UPDATE: Auditor Wage Hour Litigation Against Big Four Accounting Firms

| Feb 10, 2012 | Wages & Overtime |

This blog has recently discussed developments in a variety of wage-and-hour misclassification cases involving Audit Associates at Big Four accounting firms. There have been two more recent developments, both relating to one particular accounting firm’s refusal to disclose information (in a case in which Outten & Golden serves as co-counsel). In back-to-back orders, a federal judge in New York ordered preservation of electronic data and disclosure of documents previously filed under seal.

The plaintiffs in Pippins v. KPMG, now pending in the Southern District of New York, seek to represent a class and collective action consisting of Audit Associates and Audit Associate Seconds who worked in the KPMG Audit practice group (First Amended Complaint in Pippins). The case involves allegations under the federal Fair Labor Standards Act (FLSA) and the New York Labor Law that KPMG misclassified these employees as exempt administrative or professional workers and denied them overtime salary.

In a decision last month, the judge conditionally certified this action under the FLSA. Pippins v. KPMG, No. 11-cv-00377-CM-JLC (S.D.N.Y. Jan. 3, 2012). Judge McMahon ordered that notice be sent to past and present Audit Associates and Audit Associates Second at KPMG of this pending lawsuit and of their right to join the case. Class certification (of the New York state law claims) is not yet decided.

More recently, the judge entered two more orders of significance. The first of these affirmed a protective order entered by the magistrate judge on October 7, 2011, requiring KPMG for the present time to preserve several thousand hard drives from laptop computers used by departed Audit Associates. See order of Feb. 3, 2012. 

Judge McMahon rejected KPMG’s arguments that the preservation burden was onerous, holding that the firm had failed to present factual support for its claim that the costs of preservation outweighed the benefit. The district court noted KPMG’s refusal to provide even a small sample of the drives’ contents to ascertain the “benefit” of preservation, thus no balancing analysis could be performed. “In short,” the court concluded, “KPMG is hoist on its own petard.”

The court summarized:

“Frankly, the only things that were unreasonable were: (1) KPMG’s refusal to turn over so much as a single hard drive so its contents could be examined; and (2) its refusal to do what was necessary in order to engage in good faith negotiations over the scope of preservation with Plaintiffs’ counsel, in purported reliance on an order of this Court that it interpreted unreasonably. It smacks of chutzpah (no definition required) to argue that the Magistrate failed to balance the costs and benefits of preservation when KPMG refused to cooperate with that analysis by providing the very item that would, if examined, demonstrate whether There was any benefit at all to preservation.”

The court regarded the magistrate judge’s decision as otherwise “perfectly sensible” and “sound litigation management,” insofar as it was temporary in duration and the contents of the hard drives are presently unknown. In closing, the court upheld the order for such time “until [KPMG] either: (1) comes to some agreement with Plaintiffs over a sampling methodology, which both sides agree is the appropriate thing to do; or (2) formally abandons its litigation position that, even if Audit Associates generally are found to be non-exempt employees (an issue yet to be resolved), individual Audit Associates perform work that renders them exempt from the FLSA.”

In a second order, dated Feb. 7, 2012, the same judge also unsealed documents filed in the court under seal by KPMG. In a two-page order, the court observed that since first raising the issue in June of 2011 – of whether certain exhibits under seal about KPMG’s audit policies, practices and procedures ought to be preserved confidentially – the parties never recommended an accounting expert to advise the court about the proprietary nature of the documents. “That can only mean that they agree with my initial impression, which is that There is nothing confidential about KPMG’s [documents].”

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