity of the work performed.10 In the economic report accompanying the revised white-collar exemptions, the U.S. Department of Labor estimated that more than 200,000 legal assistants are currently compensated on a salary basis and therefore subject to the salary level test.11

Salary Level. In addition to compensating an employee on a salary basis, an employer must also pay a salary above the salary level minimum in order to classify an employee as exempt. The revised white-collar exemptions triple the salary level minimum, raising it from $155 per week or $8,060 annually to $455 per week or $23,660 annually. Thus, if your assistant is paid a salary of less than $23,660 per year, he/she is automatically entitled to overtime.

Nationally, the average legal assistant salary in 2003 was $44,808.12 This figure suggests most legal employers compensate their assistants at a rate that satisfies the new salary level minimum. The complicating component of white-collar exemption analysis as it relates to legal assistants, however, lies in the evaluation of the duties performed by these employees.

Duties Performed. The term primary duty is central to the “duties tests” for each of the exemptions. The term references the “principal, main, major or most important duty that the employee performs.”13 Under the revised exemptions each employee must be evaluated on a case-by-case basis meaning that an employee’s primary duty is to be determined by “all the facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.”14 Emphasis on employee job function implies that despite identical titles, employees such as legal assistants will be deemed exempt or non-exempt based on the specific duties they regularly perform.

While each of the white-collar exemptions includes the term primary duty, the specific duties that must be performed under each of these categories are different. It is therefore necessary to examine the particular “duties rule” that applies in each of the executive, administrative, and professional exemptions.

Executive Exemption: An employee satisfies the duties component of the executive exemption if the employee: 1) has a primary duty that is management focused; 2) customarily and regularly directs the work of two or more employees; and 3) has the authority to hire or fire other employees or make suggestions regarding the hiring and firing of other employees.15

The revised executive exemption incorporates a broad definition of “management” encompassing duties ranging from employee supervision and work delegation to office supply and equipment selection.16 In addition, the revised executive exemption permits an employee to concurrently perform exempt and non-exempt work. This combination potentially broadens the applicability of this exemption to supervising legal assistants who meet the salary criteria outlined above.

It is not uncommon for law firms to hire or promote legal assistants to positions where their chief duty is to recruit, hire, manage and evaluate other legal assistants. Employers seeking to utilize the executive exemption in these instances may encounter problems trying to establish that the legal assistant “directs” the work of other legal assistants because, while no law prohibits legal employers from delegating legal tasks to their assistants, the Oklahoma Rules of Professional Conduct dictate that lawyers must supervise the work of their legal assistants.17 Consequently, the ultimate responsibility of supervising or “directing” the work of legal assistants will likely be determined to rest with the lawyer rather than any managing legal assistant. This could frustrate the application of the executive exemption. The language contained in the revised executive exemption, when read in light of the Oklahoma Rules of Professional Conduct, discourages legal employers from arguing their assistant is exempt since such an argument could be construed as a declaration that the legal employer allows the unauthorized practice of law. Attorneys must, at all times, take ultimate supervisory responsibility for their assistants.

Administrative Exemption: An employee satisfies the duties component of the administrative exemption if the assistant’s primary duty: 1) consists of “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers” and 2) includes the use of discretion and independent judgment with respect to matters that are important to the employer’s business.18 The revisions to the administrative exemption do not specifically address legal assistants. The U.S. Department of Labor has regularly taken the position that legal assistant and paralegal duties do not involve the requisite exercise of discretion and independent judgment contemplated by the exemption. According to the department’s most recent opinion letters, legal assistant duties such as drafting pleadings, discovery requests and letters to clients, performing legal research, cite-checking briefs, preparing trial material and dealing with clients and witnesses, represent duties that involve the application of skills and knowledge rather than discretion and independent judgment.19

The phrase “exercise of discretion and independent judgment” essentially involves evaluating alternatives and selecting a course of action after considering the alternatives.20 The department has repeatedly said legal assistant duties, such as those outlined above, do not meet these criteria because such duties are subject to the supervision and review of lawyers and typically involve the completion of “prescribed procedures” rather than the exercise of independent judgment.21

