Attorney Performing Document Review Engaged in Practice of Law, Exempt from Overtime: SDNY | Practical Law

Attorney Performing Document Review Engaged in Practice of Law, Exempt from Overtime: SDNY | Practical Law

In Lola v. Skadden, Arps, Slate, Meagher & Flom LLP, the US District Court for the Southern District of New York (SDNY) granted an employer's motion to dismiss a contract attorney's complaint that the law firm to which he was staffed and a staffing agency violated the Fair Labor Standards Act (FLSA) by failing to pay the overtime rate of one-and-a-half times the regular rate of pay for work he and others similarly situated performed over 40 hours per week. The court held that for the purposes of applying the FLSA's professional exemption as implemented by 29 C.F.R. 541.304(a)(1), federal courts should look to the definition of "practice of law" in the state where the employee performed the work.The court found that the document review tasks that the plaintiff performed constituted practice of law in North Carolina, placing it within the professional exemption to the overtime provision of the FLSA.

Attorney Performing Document Review Engaged in Practice of Law, Exempt from Overtime: SDNY

by Practical Law Labor & Employment
Published on 24 Sep 2014 • USA (National/Federal)
In Lola v. Skadden, Arps, Slate, Meagher & Flom LLP, the US District Court for the Southern District of New York (SDNY) granted an employer's motion to dismiss a contract attorney's complaint that the law firm to which he was staffed and a staffing agency violated the Fair Labor Standards Act (FLSA) by failing to pay the overtime rate of one-and-a-half times the regular rate of pay for work he and others similarly situated performed over 40 hours per week. The court held that for the purposes of applying the FLSA's professional exemption as implemented by 29 C.F.R. 541.304(a)(1), federal courts should look to the definition of "practice of law" in the state where the employee performed the work.The court found that the document review tasks that the plaintiff performed constituted practice of law in North Carolina, placing it within the professional exemption to the overtime provision of the FLSA.
On September 16, 2014, in Lola v. Skadden, Arps, Slate, Meagher & Flom LLP, the US District Court for the Southern District of New York (SDNY) granted an employer's motion to dismiss a contract attorney's complaint that the law firm to which he was staffed and the staffing agency that placed him violated the FLSA by failing to pay the overtime rate of one-and-a-half times the regular rate of pay for work he and others similarly situated performed over 40 hours per week. The court held that for the purposes of applying the FLSA's professional exemption as implemented by 29 C.F.R. § 541.304(a)(1), federal courts should look to the definition of "practice of law" in the state where the employee performed the work. The court found that the document review tasks that the plaintiff performed in North Carolina constituted practice of law under that state's law, placing it within the professional exemption to the overtime provision of the FLSA. (No. 13-5008 , (S.D.N.Y. Sept. 16, 2014).)

Background

Starting in April 2012, attorney David Lola spent fifteen months working for Defendant, Skadden, Arps, Slate, Meagher & Flom LLP, as a contract attorney. Defendant Tower Legal Staffing placed him with Skadden. Lola performed all of his work for Skadden in North Carolina and his assignment was to review documents in connection with a multi-district litigation pending in Ohio district court. While Lola was not licensed in North Carolina or Ohio, North Carolina allows attorneys licensed in other states (Lola is licensed in California) to provide legal services under certain circumstances.
Lola's duties included:
  • Reviewing documents for particular search terms.
  • Marking documents into categories pre-determined by defendants.
  • Drawing boxes to redact portions of certain documents according to Skadden protocols.
Lola worked under the strict supervision of Skadden attorneys, who provided him with the documents, the search terms and the procedures. However, he was informed that Tower was his employer. Lola often worked more than 40 hours per week, but he was paid at the same rate for all hours that he worked.
Lola filed a putative collective action complaint against Skadden and Tower, asserting that they failed to pay him and other putative class members one-and-a-half times the regular rate of pay for hours worked in excess of 40 hours per week. Defendants filed a motion to dismiss, arguing that:
  • Lola was exempt from the overtime provisions of the FLSA as a licensed attorney engaged in the practice of law.
  • Lola failed to plead that Skadden was his employer.
Before determining the substantive issues, the court also needed to address two preliminary issues:
  • whether the court should fashion a new federal standard for defining the "practice of law" or apply existing state standards; and
  • if adopting state standards, which state's law should be used as the standard.

