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Paralegal Employment and Exemption Status

Paralegals struggle to find the lesser of two evils.

By Nancy Ritter

(Originally appeared in print as "Bedeviled")

July/August 2002 Table of Contents

 

It’s an unspoken secret within the paralegal profession. Under the law, most paralegals should be classified as nonexempt and paid time and a half when they work more than 40 hours in the course of a work-week. Yet, according to leading industry studies conducted by national associations and Legal Assistant Today, only half of the paralegals in the country are treated as nonexempt under the 1938 federal statute that governs workers in the United States and, therefore, are being paid premium overtime wages.

Calling that a secret might be slightly hyperbolic, but only slightly. The truth is many employers — large and small, public and private — don’t understand how to interpret the exemption regulations under the Fair Labor Standards Act (FLSA). Just as likely, however, they are fudging or at least looking the other way when they classify paralegals under the federal wage and hour statute. Why? One of the major reasons is money. No employer wants to pay time and a half overtime unless it absolutely must. When it comes to the private sector, the ability of law firms to bill out the services of legal assistants is bolstered by considering them “professionals” who offer more economical services than attorneys while still working under attorney supervision.

And if truth be told, many paralegals prefer to be classified as exempt (that is, exempt from the overtime provisions of FLSA, though not exempt from other aspects of the federal law, such as the Equal Protection Act), because many feel that designation elevates the status of the profession. For many paralegals, punching a time clock smacks of nonprofessional status, even if only in their own minds.

The Devil Is in the Details

For decades now, the federal government — through the U.S. Department of Labor — has issued administrative opinions to the public unequivocally stating the vast majority of legal assistants are not exempt from wage and hour protections under FLSA and, therefore, should be paid overtime. The labor department even has its own internal rule book, the “Field Operations Handbook,” which investigators rely on when making exemption decisions.

The handbook specifically states, “To be exempt under Reg 541.3(a)(1), professionals must perform work requiring knowledge of an advanced type in a field of science or learning customarily acquired by a prolonged course of specialized intellectual instruction and study.”

Earning a paralegal certificate or degree generally involves “two years or less” of study, the handbook continues, and this doesn’t meet the requirement of a “prolonged course of study” — which the Department of Labor has ruled is a “longer intellectual discipline in a particular course of study as distinguished from a general academic course otherwise required for a baccalaureate degree.”

Does the Department of Labor mean to say workers in the United States need to have more than a bachelor’s degree to be eligible for the professional exemption under FLSA — and, if so, why don’t the regulations specify such criteria?

In fact, the “Field Operations Handbook” defines a “prolonged course of study” as “at least a baccalaureate degree or its equivalent.”

According to the National Federal of Paralegal Association’s (NFPA) 2001 Paralegal Compensation and Benefits Report, nearly 50 percent of the paralegals working in the country today have at least a bachelor’s degree, and 6 percent hold a master’s degree or higher. Nonetheless, it’s the Department of Labor’s position that paralegal work doesn’t require that level of education, and therefore legal assistants are not eligible for FLSA’s professional exemption.

Here is the department’s explanation, as found in the “Field Operations Handbook:”

“Paralegals generally perform a variety of tasks, including legal research, interviewing clients and potential witnesses and drafting legal documents. Although, absent the availability of a paralegal, these tasks would be performed by an attorney, the performance of such duties by a paralegal does not make them ‘professional’ employees within the meaning of Reg 541. These tasks require the use of skills and the following of specific procedures rather than the exercise of discretion and independent judgment as contemplated by the requirements in Reg 541 for exempt ‘administrative’ or ‘professional’ employees and can be performed by employees with education and training below the college level.”

Yet, historically, there has been little effort to force employers of paralegals to comply with the law. Clearly the federal government has taken a position on the issue. So why do so many employers continue to classify paralegals as exempt without incident?

Arguably, there are a variety of explanations for this: The regulations are rather complicated and far too many employers don’t understand them. The Department of Labor has been derelict in issuing specific guidelines for employers to follow when classifying legal assistants under FLSA, and as a result, the legal marketplace might well be littered with employers who are in violation of FLSA. But most notably, when it comes to enforcement of federal law, the Department of Labor’s understaffed Wage and Hour Division is busy holding the feet of more egregious wage-and-hour violators to the fire. FLSA, as it relates to legal assistants, is simply not on the priority list.

