Litchfield v. KPMG, LLP

• Decision Date: 04 September 2012
• Docket Number: No. 65372–5–I.,65372–5–I.
• Court: Washington Court of Appeals
• Parties: Mark LITCHFIELD, on behalf of himself and all others similarly situated, Appellant/Cross Respondent, v. KPMG, LLP, Respondent/Cross Appellant.

285 P.3d 172

19 Wage & Hour Cas.2d (BNA) 1054

Mark LITCHFIELD, on behalf of himself and all others similarly situated, Appellant/Cross Respondent,

v.KPMG, LLP, Respondent/Cross Appellant.

No. 65372–5–I.

Court of Appeals of Washington, Division 1.

Sept. 4, 2012.

David F. Stobaugh, Stephen K. Strong, Bendich Stobaugh & Strong PC, Catherine W. Smith, Howard M. Goodfriend, Edwards Sieh Smith & Goodfriend PS, Seattle, WA, for Appellant/Cross Respondent.

George E. Greer, Orrick Herrington & Sutcliffe LLP, Leonard J. Feldman, Stoel Rives LLP, Seattle, WA., for Respondent/Cross Appellant.

William F. Cronin, Barbara J., Corr Cronin Michelson Baumgardner, Olympia, WA, amicus curiae Wa. Society of Certified Public Accountants.

Kristopher I. Tefft, Assoc. of Wa. Business, Olympia, WA, Jennifer A. Landau, Michael C., Sidley Austin, Los Angeles, CA, amicus counsel for Assoc. Wa.

Leach, C.J.

¶ 1 KPMG appeals the trial court's decision that KPMG audit associates cannot qualify as exempt professional employees under the Washington Minimum Wage Act (MWA) ¹ until they have the education and experience required to become a certified public accountant (CPA) under the Public Accountancy Act (PAA).² The legislature expressly delegated to the Department of Labor and Industries (Department) the authority to determine who qualifies as a professional exempt from the MWA's overtime requirements. The Department's implementing regulations define a professional employee as an individual who (1) earns more than $250 a week, (2) performs work requiring advanced knowledge acquired through a prolonged course of intellectual study, and (3) consistentlyexercises discretion.³ Because application of these requirements determines when accountants qualify for the professional exemption, we reverse in part, affirm in part, and remand for proceedings consistent with this opinion.

FACTS

¶ 2 KPMG provides its clients with audit, tax, and advisory services in offices throughout the United States. It employs audit associates at entry-level positions in KPMG's audit practice. To qualify for this position, an individual must at least possess a college degree with an accounting concentration.⁴ In 2003 and 2004, KPMG employed Mark Litchfield as an audit associate in its Seattle office. Before he started working for KPMG, Litchfield received a bachelor of science degree in accounting. KPMG paid Litchfield an annual salary of $41,000, approximately $789 per week. Litchfield did not receive additional compensation for working more than 40 hours in one week.

¶ 3 In 2007, Litchfield sued KPMG in King County Superior Court on behalf of a putative class of former and current KPMG audit associates, arguing that as an unlicensed accountant he was entitled to overtime during his employment. The trial court certified the case as a class action, defining the class as “[a]ll individuals employed by KPMG in Washington in its audit department as ‘audit associates' who while working did not or do not have a license as a Certified Public Accountant.” ⁵ The court identified four questions as common to the class, including

(a) Whether a CPA license is needed to practice as an auditor and be exempt from the overtime law as an auditor;

(b) Whether the unlicensed audit associates are auditor trainees serving an apprenticeship, and thus are required to obtain a CPA license to practice as auditors before they are professionals exempt from overtime;

(c) Whether KPMG is required by law to be independent from and not part of management in conducting its audits and, if so, may KPMG's independent audits of its customers be considered exempt administrative work of the customers;

(d) Whether unlicensed audit associates are required by law to be closely supervised by a CPA licensed auditor, and, if so, can they be performing jobs that are exempt from overtime under either professional or administrative exemptions.

¶ 4 Litchfield moved for partial summary judgment on these questions. On March 1, 2010, the trial court granted Litchfield's motion in part and denied it in part, ruling, as is relevant here, “It is possible for an unlicensed accountant performing work to assist licensed auditors to qualify for the professional exemption if they have the requisite educational background and the work they actually perform satisfies the elements of the exemption.”

