Tax And Accounting Employees Met The Salary Base Test For The Professional Employee Exemption To Overtime Pay Requirements.
In the business law and employment law case of Steger, Gowie & Co. v. Bray, PICS Case No. 19-1777 (C.P. Chester Nov. 12, 2015) the Honorable Mark L. Tunnel ruled that the employees met the salary basis test for the professional employee exemption to overtime requirements. Judgment for plaintiff on FLSA counterclaim; judgment for defendants on breach of contract and WPCL counterclaims.
Plaintiff Steger, Gowie & CO., an accounting and tax firm, filed a breach of employment agreement against two of its employees, defendants Lawrence Bray and Michael Faughnan, seeking compensatory damages under a liquidated damages clause in the employment agreement. However, the court ruled that, as a matter of law, the liquidated damages provision was an unenforceable penalty. Defendants counterclaimed against plaintiff, alleging breach of contract as well as violations of the FLSA and WPCL.
Defendants, after commencing employment with plaintiff, entered into employment agreements shifting their compensation to an agreed-upon draw against commissions. Bray’s employment agreement further provided individual healthcare coverage, while Faughnan’s agreement did not provide healthcare coverage. After being placed on draws, plaintiff never paid defendants overtime compensation, although both defendants regularly worked in excess of 40 hours a week during tax season. Plaintiff paid defendants regularly weekly draws, and held commissions earned by defendants in reserve to offset against times when commissions would not be sufficient to cover defendants’ draw. Plaintiff never reduced either of defendants’ draw, and paid defendants’ draws in full during each pay period, even when they had deficits in earnings.
Defendants argued that plaintiff violated the FLSA by not paying them for worked overtime. Plaintiff countered that defendants were exempt from overtime compensation under the “professional employee” exemption. The court noted that, in order to satisfy the professional employee exemption, an employer had to show that the employee met three tests—the “salary test”, the “salary basis test”, and the “duties test”. The court found that both defendants were paid more that the minimum weekly salary amount of $455 and therefore met the salary test. The court further ruled that both defendants met the duties test, as Bray was a CPA, while Faughnan, a non-licensed accountant, used his professional judgment and skill in the course of his duties.
However, defendants contended that they failed to meet the salary basis test because their salaries were subject to reductions for variations in quality or quantity of work performed because their draws were not guaranteed under their employment agreements and theoretically subject to reduction. Plaintiff asserted that the draws were predetermined sums, paid consistently regardless of the commissions generated by defendants. The court held that, in order to fail the salary basis test, an employer had to have a practice of reducing salary due to variations in quality or quantity of work, and that it was not enough that defendants’ draws could theoretically be reduced based on the commissions they generated, as in practice defendants’ draws remained consistent even if they ended up drawing against future commissions. Accordingly, the court ruled that defendants were exempt from overtime compensation under the FLSA.
The court ruled in favor of defendants on their breach of contract claim, finding that plaintiff had failed to pay commissions on work completed prior to defendants’ resignations, and that plaintiff improperly deducted the employer’s portion of state payroll taxes and medical insurance premiums above that owed by defendants. The court further ruled that defendants were entitled to liquidate damages under the WPCL, as plaintiff had no good faith dispute over its withholding of unpaid commissions at the time it withheld them from defendants.
Reference: Digest of Recent Opinions, Pennsylvania Law Weekly, 38 PLW 1104 (November 24, 2015)
Filed Under: Overtime Pay Exemption; Professional Employees
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