However, FLSA is getting more attention lately. The newly appointed head of the Department of Labor’s Wage and Hour Division, Tammy D. McCutchen, has stated publicly that revisions to FLSA’s exemptions were going to be a priority of her tenure. If McCutchen is true to her word, paralegals might need to drag the profession’s best kept secret into the light of day for discussion, debate, and for some hard decisions to be made.

The Fire and the Frying Pan

That isn’t to say, of course, that government investigators are likely to come swooping into the lobbies of law firms, public agencies and corporate law departments waving subpoenas anytime soon.

Frankly, the federal government has its hands full trying to reign in employers that violate child-labor laws and the surprising number of garment and other sweatshop owners who are downright Dickensian when it comes to paying employees for their work.

That isn’t to say, however, that the labor department has turned a complete blind eye to the paralegal conundrum. In the early ’90s, the Department of Labor went after a Texas law firm with guns blazing.

The firm of Page & Addison employed 23 paralegals and didn’t pay them overtime, claiming them as exempt “administrators” under FLSA. The Department of Labor slapped a federal lawsuit on the firm — an action only infrequently taken due to financial constraints. But it’s safe to say, when the Department of Labor does take the time and expense of going to court, one of its primary intentions is to broadcast a message to the rest of the industry in question.

In the case of Department of Labor v. Page & Addison (U.S. District Court, Northern District of Texas, No. 3:91-CV-3655-P), however, that message backfired. A Dallas jury handed the government a huge defeat, rejecting its position that the law firm’s paralegals should be paid overtime.

On March 10, 1994, the jury found the 23 paralegals were exempt under the law because they exercised the discretion and independent judgment necessary to qualify them for FLSA’s administrative exemption.

Smarting from that decision, the government appealed to the 5th U.S. District Court of Appeals; then, six months later, the Department of Labor did something that remains a mystery to this day. It dropped the appeal.

Why? Did the Department of Labor’s move signal an abandonment of its long-standing position that the majority of legal assistants must be paid overtime?

No one at the Department of Labor was willing to go on the record about the dropped appeal, except to say that nothing in the agency’s decision should suggest a change of heart. And, in fact, the labor department continues to pump out administrative rulings, some stating paralegals generally don’t qualify for any of FLSA’s exemptions.

The Exemptions

There are three ways — called “exemptions” — under which employers of legal assistants can legally avoid paying the federal minimum wage (which generally isn’t an issue), but more relevantly, premium overtime compensation. These exemptions are referred to as the “EAP,” or white-collar exemptions for executives, administrators and professionals.

By all accounts, FLSA’s administrative exemption is the most complex, the toughest one to implement, and not surprisingly, the one that leads to the most litigation. Under section 541.2(e)(2) of FLSA, an employee may qualify for the administrative exemption from mandated overtime if he or she is paid at least $250 a week — that figure was set in the early ’70s and the federal government has been promising for years to amend the regulation to bring it current with inflation — and if:

  • the employee’s primary duty consists of the performance of office or nonmanual work directly related to management policies or general business operations of the employer or the employer’s customers; and
  • the employee’s work requires the exercise of discretion and independent judgment.

When it comes to these criteria of FLSA’s administrative exemption, legal assistants almost never pass muster, with the Department of Labor repeated ruling that the majority of paralegal duties are more akin to production work than “directly related to management policies or general business operations.” This statement has been the Department of Labor’s mantra for years and was most recently put forth in a Feb. 19, 1998 Wage and Hour Letter Opinion that specifically addressed the duties of paralegals.

The professional exemption has continuously eluded paralegals because the Department of Labor’s position is based primarily on the theory that the position doesn’t require the level of education established in its “Field Operations Handbook.”

The Department of Labor’s requirements for the third exemption — the ‘executive’ — are two-fold. Basically, the paralegal must:

  • regularly direct the work of two or more people; and
  • his or her primary duty must be management of a “recognized department.”

Determining a worker’s “primary duty” frequently is a hotly contested issue — entire lawsuits have been based on it — but the Department of Labor generally holds that a paralegal must spend at least 50 percent of his or her time in management duties to meet this test.

Damnation

In the Feb. 19, 1998 administrative opinion letter — the last known opinion sought regarding legal assistants — the Department of Labor said paralegals don’t “perform work of substantial importance to the management or operation of the business of his employer or his employer’s customers.”

Every year, the Department of Labor issues these opinion letters, which are often referred to as administrative rulings, to employers seeking the agency’s guidance on how specific employees in any number of professions should be classified under FLSA. Are the employer’s employees nonexempt and therefore paid overtime when they work more than 40 hours a week? Or exempt and therefore not paid for overtime compensation?