Despite the opinions of the department, the administrative exemption is the one most applicable to legal assistants. The revised administrative exemption requires that employees perform work that is directly related to running or servicing the business.22 Research, marketing, budgeting, purchasing, public relations and personnel management are identified as examples of work directly related to management of general business operations.23 Legal assistants in smaller firms typically perform some or all of these functions while those employed in larger firms may focus on a certain area such as research. A difficult hurdle for legal employers seeking to exempt their assistants is establishing that the chief or primary duty of the legal assistant is more like these business focused functions rather than secretarial or production work.

Establishing that a legal assistant exercises discretion and independent judgment is important in establishing the exemption. This exemption contains an expansive list of factors for evaluating whether an employee exercises the requisite discretion and judgment, including:

• Whether the employee has the authority to formulate, affect, interpret, or implement office policies and practices;
• Whether the employee carries out major assignments in performing business operations; and
• Whether the employee executes work that affects business operations to a substantial degree.24

The duties performed by many legal assistants are consistent with these factors and support the rationale that a legal assistant could be deemed exempt under the administrative exemption.

The revised administrative exemption also relaxes the earlier requirement that employee decisions be free from immediate supervision. It indicates that employees can exercise discretion and independent judgment even when their decisions are reviewed at a higher level.25 Accordingly, legal assistants could exercise the requisite discretion and independent judgment even where their decisions are reviewed by supervising lawyers, as they must be under the Rules of Professional Conduct.

Legal assistants were found to utilize discretion and independent judgment in Reich. There, the jury found that legal assistants exercised the requisite discretion and judgment to qualify as exempt.26 The Reich decision presents a notable precedent for exempting legal assistants under the administrative exemption and underscores the importance of the assistants’ opinions and testimony in upholding their exempt status. It is important to remember, however, that these exemptions will be determined on a case-by-case basis through a review of specific employee duties.

Professional Exemption: An employee meets the duties component of the professional exemption when the employee has a primary duty involving work that: 1) requires advanced knowledge “in a field of science or learning customarily acquired by a prolonged course of specialized instruction” (learned professional exemption) or 2) requires “invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.”27 The revised regulation notes that work requiring advanced knowledge is chiefly intellectual in character and traditionally exists in professions such as law, medicine, accounting, engineering and “similar occupations that have a recognized professional status.”28

This exemption is the only white-collar exemption that expressly addresses the exempt status of legal assistants. The regulation states that paralegals and legal assistants generally do not qualify for the learned professional exemption.29 The reasoning provided in the revised regulation tracks the reasoning provided in previous U.S. Department of Labor opinion letters discussing the exempt status of paralegals. Under the revised professional exemption, a legal assistant, regardless of the type of degree obtained, does not qualify for the learned professional exemption because an advanced specialized academic degree is not required.30 The revised professional exemption thus categorically eliminates the vast majority of legal assistants from being exempt.

The revised exemption does, however, make the learned professional exemption applicable to a small segment of legal assistants. Under the exemption, legal assistants who have obtained an advanced specialized degree in a recognized professional field and utilize their advanced knowledge to complete legal assistant work may qualify for exemption. For instance, the learned professional exemption would likely apply to an engineer working as a legal assistant in patent matters.31 These limited instances are clearly the exception; consequently, most legal assistants and paralegals are not eligible for coverage under the revised professional exemption.

APPLICATION OF OVERTIME EXEMPTIONS TO LEGAL ASSISTANTS

The recent revisions to the white-collar exemptions were intended to help employers better understand and evaluate their legal obligations to pay overtime. This objective has not been achieved in general or specifically in the legal profession. Instead, the administrative exemption presents legal employers with a challenging analysis when determining whether to pay a legal assistant overtime. While numerous legal assistants are clearly nonexempt, other legal assistants perform vital business functions that require discretion and judgment and, therefore, are potentially exempt. The practical question for practitioners is: which assistant goes in which category?

