Magnoni v. Smith & Laquercia, LLP

This case was before the Court on Defendants’ Motion for Summary Judgment, on several grounds. Summarized below is the Court’s discussion/decision regarding Plaintiff’s earnings and their impact on her status under the so-called “highly compensated employee” exemption.

The Court’s decision relied on the following facts:

Plaintiff’s “employment at S & L, where she worked as a litigation paralegal and handled the normal responsibilities of a paralegal in a litigation law firm, began in 1990. Beginning in 2003, Magnoni was paid a weekly salary with no extra premium for overtime work. S & L paid Magnoni a salary of $64,807.70 in 2005; $67,653.74 in 2006; and $21,846.12 from January 1, 2007 through April 13, 2007. Magnoni alleges that between 2003 and 2005 she did not receive compensatory time or overtime pay from S & L, but admits she received some compensatory time (though no overtime pay) in 2006 and 2007.

Magnoni estimates that she worked approximately six to seven hours of overtime per week between 2001 and 2005, and approximately eight hours of overtime per week in 2006 and 2007. Calculating her overtime on a weekly basis (omitting holidays and days off), Magnoni estimates that she worked about one hour of overtime per week in 2006 and 2007, and “more than that” in 2003, 2004, and 2005. [ ]

In or about November 1997, while employed at S & L, Magnoni formed a business entity named Contessa Legal Process (“Contessa”), which provided process serving and court filing services. S & L was one of Contessa’s many clients. Though Contessa was not incorporated at the time relevant to this action, Magnoni was the sole proprietor of Contessa and S & L made all payments for Contessa’s services directly to Magnoni. For Contessa’s services, S & L paid Magnoni $41,800 in 2005; $49,500 in 2006; and $11,820 through approximately April of 2007. S & L concedes that while Magnoni was S & L’s employee with respect to her paralegal responsibilities, she was an independent contractor with respect to her process

Defendants argue that Magnoni is exempt from coverage by the FLSA because the total annual compensation she received from S & L, when combining her S & L salary and the payments she received from S & L for Contessa’s services, was in excess of $100,000 for 2005 and 2006, and she was projected to receive approximately $125,000 in 2007.”

The Court discussed the applicable law and applied same to the case, noting Defendants CONCEDED that Plaintiff’s work performed for Contessa, was as an independent contractor not an employee.

“Under a regulation issued by the Department of Labor in 2004:

An employee with total annual compensation of at least $100,000 is deemed exempt under section 13(a)(1) of the Act if the employee customarily and regularly performs any one or more of the exempt duties or responsibilities of an executive, administrative or professional employee identified in subparts B, C or D of this part.

29 C.F.R. § 541.601(a). The determination of an employee’s “total annual compensation,” may include “commissions, nondiscretionary bonuses and other nondiscretionary compensation earned during a 52-week period.” Id. § 541.601(b)(1). However, the language of § 541.601 leaves no doubt that it applies only to an employee’s total annual compensation; indeed, under the FLSA, independent contractors are exempt from overtime requirements. See, e.g., Van Asdale v. Apollo Assocs., Ltd., No. 6:08-CV-531-ORL-19KRS, 2009 WL 36419, at *1 (M.D.Fla. Jan. 6, 2009) (“Independent contractors are exempt from the overtime requirements of the FLSA.”); see also Schwind v. EW & Assocs., Inc., 357 F.Supp.2d 691, 700 (S.D.N.Y.2005) (analyzing whether the plaintiff was an employee or independent contractor because “[t]he overtime provisions of the FLSA … apply only to individuals who are ’employees.’ “). Therefore, Magnoni’s compensation for her independent contractor responsibilities cannot be considered part of her total annual compensation as S & L’s employee under the FLSA.