Most of the prior administrative opinions related to paralegals — like the 1998 ruling — contain recycled language that explains the labor department’s reasoning:

“It has long been our opinion that paralegals’ and legal assistants’ duties do not exercise the discretion and independent judgment of the type required by [the regulations]. It continues to be our opinion that these employees’ duties involve the use of skills rather than discretion and independent judgment.”

So, what, precisely, does the federal government mean by “discretion and independent judgment?” And does it think paralegals don’t use it?

“The term,” said Michael Ginley, the former director of the Department of Labor’s Office of Enforcement Policy, “is interpreted to mean the person has the authority or power to make an independent choice, free from immediate direction or supervision with respect to matters of significance.”

Ginley, who headed the Enforcement Policy office at the Department of Labor when the 1998 administrative opinion on paralegals was issued, said the question is not an easy one to answer based on the government’s previous position. Adding to the complication was the 1998 decision regarding Page & Addison.

He said the three levels of legal assistant work about which the law firm was inquiring in the early 1990s decidedly didn’t meet the government’s criteria for an administrative exemption.

This work included a senior legal assistant who conducted presentations at meetings, trained and supervised other paralegals, interviewed clients, performed legal research, acted as a liaison to outside counsel and performed a host of other duties that most legal employers and employees alike would consider highly substantive (See “Distinctions” on Page 49).

While drafting documents and pleadings, and interviewing clients and witnesses certainly involves some judgment, Ginley added in the ruling, such tasks don’t demand the level of discretion and independent judgment necessary for the employer to claim an administrative exemption from FLSA’s overtime compensation mandates.

“These duties,” he concluded, “involve the use of skills and procedures” — like production work.
Pat Elliott, CLAS, whose term as president of the National Association of Legal Assistants ends in July, took issue with that.

“I would agree that paralegals don’t use legal discretion or legal judgment,” she said. “But we certainly exercise procedural and strategic discretion and judgment.”

Damned if You Do ...

NALA’s Elliott said she would not be surprised if only a small percentage of legal assistants are truly eligible for any of the exemptions from FLSA, as the Department of Labor currently defines them.

A couple of years ago at its national convention, NALA discussed the exempt-nonexempt question and found the membership split down the middle on how legal assistants should be classified, Elliott said.

Likewise, Debbie Repass, immediate-past vice president of NFPA’s Profession Development Committee, said her group has not fully grappled with the exemption issue.

She noted what she calls as a “Catch-22” concerning the whole exemption quandary. The government thinks in a rather pigeonholing fashion on such issues, Repass said, and as long as there is no standardization of education and training for paralegals, it’s unlikely the Department of Labor will regard most legal assistants as eligible for an FLSA exemption.

“Welcome to Uncle Sam’s world,” she added.

The problem isn’t insignificant either. According to NALA’s 2000 National Utilization and Compensation Survey Report, 26 percent of the paralegal-respondents reported they worked overtime at least once a week; although 21 percent of them did receive comp time, 35 percent were paid no overtime compensation. Nineteen percent of the legal assistants said they worked overtime at least once a month, with 20 percent of them receiving comp time and 33 percent paid nothing.
And a surprising number of NALA survey respondents — 27 percent — reported they worked overtime nearly every day; 16 percent were given comp time, but nearly half (48 percent) said they never received overtime compensation from their employers.

Legal assistants who favor nonexempt status under FLSA say they are not paid a high enough salary to compensate them for working more than 40 hours a week.

In fact, Legal Assistant Today reported in its 2001 Salary Survey that there is only a $498 annual difference between the average salaries of exempt and nonexempt paralegals — with the nonexempt legal assistants actually earning more based on its sampling.

As Dorene Ridegway, former chairwoman of NFPA’s Ad Hoc Committee on Exempt/Nonexempt Status, has stated, “Some paralegals are not convinced that they gain the financial rewards, status and the perceived professional image that goes along with exemption from the [FLSA].”

Yet the fact remains that none of the professional associations representing legal assistants has taken a hard look at the exempt-nonexempt issue.

Mary Ellen Perkins, president of the Legal Assistant Management Association (LAMA), acknowledged that her organization has not studied the matter in-depth.

“Frankly, our members run the gamut on this — some want to be considered exempt and some don’t,” she said, adding that this lack of consensus makes it nearly impossible for an organization to devise an official position.