¶ 5 Litchfield moved for reconsideration. The trial court granted Litchfield's motion and permitted him to file a second motion for partial summary judgment. In that motion, Litchfield argued that the trial court should look to the PAA to interpret the requirements of the MWA's professional exemption. Specifically, Litchfield claimed that to qualify for the exemption, audit associates must hold a bachelor's degree with a minimum number of courses in accounting and have accumulated 2,000 hours of work experience. In granting Litchfield's motion on April 22, the trial court “agree[d] with Litchfield and the plaintiff class” that to be an exempt professional, an audit associate must have the education and experience required to apply for a license under the PAA and its implementing regulations.⁶ The trial court ruled,

The minimum educational requirement for assistants of auditors assisting auditors in performing audit work to be exempt from overtime as “professional” employees is at least the bachelor's degree specified in [former] WAC 4–25–710 and, after having received their bachelor's degree, the on-the-job audit work-training experience for a minimum of 2,000 hours over a 12–month period, also specified by [former] WAC 4–25–730. Accordingly, the Court modifies its prior summary judgment order and grants summary judgment in part for the plaintiffs on the professional employee exemption.⁷

¶ 6 With the agreement of both parties, the trial court certified two issues to our Supreme Court for discretionary review under RAP 2.3(b)(4): (1) whether audit associates working for KPMG in Washington must hold a CPA license before they are professionals exempt from overtime pay under Washington law and (2) whether audit associates working for KPMG in Washington must satisfy the PAA's experience and education requirements to qualify as professionals exempt from overtime pay under Washington law. The Supreme Court transferred the case to this court, and a commissioner granted the parties' cross motions for discretionary review on August 18, 2010. The Washington Society of Certified Public Accountants and the Association of Washington Business have filed amicus curiae briefs in support of KPMG's position.

ANALYSIS

¶ 7 We accepted discretionary review of the following certified issues related to the meaning of the MWA:

1. Whether unlicensed audit associates need to obtain a CPA license to practice as auditors before they are professionals that are exempt from overtime.

2. Whether the minimum educational requirement for unlicensed individuals performing audit work to be exempt from overtime as professional employees is at least the bachelor's degree specified in [former] WAC 4–25–710 and, after receiving the degree, on-the-job audit work-training experience for a minimum of 2,000 hours over a 12–month period, also specified in [former] WAC 4–25–730.

“The meaning of a statute is a question of law we review de novo.” ⁸ When interpreting statutory language, this court aims to carry out the intent of the legislature.⁹ “We determine the plain meaning of a statutory provision based on the statutory language and, if necessary, in the context of related statutes that disclose legislative intent about the provision in question.” ¹⁰ If a statute's meaning is plain on its face, we give effect to that plain meaning as an expression of legislative intent.¹¹ Only if statutory language is ambiguous do we resort to aids of construction, including legislative history.¹² The rules of statutory interpretation also apply to the interpretation of regulations.¹³

¶ 8 To further the goal of protecting employee rights in Washington state, we construe the MWA's exemptions narrowly and apply them only to situations that are “plainly and unmistakably consistent with the terms and spirit of the legislation.” ¹⁴ The MWA requires an employer to compensate its employees at least one and one-half times the employee's usual hourly wage for all hours worked in excess of 40 per week.¹⁵ However, the requirement to pay overtime does not apply to employees working in a “bona fide executive, administrative, or professional capacity.” ¹⁶ In the statute, the legislature expressly delegated to the Department's director the authority to define and delimit the terms used in this overtime exemption. ¹⁷ Exercising this delegation of authority, the Department defined the phrase “individual employed in a bona fide ... professional capacity” in its administrative regulations. WAC 296–128–530 provides that an employee is an exempt professional if (1) the employee receives compensation of at least $250 per week on a salary basis, (2) the employee's primary duty consists of the performance of work requiring “knowledge of an advanced type in a field of science or learning,” and (3) the employee's primary duty includes “work requiring the consistent exercise of discretion and judgment.” ¹⁸

¶ 9 The parties dispute the meaning of the second factor—what constitutes “knowledge of an advanced type in a field of science or learning.” WAC 296–128–530(1)(a) distinguishes advanced knowledge from “a general academic education.” The Department's Administrative Policy ES.A.9.5, entitled “Exemption from Minimum Wage and Overtime Requirements for Professional Positions,” discusses the distinction between “knowledge of an advanced type” and “a general academic education” in the following provision:

The learned professions are those 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 that is...