Even if a legal employer concludes that a legal assistant meets the salary and duty requirements for exemption, they should understand the risks associated with an erroneous classification. Either the U.S. Department of Labor or an affected employee can sue to recover unpaid overtime on the basis of misclassification. Unlike the normal allocation of proof, it is the defendant employer who bears the burden of proving the exemption is applicable.32 Further, the exemption will be narrowly construed in favor of the employee.33 The Tenth Circuit has previously required the employer to establish that the employee “fit plainly and unmistakably within the exemption’s terms.”34 This appears to be a higher standard of proof than the usual “mere preponderance of the evidence.”

Legal employers who erroneously exempt a legal assistant from overtime pay are liable not only for the amount of unpaid overtime compensation but may also be liable for an equal amount of liquidated damages. In addition, the employer will have to pay a reasonable attorney fee and the costs of the action.35 Determining the amount of exposure is likely to be a complicated process because the employee has often worked for a number of years (often keeping overtime records on the side) while the legal employer has neglected to properly document the total hours worked each week. If the legal employer is found to have repeatedly or willfully denied overtime payment, the employer may be subject to a civil penalty of up to $1,000 per violation.36

Given the complex analysis, the employer’s stringent burden to establish an exemption, and the penalties resulting from erroneous exemption classification, legal employers should follow these precautionary measures:

1. Determine if the legal assistant is paid on a salary basis. The revisions to the white-collar exemptions specify that an employee must be compensated on a salary basis and suffer no reduction in pay because of quality or quantity of work in order to be considered exempt. Legal assistants paid by the hour, regardless of their duties and responsibilities, are non-exempt and thus should receive overtime pay.
2. Determine if the legal assistant earns less than $23,660. Employees earning a salary under $23,660 are non-exempt. You must pay them overtime. If the legal assistant earns a salary exceeding $23,660, then duties and responsibilities should be evaluated to determine if a basis for exemption exists.
3. Perform job evaluations. Carefully assess the duties and responsibilities performed by each legal assistant in light of the revised requirements of the exemptions. Special attention should be given to duties that significantly impact firm business and require discretion and independent judgment.
4. Write or revise job descriptions. After evaluating legal assistant duties, write or revise the description of the legal assistant position(s) to accurately reflect the duties required and the work performed. Job descriptions should be clear and explicit, especially where legal assistant duties substantially impact firm business and require discretion and independent judgment.
5. Update payroll status. Ensure that the exempt/non-exempt status of a legal assistant is accurately documented in payroll records. Review of the first four factors may result in the conclusion that a legal assistant is non-exempt and therefore entitled to overtime. The status of the legal assistant should be updated accordingly and overtime payments paid where necessary. “Comp time” (time off in lieu of overtime) is not available to private sector employers.
6. Address the status issue. Review of the first four factors may result in the conclusion that a legal assistant has been misclassified as exempt. In addition to reclassifying, the legal assistant as non-exempt, legal employers should meet with the legal assistant to emphasize the employee’s value to the firm and ensure that the legal assistant does not equate the reclassification with a demotion.
7. Ask for help. If you are uncertain how to classify your employees, you should seek professional guidance from a human resource consultant or an employment law attorney. This will not only help you reduce the risk of exposure, but can help establish a “good faith” defense in any action.

Sound advice is provided by the Corporate Human Resources Guide to the Legal Assistant/Paralegal Profession: “Because the nature of work performed by legal assistants varies widely, the determination of whether a position is exempt or non-exempt from overtime compensation must be made on a case-by-case basis, based on the requirements of the federal Fair Labor Standards Act. The law in this area continues to evolve, and human resources professionals should keep abreast of current developments.”37 The same holds true for lawyers. It is dangerous to assume your assistant is exempt from overtime compensation. Analyze your assistants’ salaries and duties before determining they are exempt from overtime. Don’t put your neck on the line with an inappropriate white-collar exemption.