Fire and Brimstone

Although many expected the jury’s decision in Addison — and the government’s dropping of its appeal — to prompt a rash of lawsuits around the country by law firms seeking to solidify their exemption of paralegals from overtime pay, that didn’t happen. And, despite the Department of Labor’s continuing position that the majority of legal assistants are not exempt, neither are paralegals — either individually or through their professional organizations — flocking to the courts, seeking overtime compensation.

Of course, there is always the possibility that the labor department could decide to change current regulations to exempt paralegals, as a class, from the overtime requirements of FLSA — in which case the agency likely would schedule comment periods and hearings. If that were to happen, LAMA’s Perkins queried, would legal assistants themselves come to a consensus, adopt a formal position, and lobby the labor department?

There has been some movement in the direction of an internally initiated change in Washington.

In its most recent regulatory agenda — that is, the game plan announced by federal agencies every six months — the Department of Labor said it intended to take a close look at the EAP exemptions in an effort to bring them more up-to-date with the modern workforce.

And, in her first major address after her recent appointment by the Bush administration to head the Department of Labor’s Wage and Hour Division, McCutchen reiterated her strong commitment to put revisions to FLSA’s white-collar exemptions on her to-do list.

Still, many doubt this is likely to happen anytime soon, as history has witnessed over two decades of the Department of Labor’s promising to overhaul the country’s white-collar exemption regulations — then missing every deadline.

As the director herself acknowledged this spring, “Every administration since Carter’s [1976-80] has tried to amend Part 541 [the white-collar exemption standards] . . . and none has succeeded.”

Still, McCutchen promised to make distinctions between exempt and nonexempt workers clearer for employers to understand, adding she would try to minimize the economic impact of any changes to FLSA regulations.

If new regulations are issued, would legal assistants continue to be categorized as nonexempt, compelling private and public employers to pay them overtime?

Elliott said she would be concerned if the Department of Labor not only refuses to change its position, but starts enforcing its position that the majority of paralegals are nonexempt and demanding that employers pay overtime.

“I worry about that having the potential to drive salaries down,” she said. “And I worry how that might affect the number of paralegal positions, if employers decide that it’s better for their bottom line to give substantive work to associates to whom they don’t have to pay overtime.”

Then, again, will the Department of Labor take a more enlightened look at the role paralegals play in the delivery of legal services, determining that they are indeed professionals — and bringing under the umbrella of the law the thousands of employers that currently consider legal assistants exempt?
One way or the other, Elliott said, the issue is hot for debate and it might be time for paralegal professional organizations to take a hard look at the issue.

Distinctions

On Feb. 19, 1998, Page & Addison wrote to the U.S. Department of Labor’s Wage and Hour Division, requesting a determination on how to classify three paralegal employment categories: Legal Assistant II, Legal Assistant I and Senior Legal Assistant. Here are some of the duties of each, as described by the employer:

Legal Assistant II:

  • maintaining files

  • summarizing depositions

  • running errands and copying cases

  • preparing trial exhibits and notebooks

  • cite-checking briefs

  • drafting letters

  • performing legal research

  • selecting articles for in-house publications and distribution to clients

  • dealing directly with clients on matters of substance

  • drafting basic discovery requests.

Legal Assistant I:

The same duties as a Legal Assistant II, plus:

  • finalizing legal documents without the guidance of attorneys

  • meeting and interviewing clients

  • tracking and reporting on pending legislation

  • acting as a liaison to outside counsel

  • initiating, coordinating and developing new procedures or policies

  • preparing oral presentations for meetings

  • drafting factual memoranda for attorneys.

Senior Legal Assistant:

The same duties as a Legal Assistant I, plus:

  • conducting oral presentations at meetings

  • training and managing legal assistants.

The Department of Labor ruled the positions of Legal Assistant I and II didn’t qualify for any of the three FLSA exemptions; therefore, paralegals in those positions should be paid time-and-a-half their regular hourly rate for every hour worked more than 40 a week. With respect to a senior legal assistant, the Department of Labor said the employer didn’t provide enough information to determine if that position might qualify for the executive exemption, saying that, depending on other duties, it was unclear whether the paralegal spent more than 50 percent of his or her time in management duties.

 


 

Nancy Ritter is a legal editor in Washington, D.C., currently specializing in the Fair Labor Standards Act. Before going into legal journalism, she was a paralegal for 22 years, working primarily in medical malpractice and white-collar criminal defense. As a reporter, Ritter has won a number of awards from the Society of Professional Journalists for her work at New Jersey Lawyer newspaper.

 

 

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