NEW YORK (Reuters) - A U.S. federal appeals court said on Thursday the New York law firm Skadden, Arps, Slate, Meagher & Flom may owe overtime pay to a contract lawyer for performing non-legal work, a decision that could make it more costly for firms to hire temporary lawyers.
The 2nd U.S. Circuit Court of Appeals said contract lawyers can be eligible under federal labor law for overtime after working 40 hours per week, if their work is so basic that it does not constitute the practice of law.
Thursday's 3-0 decision is a victory for David Lola, whom a staffing agency hired to review documents for Skadden at $25 per hour, and who is pursuing a class action on behalf of other contract lawyers.
It is also a defeat for the legal industry, which often uses such lawyers to review vast quantities of documents, often for litigation.
Such jobs typically do not provide benefits and can cost less than paying junior associates, whose salaries can start at $160,000, for the same work.
"Obviously we're happy," said Maimon Kirschenbaum, a lawyer for Lola. "It is not an overwhelming burden that will make the cost of doing business exceedingly difficult for law firms or clients."
Legal consultant Altman Weil said more than half of all U.S. law firms use contract lawyers, including 78.2 percent of firms employing at least 250 lawyers.
It remains unclear how the 2nd Circuit decision, if applied broadly, might affect base hourly rates for contract lawyers.
Skadden declined to comment. The firm said it employs about 1,700 lawyers.
Lola said he worked for Skadden in North Carolina for 45 to 55 hours per week, using a computer to scan and sort documents based on search terms, and redact text.
Concluding that this involved neither legal judgment nor the practice of law, the University of San Diego School of Law graduate sued Skadden and Tower Legal Staffing Inc in July 2013 for failing to pay overtime.
Last September, U.S. District Judge Richard Sullivan ruled against Lola, calling his tasks "the bread and butter of much legal practice and essential to the competent representation of clients."
But the appeals court said Sullivan erred in concluding that Lola's document review automatically constituted practicing law.
It noted that North Carolina and many other states appear to view exercising legal judgment as "essential" to law practice.
"A fair reading of the complaint in the light most favorable to Lola is that he provided services that a machine could have provided," Circuit Judge Rosemary Pooler wrote.
The appeals court returned the case to Sullivan to revisit the merits.
In an interview last September, Lola said he wanted to be paid for work he did and not be punished for having earned a law license.
"Societally, this just can't be beneficial," he said.
The case is Lola v. Skadden, Arps, Slate, Meagher & Flom et al, 2nd U.S. Circuit Court of Appeals, No. 14-3845.