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Unlicensed attorney-consultant guaranteed $1,000 per day not entitled to overtime

By Brandi O. Brown, J.D.

An unlicensed attorney who did work as a consultant for a company providing strategic solutions to the oil and gas industry was exempt from overtime pay as a highly compensated professional, a federal district court in Texas ruled, because he was guaranteed $1,000 per day so long as he showed up for work and performed the services that had been agreed upon. His voluntary reduction of that amount on the invoices he submitted to the defendant did not change that conclusion. However, the court agreed with the plaintiff that the fact that his license to practice had been suspended made the practice of law exemption inapplicable. The defendant’s motion for summary judgment was granted in part and a take nothing judgment was entered (Faludi v. US Shale Solutions LLC, November 30, 2017, Lake, S.).

Brought in as consultant. In 2014, after years practicing law and acting as in-house counsel for oil and gas companies, the plaintiff, whose law licenses were recently suspended, agreed to take a consulting position with US Shale. The latter was a newly formed business, which had recently acquired several subsidiaries as part of its new business, and the plaintiff was brought on as an independent contractor to consult on integration of the businesses’ health and risk benefits. The contract signed by the plaintiff, which was entitled “Independent Contractor Master Consulting Services Agreement” stated that the plaintiff would be paid $1,000 for each day he performed services in Houston and a higher amount for services performed outside of that city. He was given an office and reimbursed for other expenses. The plaintiff was required to provide the defendant with invoices identifying the hours or days he provided services.

FLSA suit. During his work for US Shale, the plaintiff submitted many invoices that listed amounts less than $1,000 per day. Nevertheless, his annualized compensation was approximately $260,000 during his work for the company. In early 2016, however, a capital management company began providing management services to US Shale and the plaintiff’s relationship with the latter ended on March 31, 2016. Subsequently, he filed suit under the FLSA for unpaid overtime. The defendant’s answer included several affirmative defenses and argued that the plaintiff was not an employee. The defendant contended that if he were an employee, he was paid on a salary basis and was exempt as either a law professional or a highly-compensated employee. The defendant also filed counterclaims. Both parties moved for summary judgment and the plaintiff also moved to amend his complaint to include additional claims.

Exempt as highly-compensated professional. Although the court found genuine disputes on whether the plaintiff was an employee, rather than an independent contractor, leading it to deny the defendant’s motion for summary judgment in part, the court nonetheless entered a take-nothing judgment against the plaintiff. It found that he was exempt under the FLSA as a highly-compensated professional. To qualify for that exemption the employee must make at least $100,000 per year, including by necessity at least $455 per week paid on a salary or fess basis, and the employee must regularly and customarily perform one or more of the duties of a professional, executive, or administrative employee. Both requirements were met in this case. The plaintiff performed the duties of a learned professional by applying his specialized legal knowledge to perform services for the defendant, including reviewing contracts and providing counseling on other legal issues.

With regard to his compensation, the key fact was that the contract required he be paid at least $1,000 per day. His pay was not subject to reduction based on variations in quantity or quality of work he performed, as required by 29 C.F.R. §541.602(a). Although the plaintiff argued that the employer took improper deductions, which made the exemption inapplicable, he also testified that those reductions were the result of him invoicing the employer for something less than the guaranteed amount because he was a “nice guy” and didn’t want to bill a full amount for less than a full day. Thus, the question for the court was whether the language of Section 541.602(a) allowed the exemption when a voluntary reduction is made by the employee. The court concluded that the regulation’s purpose was to keep “employers from promising a guaranteed amount of compensation and later reducing the amount to the detriment of the employee.” The argument being made by the employee, however, was “inconsistent with this purpose.” The court granted the employer’s motion, therefore, finding that the exemption applied.

The practice of law professional exemption, however, did not apply because even though the evidence showed that the employee was engaged in the practice of law, he did not have a valid license as required under the regulation to meet the exemption.

No retaliation claim based on counterclaim. The court also denied the motion to amend filed by the employee, in which he attempted to bring a retaliation claim against the defendant based on its filing of a counterclaim against him. Not only did the employee inexplicably delay his filing, but also the claim would be futile because the Fifth Circuit did not recognize a retaliation claim based on employers’ counterclaims. In addition, the amendment would cause undue prejudice.