Outcome

The SDNY granted Skadden's motion to dismiss. The court held that:
  • Federal courts should adopt state law definitions of the "practice of law."
  • The law of the state where the employee performed the work should control. In this matter, that state was North Carolina.
  • Under North Carolina law, Lola engaged in the practice of law, which placed his work within the exemptions to the overtime provisions of the FLSA.
  • It was unnecessary to consider Skadden's argument that Lola failed to plead that the firm was his employer.
The court:
  • Noted that:
    • the professional exemption to the FLSA's overtime provision exempts "any employee employed in a bona fide . . . professional capacity" (29 U.S.C. § 213(a)(1));
    • the DOL defined the scope of the professional exemption to include "any employee who is the holder of a valid license or certificate permitting the practice of law . . . and is actually engaged in the practice thereof" (29 C.F.R. § 541.304);
    • the parties did not cite any DOL guidance or US Court of Appeals decisions concerning what it means to be "the holder of a valid license or certificate permitting the practice of law . . . and is actually engaged in the practice thereof"; and
    • the Supreme Court has instructed the federal courts that they should incorporate state law as the federal rule of decision unless the scheme in question evidences a need for a nation-wide legal standard. No provisions in similar statutory schemes contain congressional policy choices applicable to the matter or application of state law would frustrate objectives of the federal programs. (See Kamen v. Kemper Fin. Servs., Inc., 500 U.S. 90, 98 (1991).)
  • Found that it must adopt state law standards to interpret "practice of law" under 29 C.F.R. § 541.304 because:
    • state law regulates almost all aspects of legal practice; and
    • the licensing of attorneys is a matter of state concern, so state law should determine whether an employee's work is a "practice of law" under that license.
  • Found that:
    • there was no distinct need for nationwide legal standards on this issue;
    • no express provisions in similar statutory schemes have congressional policy choices readily applicable to the matter; and
    • application of state law would not frustrate objectives of the federal programs.
  • Distinguished or found inapposite cases that the plaintiff cited when asserting that the court should formulate a nationwide federal standard regarding what constitutes the practice of law. Specifically, it explained that:
    • Willcox v. Kirby addressed the question of whether the FLSA reaches private and governmental legal practice, not whether federal courts should adopt state law definitions of the practice of law (, (E.D. Tenn. Jan. 9 2009));
    • in Henig v. Quinn Emanuel Urquhart & Sullivan, LLP, the court created a federal test which left open the possibility that a federal court could apply a definition of "practice of law" which differs from the applicable standards of states in the case (No. 13-cv-1432 (RA) (S.D.N.Y. Dec. 11, 2013); and
    • in Oberc v. BP PLC, the court concluded that document review was the practice of law, but provided no authority or reasoning for why it reached that conclusion ( (S.D. Tex. Nov. 13, 2013)).
In reaching the conclusion that for the purposes of the FLSA's professional exemption as implemented by 29 C.F.R. § 541.304(a)(1), federal courts should look to the definition of "practice of law" in the state where the employee performed the work (North Carolina), the court found that:
  • There is a significant federal interest in creating a uniform federal choice-of-law provision to decide which state's "practice of law" definition to apply, because:
    • while each state can determine how it defines "practice of law," states are not to determine which state's law should control the application of a federal law in a case where several states are involved in the matter;
    • the adoption of a forum-state's choice of law principles could open the possibility that an employer's FLSA liability might depend on where the employee filed his complaint, which could lead to employers being unaware of whether they are complying with the law until someone brings a suit in a particular state; and
    • there must be a definitive answer as to whether someone performing a certain type of work in a particular state was entitled to overtime.
  • North Carolina had the greatest interest in the litigation because:
    • Lola performed all work in North Carolina; and
    • North Carolina is the state with the most interest in regulating the legal practice within its borders.
  • A services-rendered rule in the FLSA context is supported by the following rationales:
    • the expectation of the parties;
    • the regulatory interests of the state where the work is performed; and
    • the interest in predictability and uniformity of results.
(See Restatement (Second) of Conflict of Laws § 196 (1971).)
The court found the argument that the definition of the "practice of law" should be determined by the state that issued the employee's law license (for Lola, California) unpersuasive because:
  • An individual licensed in one state can often practice pursuant to that license in other states and jurisdictions.
  • An employee might hold law licenses in multiple states.
  • The state where the work is performed has a more significant interest in regulating employment within its borders than another state has in its licensees' out-of-state work.
When reviewing North Carolina law to determine whether Lola's work constituted "practice of law," the court noted that:
  • North Carolina's definition of the "practice of law" encompasses "legal services." (See N.C. Gen. Stat. § 84-2.1, N.C. Gen. Stat. § 84-4).
  • The North Carolina Bar has also issued an ethics opinion (N.C. State Bar Ethics Committee, 2007 Formal Ethics Op. 12 (April 25, 2008)), which:
    • classifies document review as legal services;
    • distinguishes legal support services (such as document review) from administrative support services; and
    • indicates that document review is the practice of law and may be performed by a non-lawyer if supervised by a licensed lawyer.
  • Document review is a practice of law regardless of whether it is conducted by lawyers or non-lawyers. Non-lawyers must be supervised for this practice of law, but supervision only determines whether this practice of law is authorized.
  • The North Carolina Bar's ethics opinion does not indicate that document review work only constitutes a legal service based on the amount of legal judgment and discretion involved. Many legal practice tasks performed by attorneys require little to no legal judgment.
When applying the basic DOL regulation regarding the professional exemption, courts must inquire into the primary duties of the employee to determine whether those duties involve the exercise of judgment and discretion (see 29 C.F.R. § 541.300, 29 C.F.R. § 541.301). However, the regulation about lawyers applies regardless of whether they are professionals under the primary duties test. Under that regulation, the FLSA exemption extends to those who both:
  • Hold a valid license or certificate permitting the practice of law.
  • Actually engage in the practice of law.
(29 C.F.R. § 541.304(d))

Practical Implications

This Southern District of New York's decision, Lola v. Skadden, Arps, Slate, Meagher & Flom LLP, sets a logical framework for evaluating whether attorneys performing services in the legal industry, perhaps not requiring all of the skills they learned in law school and practice, are exempt from overtime. Other courts are likely to adopt and apply this analysis when reviewing the increasing number of attorney claims for unpaid overtime.
On the surface, law firms and legal staffing companies might view this case as a victory. However, if this analysis is applied by other courts, law firms, legal staffing companies and companies that rely on contract attorneys should:
  • Understand that outcomes will vary based on the state law definitions (and ancillary state bar guidance) about what constitutes the practice of law where the attorneys work.
  • Consider shopping for states that have broad definitions of practice when they have discretion in selecting locations for contract attorney document review.