Labor / Employment, Money, Small Law Firms

Back In The Race: Should Lawyers Receive Overtime Pay?

The Department of Labor will soon issue new rules that expand the number of employees entitled to overtime; do lawyers deserve to benefit?

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resume girlUPDATE (4/28/2016, 11:15 a.m.): Please note that this post proceeds on the assumption that lawyers would be included in the new overtime rules — which knowledgeable readers informed us, after this post’s original publication, is not the case under the current proposed regulations. So please read the post with this in mind; we have not revised it to reflect this major change, except for the update at the end from the author.

While Biglaw compensation appears to be improving, this is not the case with small firms and solo practitioners. Working for small firms usually means working the same long hours as Biglaw with drastically smaller pay. In fact, the compensation is so small that sometimes you have to choose between making two of three payments: food, shelter, and student loans. The only way you can get a meaningful raise is to move elsewhere or convince your skinflint boss that your departure will cost more than your replacement. But in the near future, these low-paid lawyers might be eligible for a benefit normally reserved for fast-food and construction workers: overtime pay.

The Department of Labor is expected to pass regulations as early as this summer that update the overtime rules under the Fair Labor Standards Act. Specifically, the new rule will allow any employee making under $50,440 per year eligible for overtime pay, regardless of their title or duties. The update will have the greatest impact on white-collar workers, including lawyers.

Under the existing rules, an employee is exempt from overtime rules if they make more than $23,660 per year, are salaried, and perform exempt job duties. When the $23,660 minimum was set in 1975, it covered 61% of the workforce. Today, an annual income of $23,660 is below the poverty line for a family of four.

Lawyers did not get the benefit of the overtime rules because they generally earned more than the current minimum statutory amount. Also, they were classified as “exempt professional employees” because their job duties required specialized education and the use of discretion and judgment. Even document review positions are considered exempt because their duties require special training on the use of “CTRL-F” and discretion of whether to click “responsive” or “nonresponsive.” [UPDATE (4/28/2016, 11:15 a.m.): The applicability of FLSA to document review work is currently the subjection of litigation.]

The new rules will most affect entry-level small firm associate positions. Because NALP reports that starting salaries of small firms fall between the $45,000 to $60,000 per year, this may not seem like a big deal. But I have a strong suspicion that there are many entry-level attorneys who make far less than the $45,000 minimum, and these people are not likely to report their embarrassingly low salaries to anyone, including family, friends, and especially a survey.

Giving overtime benefits will be a boon for small-firm attorneys who make less than $50,440 per year. They will either get a pay raise for every hour they work beyond 40 hours per week or employers will forbid them from working overtime. Or employers may choose to increase associate pay to the statutory minimum so they can legally avoid paying overtime. So $50K may be the new minimum wage for attorneys.

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So how will law firms, the legal industry and society react to the new overtime rules?

Solos and small firms that pay their associates less than $50,440 per year will have to do one or more of the following to maintain their profit margin: sign up more clients or raise fees. The firms that can bill associate hours to their clients can slowly raise their associate rates to existing clients or charge higher rates to new clients. The firms that are likely to struggle are those whose business models involve paying low salaries and assigning high hours to associates and support staff.

Some firms may try experimenting with new products to reduce associate hours or even eliminate associate positions. The “future of law” salespeople will use this opportunity to pitch their newest RoboAssociate model to small firms at the next ABA TECHSHOW.

Finally, some will argue that the increase in fees may price out middle-class Americans and exacerbate the access to justice problem.

Understandably, there will be a negative backlash from small-firm owners. To be fair, most small firms are not the 1%. They are small businesses with fluctuating income. So they have to minimize expenses, including associate pay. But there is also a group who thinks that young lawyers are not entitled to overtime pay only because they didn’t have it back in the good old days.

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So it will be interesting to see how the new overtime rules will affect small-firm attorneys. Some will get an increase in pay that will put them in a better position to pay their living expenses. But on the other hand, the possible loss of job opportunities and hours worked may deprive young lawyers of experience and job opportunities.

UPDATE (4/28/2016, 11:15 a.m.): Shannon here. After this post’s original publication, several readers emailed me to point out that CFR 541.600(e) specifically exempts those engaging in the practice of law from the minimum salary requirement, and the proposed regulations do not appear to change this. My initial reading of the proposed regulations and the rationale for increasing the minimum salary amount made me believe that the Department of Labor would exclude or modify the above section as part of the final rules. The introduction of the proposed regulations included the following:

Consistent with the President’s goal of ensuring workers are paid a fair day’s pay for a fair day’s work, the memorandum instructed the Department to look for ways to modernize and simplify the regulations while ensuring that the FLSA’s intended overtime protections are fully implemented. (emphasis added).

However, in light of the comments from readers and other feedback and criticism I received, the better interpretation of the proposed regulations is that subsection (e) will not be changed. I apologize to the editors and the readers for my apparent mistake.

The FLSA was last revised in 2004, which was well before the first major story in the mainstream media about the hard times that lawyers faced in the job market. It is now common knowledge that most lawyers do not make six-figure salaries out of law school. It is also common knowledge that with the unstable job market, advances in technology, and increasing student loan burdens, some lawyers will not receive annual six-figure take home income… ever.

So perhaps this is an opportunity to bring this to the attention to the Department of Labor before the final rules are released. Unfortunately, the agency is no longer accepting comments, but people can still share their story.

Thanks to the readers who reached out to me to point this out.

Shannon Achimalbe was a former solo practitioner for five years before deciding to sell out and get back on the corporate ladder. Shannon can be reached by email at sachimalbe@excite.com and via Twitter: @ShanonAchimalbe.

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