Were employed as accountants which is a profession in a field of advanced science and learning.

Used knowledge that is customarily acquired by a prolonged course of specialized education.

Exercised professional discretion and judgment.

Perform work that does not:

Receive all the training necessary to perform their function after beginning employment with KPMG, rather than through a prior course of intellectual instruction.

Primarily perform low-level, routine work and therefore do not exercise specialized knowledge or professional discretion.

Exercise the informed judgment characteristic of the accounting profession in performing their duties.

Rely on skills and knowledge obtained through specialized prior education directed towards professional accountancy accreditation.

Learned professionals who:

Therefore exempt from overtime provisions under the FLSA's learned professionals exemption.

To qualify for the learned professionals exemption, an employee's primary duty must be "work requiring advanced knowledge in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction" (29 C.F.R. § 541.301(a)).

Under Section 541.301, a three-pronged test must be satisfied for the learned professional exemption to apply. (For more information about the learned professional exemption under the FLSA, see Checklist, FLSA White Collar Exemptions Checklist: Professional Exemption Requirements.)

The regulations apply the exemption to accountants specifically, stating that:

"Certified public accountants generally meet the duties requirements for the learned professional exemption. In addition, many other accountants who are not certified public accountants but perform similar job duties may qualify as exempt learned professionals. However, accounting clerks, bookkeepers and other employees who normally perform a great deal of routine work generally will not qualify as exempt professionals."

(29 C.F.R. § 541.301(e)(5).)

The parties essentially agree on the tasks performed by and the education required of the Audit Associates. The dispute therefore is over whether those tasks exclude the plaintiffs from the overtime provisions of the FLSA. That is a question of law.

The FLSA's professional exemption does not elaborate on the meaning of "discretion and judgment." However, the administrative exemption similarly requires "discretion and independent judgment" and provides more detail on the meaning of the phrase (29 C.F.R. § 541.202). The Second Circuit has concluded that in the context of the administrative exemption, "discretion and judgment" means the authority to formulate, affect, interpret or implement management policies or operating practices by involvement in planning long-term or short-term business objectives or by the carrying out of major assignments or committing major financial resources in the conduct of the business (citing In re Novartis Wage & Hour Litig., 611 F.3d 141, 155–56 (2d Cir. 2010).)

The First and Sixth Circuits have used the administrative exemption's explanation of the term "discretion and judgment" in the professional exemption context.

However, employees that qualify under the learned professional exemption need not have management authority the way employees must under the administrative professionals exemption. What matters is whether they exercise intellectual judgment in their field of expertise. Further, under Section 541.207(d)(1), administrative workers must show "independent judgment" to qualify for the exemption, whereas the learned professional exemption does not require the judgment to be "independent" (Piscione v. Ernst & Young, L.L.P, 171 F.3d 527, 535–36 (7th Cir. 1999)).

The DOL has recognized that the discretion and judgment standard for the professional exemption is less stringent than the discretion and judgment standard of the administrative exemption. Therefore, the Second Circuit declined to apply the administrative exemption standard uncritically to the learned profession exemption.

The decisions of other courts provide guidance for analyzing the advanced knowledge requirement of the professional exemption. A review of these cases suggests that employees satisfy the requirement of application of advanced knowledge when they interpret and analyze information central to the practice of their profession. For example:

Other circuits have found that the learned professional exemption applied to workers who made independent decisions even if they were expected to follow established guidelines and standards. For example:

The fact that Audit Associates spend a portion of their time performing clerical and administrative tasks does not in itself defeat their classification as learned professionals. Similarly, the fact that the Audit Associates were expected to follow formal guidelines in performing their duties and were subject to the authority of higher employees does not mean that the Audit Associates were not exercising professional judgment. What is most important, and what the other circuits' decisions show, is that in order for the learned professions exemption to apply, workers must rely on advanced knowledge of their specialty to exercise discretion and judgment characteristic of their field of intellectual endeavor.

The regulations specifically identify accounting as a field of science or learning under the learned professionals exemption and certified public accountants as learned professionals (29 C.F.R. § 541.301(c) and 29 C.F.R. § 541.301(e)(5)). However, there is little precedent describing what qualities are required to qualify as a professional accountant. In In re KPMG Wage & Hour Litigation, the district court held that central to the profession of accountancy is the exercise of "appropriate professional skepticism" to ensure the integrity of the financial accounting procedure (CV 07-4396-JFW CWX, (C.D. Cal. Oct. 19, 2012)). To demonstrate appropriate professional skepticism, a worker is expected to be "specially and knowledgeably attentive to the possibility of accounting impropriety or financial irregularity."

The fact that the Audit Associates' tasks can be broken down into component parts, and they are expected to follow instructions, does not mean that the Audit Associates are not demonstrating professional skepticism as accountants. In fact, physicians follow protocols and checklists when diagnosing patients, yet no one would suggest the physician following those protocols was not acting as a medical professional. What counts in this analysis is that the Audit Associates apply professional judgment to the observations that are made.

The learned professional exemption does not require that the professional's conclusions affect or guide management of the business (unlike the administrative or executive exemptions). The question that is most important is whether the employees' actions reflect knowledge and require judgment characteristic of a worker practicing their profession. In this case, the Audit Associates clearly fulfilled this test by testing controls, performing inventory reviews and replicating the audit process in each work paper, thereby engaging with the audit process in a critical manner.

Although the Audit Associates are supervised by senior colleagues, this supervision does not mean that Audit Associates have acted as anything other than accountants in performing their duties. Supervision of junior professionals by more experienced senior colleagues is normal in many hierarchically organized professional firms and institutions and does not mean that junior professional are relegated to the status of non-professional staff. In fact, the Audit Associates require advanced knowledge and professional judgment to know when it is appropriate to seek further advice from their superiors.

There is limited precedent in the Second Circuit about the education requirement of the learned professional exemption. Other circuits have considered the education requirement and have concluded that a few years of relevant, specialized training, for example a bachelor's degree in a relevant field, will suffice (Reich v. Wyoming, 993 F.2d 739, 741 (10th Cir. 1993)).

The critical inquiry is whether the vast majority of Audit Associates required a prolonged, specialized education to fulfil their roles as accountants. Review of the Audit Associates' educational qualifications shows that they did receive such an education. The fact that KPMG hired one Audit Associate who did not have an accounting degree is insufficient to create a material issue of fact regarding whether Audit Associates required advanced accounting knowledge.

An examination of the training materials provided by KPMG to its Audit Associates shows that an employee educated in a different field would not be able to understand them, if that was all the training the employee received.

The Audit Associates received the training necessary to work as accountants through a prolonged course of specialized instruction. Therefore the final element of the learned professional test is satisfied.