Paralegals and the Highly-Compensated Employee Exemption
A recently decided Southern District case with somewhat unique facts illustrates two important and often overlooked overtime-related concepts: 1) paralegals are generally non-exempt employees; and 2) employees who make $100,000.00 and who perform one or more exempt duties are ordinarily not eligible for overtime pay. This second concept is known as the “highly compensated employee” exemption.
In this case, Renata Magnoni, earned upwards of $65,000.00 a year as a paralegal at Smith & Laquercia, a Manhattan law firm. Magnoni’s suit claimed she was entitled to between six and eight hours of overtime worked per week for the six years preceding her April, 2007 termination. Since she was a paralegal, and paralegals are usually non-exempt, it would seem that Magnoni had an open and shut case.
The wrinkle is that during her employment Ms. Magnoni had also operated a legal process service business, Contessa Legal Process, on the side and her employer, Smith & Laquercia, was a client of her business. As sole proprietor of Contessa, Magnoni was directly paid by Smith & Laquercia for services provided by Contessa. In the two years prior to her termination, the money Contessa received from Smith & Laquercia coupled with Magnoni’s salary exceeded $100,000. Tellingly, Smith & Laquercia did not take taxes out of the money it paid to Magnoni for her process serving and court filing services as it did for her employee wages.
Arguing that Magnoni was not eligible for overtime under the highly-compensated employee exemption (looking at the total amount it paid to Magnoni), Smith & Laquercia moved for summary judgment on Magnoni’s overtime claims. The Court’s basis for denying summary judgment to Smith & Laquercia was straightforward enough: Magnoni did not earn $100,000.00 for her work as a paralegal, and the compensation she received while wearing her independent contractor hat did not count for purposes of the exemption. The Court tossed aside the Firm’s broad reading of “compensation,” stating that it would be “antithetical to the spirit of the FLSA to consider payment received as an independent contractor to constitute ‘employee’ compensation . . . .”
Cases involving such entrepreneurial paralegals are probably few and far between. Even so, Magnoni provides a useful reminder to law firms that paralegals are most likely non-exempt and should be paid overtime wages when they work more than 40 hours in a work week. While the highly compensated employee exemption might be a useful tool in resisting an overtime claim, the employee’s total annual employee compensation must be $100,000.00 or greater – without considering income from separate non-employee roles.
