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KPMG Audit Associates and Audit Seniors Seek Unpaid Overtime, Allege Misclassification as Exempt Workers Under the Fair Labor Standards Act (FLSA) and New York State Overtime Laws
On April 25, 2011, Outten & Golden LLP, along with their co-counsel Shavitz Law Group, P.A., filed a class action amended complaint in New York district court against KPMG LLP on behalf of two former audit associates. The lawsuit alleges that KPMG, the audit, tax, and advisory firm with 87 offices nationwide and more than 23,000 employees in the United States, and affiliated with KPMG International, that has combined revenues of over $20 billion in 2009 and 2010, deliberated misclassified first and second year audit associates as exempt from federal and state overtime requirements so that KPMG could avoid paying them overtime compensation as required by law. The plaintiffs worked well in excess of 40 hours per week and received no overtime pay. Individuals from Texas, Florida, Nebraska, and Washington have already joined the lawsuit. The lawsuit seeks to recover unpaid overtime pay (back wages) for Deloitte Audit Assistants and Seniors for all the hours they worked over 40 each week, liquidated damages, and other relief.
KPMG has claimed that Audit Associates are “administrators" or "professionals" who are not entitled to overtime compensation. The lawsuit claims that this is a misclassification and that KPMG Audit Associates are not really “administrators" or "professionals" under the FLSA overtime provisions because they perform mostly routine low-level audit tasks such with many levels of supervision such as conducting basic reviews of client documents and financial records, conducting inventory counts, photocopying client documents and records, and entering data into Excel spreadsheets. The Plaintiffs also claim that they spent most of their time comparing numbers in financial statements with numbers in other documents, updating statements from previous years (also called “rolling forward”), entering data from documents into spreadsheets or templates and comparing and matching numbers, documenting work done during an audit, and performing clerical tasks. In depositions and declarations, Plaintiffs testified that they were required to raise problems with a senior employee, that the hierarchy of positions, the partner sign-off and the final, managerial review of work-papers . . . is consistent from engagement to engagement, that their duties include testing work (matching numbers with client’s supporting documentation), control testing and walk-throughs, reviewing work papers, testing and matching numbers, matching ending balances to the totals, deleting last year’s information and inserting current year’s information, data entry and matching numbers, filling in blanks on form letters for partners, matching numbers with the support documents that clients provide, testing, documenting, and observing procedures, documenting what clients show them, photocopying, stuffing, hole punching, and filing, assembling binders, organizing documents, ordering food. They were required to discuss any significant issues with supervisors, raise questions with managers, read over documentation to make sure it is clear and that references to other documents check out, and match ending balances to totals.
On October 7, 2011, the Magistrate Judge presiding over the case issued an order denying KPMG’s request for permission to destroy thousands of KPMG Audit Associates’ computer hard drives. The Plaintiffs opposed KPMG’s motion because they believed that KPMG Audit Associates’ computer hard drives are likely to contain information valuable to determining whether KPMG misclassified its Audit Associates as exempt from the FLSA’s overtime protections and useful in determining how many overtime hours KPMG Audit Associates worked.
KPMG objected to the Magistrate Judge’s Order and requested that the District Judge presiding over the case set it aside and grant KPMG’s motion for a protective order, which would permit the destruction of thousands of KPMG Audit Associates’ computer hard drives. The Plaintiffs again opposed KPMG’s motion. On February 3, 2012, District Judge McMahon denied KPMG’s motion in its entirety, affirming the Magistrate Judge’s Order. Judge McMahon found KPMG unreasonable in its refusal to turn over so much as single hard drive so its contents could be examined by Plaintiffs, and in its refusal to engage in good faith negotiations with Plaintiffs’ counsel. The Court ordered KPMG to preserve the hard drives for all departed Audit Associates nationwide until either the parties come to an agreement over a sampling methodology to inspect the hard drives or KPMG abandons its position that individual Audit Associates perform work that renders them exempt from the overtime protections of the FLSA. The Court agreed with the Plaintiffs in finding that KPMG Audit Associates’ hard drives likely contain relevant information about the hours they worked and what kind of work they were doing.
Click here for a copy of the Magistrate Judge’s order.
On April 6, 2011, the Plaintiffs filed a motion for conditional certification of an FLSA collective action. VIEW DOCUMENT KPMG filed its opposition to the motion on June 24, 2011. VIEW DOCUMENT On June 29, 2011, the Judge set a hearing to determine whether certain information that KPMG redacted from its opposition papers should remain confidential and not publically accessible. VIEW DOCUMENT The Judge ruled that she would invite the AICPA and the SEC to participate in the hearing and that KPMG would be required to pay for a Court-appointed expert to assist with the proceeding.
On January 3, 2012, the Judge presiding over the case, Pippins, et al. v. KPMG LLP, issued an order conditionally certifying a nationwide collective of KPMG Audit Associates under the federal Fair Labor Standards Act (FLSA) and authorizing the plaintiffs to send notice to all potential members of the FLSA collective to inform them of their right to join the lawsuit and attempt to recover unpaid overtime pay under the FLSA.
Click here for a copy of the Court’s certification order.
On February 7, 2012, the Court followed up on its June 29, 2011 order issued a new Order requiring KPMG to “file on the docket unredacted copies of any documents that KPMG previously filed” and that Plaintiffs’ reply papers regarding their motion for FLSA conditional certification “are to be unsealed.” Because no party recommended an “independent expert in accounting” to assist with a hearing on this issue, as the Court directed in its June 29, 2011 order, the Court determined that the parties “agree with [the Court’s] initial impression, which is that there is nothing confidential about KPMG’s ‘audit policies, practices and procedures.”
On November 30, 2012, the Honorable Colleen McMahon, District Court Judge for the Southern District of New York, granted KPMG’s motion for summary judgment, holding that Audit Associates are exempt “professionals” under the Fair Labor Standards Act. A copy of the decision is available here. Plaintiffs have evaluated the Court’s decision and plan to appeal the decision to the Second Circuit Court of Appeals when the court enters a final judgment. In addition, Plaintiffs have asked Judge McMahon to reconsider a portion of her ruling in which she dismissed the New York Labor Law claims without prejudice. Plaintiffs have asked the Court to retain jurisdiction over the New York claims pending the appeal of the dismissal of the FLSA claims.
Attorneys Justin M. Swartz, Rachel M. Bien, and Dana Sussman, of Outten & Golden LLP, and Greg Shavitz, Keith Stern, and Hal B. Andersen of Shavitz Law Group, P.A. represent the Plaintiffs.
The case is Pippins, et al. v. KPMG LLP, Case No. 11 Civ. 0377 in the U.S. District Court, Southern District of New York.
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