Defendants concede that Magnoni’s process serving and court filing services on behalf of Contessa were rendered in her capacity as an independent contractor, not in her capacity as an employee of S & L as a paralegal. (See, e.g., Defendants’ Memorandum of Law in Support of Their Motion for Summary Judgment, dated March 27, 2009 (“Defs.’ Mem.”), at 1 (stating that Magnoni “was both an employee performing legal assistant responsibilities for S & L as well as an independent contractor providing significant process serving and court filing services for S & L and many other law firms”); id. at 2 (describing Magnoni’s total annual compensation to include compensation received “both as an employee and an independent contractor”); id. at 3 (describing Magnoni’s process serving and court filing services as independent from her paralegal responsibilities); id. at 10 (characterizing Magnoni as being compensated as “both S & L’s employee and S & L’s independent contractor”); id. at 15 (describing Magnoni as “operat[ing] a separate business” while at S & L); Defendants’ Reply Memorandum of Law in Further Support of Their Motion for Summary Judgment, dated April 29, 2009 (“Defs.’ Reply”), at 4 (describing Magnoni as being compensated as “both an employee and as an independent contractor”).) Thus, any compensation Magnoni received as an independent contractor for the services provided by Contessa was not part of her total annual compensation as S & L’s employee.

Defendants attempt to avoid this outcome by arguing that the Department of Labor’s regulations define “compensation” broadly. However, Defendants do not direct the Court to any case where an “employee[‘s] … total annual compensation,” 29 C.F.R. § 541.601(a), included payment for services rendered as an independent contractor. This absence of authority is unsurprising; because independent contractors are exempt from the FLSA, it would be antithetical to the spirit of the FLSA to consider payment received as an independent contractor to constitute “employee” compensation, particularly given the mandate that exemptions should be narrowly construed against employers. See In re Novartis Wage & Hour Litig., 593 F.Supp.2d 637, 643 (S.D.N.Y.2009) (“Due to the remedial nature of the FLSA’s overtime requirement, … exemptions should be ‘narrowly construed against the employers seeking to assert them and their application limited to those establishments plainly and unmistakably within their terms and spirit.’ ” (quoting Bilyou v. Dutchess Beer Distribs., Inc., 300 F.3d 217, 222 (2d Cir.2002) (quoting Arnold v. Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960)))); see also Henry v. Quicken Loans Inc., No. 2:04-cv-40346, 2009 WL 596180, at *10 (E.D.Mich. Mar. 9, 2009) (“Defendants bear the burden of establishing the applicability of the highly compensated employee exemption because exemptions are to be narrowly construed and limited to those establishments plainly and unmistakably within the terms and spirit of the FLSA.”)

It would unquestionably violate the terms and spirit of the FLSA to construe an “employee’s” total annual compensation to include payment for separate services provided solely as an independent contractor, given that independent contractors are exempt from the FLSA’s overtime provisions. While Defendants argue that the Court should not delve into the details of Magnoni’s paralegal duties in order to determine her total annual compensation, Defendants’ concessions leave no doubt that regardless of what Magnoni’s responsibilities were as S & L’s employee, they did not include her process serving and court filing services. Indeed, on the 1099-MISC IRS forms Defendants submitted to the Court, S & L consistently listed “[ ]Magnoni d/b/a/ Contessa Legal Process” as receiving “nonemployee compensation” for which no state or federal income tax was withheld. (Certification of Thomas E. Chase, Esq., dated March 27, 2009 (“Chase Cert.”), Ex. D); see also Thibault v. BellSouth Telecomms., Inc., Civ. No. 07-0200, 2008 WL 4877158, at *6 (E.D.La. Nov. 10, 2008) (holding that employer’s lack of salary withholdings on 1099-MISC form indicated that plaintiff was an independent contractor rather than an employee).

Because Defendants concede that Magnoni’s Contessa-related process serving and court filing services were conducted in her capacity as an independent contractor, and narrowly construing the application of FLSA exemptions against S & L, compensation for such services cannot be included in the determination of Magnoni’s total annual compensation as S & L’s employee under the FLSA. Magnoni therefore is not exempt as a highly compensated employee under 29 C.F.R. § 541.601(a), as her total annual compensation as S & L’s employee never exceeded $100,000.”