PARALEGALS AND OVERTIME: WHAT YOUR BOSS DOES NOT KNOW MIGHT HURT YOU

Whether it's preparing for trial or working on a closing, if there is midnight oil to be burned, paralegals are there. More often than not, they do the work that attorneys sign off on as their own, and like the attorneys that rely so heavily on their expertise and problem-solving abilities, they are trusted professionals who shoulder major responsibilities without needing daily supervision. They work hard, they know their stuff, and they often command higher salaries as a result. So how can it be that the law generally treats them no differently than an hourly-paid cashier when it comes to overtime pay?

First, the basics. Under the Fair Labor Standards Act ("FLSA"), employees are generally "non-exempt" and therefore entitled to overtime pay at a rate of time and a half for all time worked over 40 hours in a given work week, unless the employee falls within one or more exemptions under the Act. It is the employer's burden to prove that an employee is exempt, and the exemptions are to be construed narrowly by the courts in order to give broad protection to the workers covered by the Act. If an employee brings a civil action and proves that his or her employer failed to pay overtime compensation as required by the FLSA, the employee is entitled to recover the amount of his or her unpaid overtime compensation for two years prior to the filing date (three years if the employee proves that the employer's violation was willful), in addition to an equivalent amount as liquidated damages (unless the employer can prove the objective and subjective elements of its good faith defense), plus a mandatory award of the amount of attorneys' fees and costs that the court deems reasonable. Moreover, employees can proceed as a collective action with others similarly situated rather than going it alone, resulting in shared costs and other benefits to the employee litigant. The FLSA also contains an anti-retaliation provision which forbids an employer from taking adverse action against an employee for engaging or participating in protected activity regarding the assertion of overtime rights under the Act.

Next, a little common sense. Not all law firms and corporations are knowingly trying to short-change their paralegals. Some pay generous bonuses in recognition for hard work throughout the year; others have no idea that their trusted, experienced paralegals could possibly be "non-exempt." Many understand that salaried employees are expected to work the number of hours necessary to do the job in exchange for that salary, and erroneously believe that therefore only hourly employees can be "non-exempt."

Regardless of what your boss may be telling you, paralegals generally do not fall within any of the exemptions to the overtime laws contained in the FLSA, the federal law applicable to most employers. In a series of opinion letters beginning in 1979 and continuing through 2005, despite various amendments to the FLSA regulations along the way, the Department of Labor ("DOL") has uniformly taken the position that paralegals failed to satisfy the FLSA's "administrative" exemption-the exemption most likely to be applicable to the majority of paralegals-because their primary duties involve producing the work product of their employer, rather than performing activities supporting their employer's administrative operations, and because their primary duties do not involve the exercise of discretion and independent judgment required by the regulations, because such discretion and judgment must be exercised by the supervising attorney in order to avoid the unauthorized practice of law by a non-lawyer. Although the DOL's opinion letters generally focused on the production work performed by paralegals employed by outside law firms rather than paralegals providing in-house administrative support to a corporate legal department, a 2006 opinion letter similarly found that a Senior Legal Analyst for a corporation was non-exempt and therefore entitled to overtime because 90% of his or her responsibilities included "analyzing facts, identifying the legal issues involved, and then providing [his or her] interpretation of the law in a memorandum format for an attorney's review," and only 10% of his or her responsibilities included administrative support such as reviewing new materials, cost analysis and formulating cost-savings plans, and training personnel. Thus, although certain in-house paralegals may be more involved in duties supporting the administrative operations of the company itself rather than producing the work of the legal department, it is not clear from the DOL's opinion letters whether even those in-house paralegals would satisfy the "administrative" exemption under the FLSA.

The result is no different under the FLSA's "professional" exemption even for those paralegals who engaged in a particularized course of study to obtain paralegal certification in addition to receiving a four-year baccalaureate degree, because the DOL has concluded that the actual duties of paralegals, while requiring specialized legal training, typically do not require the type of advanced specialized degrees contemplated by the regulations necessary to satisfy the requirements of the "professional" exemption. Unlike attorneys who must have a law degree as required by state law in order to obtain a license to practice law, there is no similar requirement that a paralegal must have engaged in an extensive and specialized degree of study in order to perform the duties of a conventional paralegal (regardless of whether a particular employer indicates a preference for such advanced paralegal degrees during the hiring process), and an advanced specialized academic degree is not a standard prerequisite for entry into the field. The DOL expressly addressed the paralegal position under the "professional" exemption in 29 C.F.R. § 541.301(e), stating:

(7) Paralegals. Paralegals and legal assistants generally do not qualify as exempt learned professionals because an advanced specialized academic degree is not a standard prerequisite for entry into the field. Although many paralegals possess general four-year advanced degrees, most specialized paralegal programs are two-year associate degree programs from a community college or equivalent institution. However, the learned professional exemption is available for paralegals who possess advanced specialized degrees in other professional fields and apply advanced knowledge in that field in the performance of their duties. For example, if a law firm hires an engineer as a paralegal to provide expert advice on product liability cases or to assist on patent matters, that engineer would qualify for exemption.

Thus, the DOL has found that even those paralegals having a four-year college degree and a paralegal certificate do not satisfy the "professional" exemption if their job duties are that of a "conventional" paralegal. If, however, the paralegal possesses an advanced specialized degree in another professional field and is required to apply the advanced knowledge in that field as an expert in performing his or her paralegal duties (i.e., a CPA with an MBA performing expert forensic accounting work), then that particular paralegal may be exempt from the FLSA's overtime compensation requirements.

Some employers may look to the new "highly-compensated employee" exemption under the 2004 regulations in the hopes of not having to pay an overtime premium to paralegals who are already highly compensated. The "highly-compensated employee" exemption applies only to those employees: (a) who earn a total annual compensation of $100,000 or more (which may include commissions and non-discretionary bonuses or other non-discretionary compensation), including a salary of at least $455 per week; (b) whose primary duty includes performing office or non-manual work; and (c) who perform at least one of the exempt responsibilities of an exempt executive, administrative or professional employee.

Thus, even if the paralegal is earning over $100,000.00 per year, this last provision makes it difficult to satisfy this exemption. Taking these in order, in order to satisfy the executive exemption, a highly-compensated paralegal would still have to either (i) supervise two or more other employees, (ii) have the authority to hire or fire other employees, or (ii) effectively manage the company/firm or a customarily recognized department within the company/firm (e.g., the company's legal department). To satisfy the administrative exemption, the highly-compensated paralegal would still either have to (i) perform work directly related to the management or general business operations of the company/firm or of its clients, or (ii) exercise independent judgment and discretion with respect to matters of significance to the company/firm - both of which requirements the DOL has previously found that paralegals generally do not satisfy. Finally, with regard to the professional exemption, without an advanced degree in a specialized field that is required for expert work in that field as a specialized paralegal, even a highly-compensated paralegal would not satisfy the professional exemption.

In summary, law firms have objected to the treatment of paralegals as "non-exempt" under the FLSA for decades. The DOL has consistently overruled their objections, and the recent amendments to the FLSA regulations in 2004 did nothing to change the "non-exempt" status of most paralegals. So no matter how convincing your boss may sound when he or she explains that paralegals are exempt administrative or professional employees, better to get a second opinion from an attorney with experience in this area of the applicable wage and hour laws. What your boss doesn't know might hurt you, and every week that slips by without filing an action to assert your overtime rights is another week of your overtime pay that is lost forever from that trial or closing two or three years ago.

Reprinted with express permission by C. Andrew Head