1. Rod Hughes, 2003 Salary Survey: Half Empty or Half Full?, Legal Assistant Today, March/April 2004 at 60 (indicating that 49.2% of legal assistants surveyed answered that they were designated as exempt employees by their employers).
2. Cause No. 3:91-CV-2655-P, (N.D. Tex., Dallas Div. 1994).
3. Id.
4. Law Office Management and Administration Report, New Surveys Look at Paralegal Pay in Light of DOL Exemption Ruling, Institute of Management and Administration, Inc. (1994).
5. 29 C.F.R. § 541 (2004).
6. U.S. Department of Labor - Wage and Hour Division, Handy Reference Guide to Fair Labor Standards Act, (2004), at http://www.dol.gov/esa/regs/compliance/whd/hrg.htm#2.
7. 29 U.S.C. § 207(a)(1) (2003).
8. 29 U.S.C. § 213(a)(1) (2003).
9. 29 C.F.R. §§ 541.0-541.710 (2004).
10. 29 C.F.R. § 541.602 (2004).
11. U.S. Department of Labor - Wage and Hour Division, Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees; Final Rule: Economic Report, 29 C.F.R. § 541, Vol. 69, No. 79, at 22246 (2004).
12. Rod Hughes, 2003 Salary Survey: Half Empty or Half Full?, Legal Assistant Today, March/April 2004 at 62.
13. 29 C.F.R. § 541.700 (a) (2004).
14. Id.
15. 29 C.F.R. § 541.100 (2004).
16. 29 C.F.R. § 541.102 (2004).
17. Oklahoma Rule of Professional Conduct R. 5.5 cmt. (1995).
18. 29 C.F.R. § 541.200 (2004).
19. See Wage & Hour Op. Letters, 1998 WL 852667 (Mar. 20, 1998); 1998 WL 852691 (Feb. 19, 1998).
20. 29 C.F.R. § 541.202 (2004).
21. See Wage & Hour Op. Letters, 1998 WL 852667 (Mar. 20, 1998); 1998 WL 852691 (Feb. 19, 1998).
22. 29 C.F.R. § 541.201 (a) (2004).
23. 29 C.F.R. § 541.201 (b) (2004).
24. 29 C.F.R. § 541.202 (b) (2004).
25. 29 C.F.R. § 541.202 (c) (2004).
26. Cause No. 3:91-CV-2655-P, (N.D. Tex., Dallas Div. 1994).
27. 29 C.F.R. § 541.300(a) (2004).
28. 29 C.F.R. § 541.301 (2004).
29. 29 C.F.R. § 541.301(e)(7) (2004).
30. Id.
31. Id.
32. Corning Glass Works v. Brennan, 417 U.S. 188, 196-97 (1974); Hays v. City of Pauls Valley, 74 F.3d 1002, 1005 (10th Cir. 1996).
33. Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960); Pacheco v. Whiting Farms, Inc., 365 F.3d 1199, 1203 (10th Cir. 2004).
34. Hays, 74 F.3d at 1006; Aaron v. City of Wichita, 54 F.3d 652, 657 (10th Cir. 1995) (stating that an employer must prove that the employee is exempt by “clear and affirmative” evidence).
35. 29 U.S.C. 216(b) (2003).
36. 29 U.S.C. 216 (e) (2003).
37. The National Association of Legal Assistants, The Corporate Human Resources Guide To The Legal Assistant/Paralegal Profession (1999), available at http://www.nala.org/HRbrochure.htm.5766981

About the Authors

Steve J. Coleman is an associate in the Oklahoma City office of McKinney & Stringer P.C. Mr. Coleman practices in the areas of general civil litigation, business and commercial law, as well as intellectual property. He earned his J.D. from the University of Oklahoma College of Law where he graduated with honors.

Jim Priest is a husband, dad, trial lawyer, newspaper columnist and ordained minister in the Church of the Nazarene. Mr. Priest graduated from Houghton College and Syracuse University School of Law. He joined the law firm of McKinney & Stringer in 1980 where he is a director of the firm and practices labor and employment law. He has defended Oklahoma law firms in actions brought by former employees seeking overtime.