Financial workers with overtime claims are creating the most lucrative recent collective action trend under the Fair Labor Standards Act.  Proving that overtime is not just a requirement for low-wage earners, staggering settlements in the last year between financial companies and their well-compensated brokers include $37 million by Merrill Lynch, $42.5 million by Morgan Stanley, $89 million by Switzerland-based UBS, and $98 million by Smith Barney.

In August, a federal court in California denied A.G. Edwards’ motion for summary judgment in a lawsuit filed by its highly-paid financial brokers for unpaid overtime.  This month, former stockbrokers of another financial institution filed a proposed class action in federal court in New Jersey, also for unpaid overtime.

Believe it or not, brokers are generally non-exempt

Brokers in various finance-related companies are bringing claims for overtime because, despite their high pay, they often do not fit into any of the four white-collar exemptions of the FLSA.  They are not “professionals,” because their positions do not require an advanced degree.  They are generally not managers (executives) because they do not supervise two or more employees or possess the required authority to hire and fire.  Because their primary role is usually sales, they do not meet the administrative exemption.  (Note:  Some brokers do not qualify for any of the above three exemptions for the additional reason that they are paid exclusively by commission.  The above three exemptions require payment on a salary or fee basis.)  Finally, brokers are generally not outside salespeople because their sales responsibilities are generally not out-of-the-office.

Brokers also generally do not meet the so-called retail sales exemption, which is an exemption from overtime that applies if the employee of a retail establishment is paid in excess of 1½ times the minimum wage (i.e., at least $7.73 per hour) and more than half his compensation is commissions.  The courts’ longstanding position is that finance companies are not “retail establishments” for purposes of that exemption.

For claims arising after August 2004, brokers may be able to qualify for the highly-compensated employee exemption, which was created with the August 2004 revisions to the white-collar regulations.  This exemption still requires that employees be paid on a guaranteed salary or fee basis of not less than $455 per week, but allows employers to satisfy a shortened duties test for those employees whose total compensation (which may include commissions and bonuses) exceeds $100,000 annually.  Applying this exemption to the brokers (or the mortgage-related positions described below), if an employee satisfies the salary or fee basis requirements, and receives more than $100,000 in total annual compensation, he or she would be exempt – even if the primary duty was inside sales - provided that he or she regularly exercised  discretion and independent judgment.

How about loan officers?

Loan officers – also referred to as mortgage brokers, mortgage originators, mortgage processors, and loan processors – have also been successfully pursuing claims for unpaid overtime from their mortgage company employers for several years, again resulting in numerous multi-million dollar settlements.  The suits have not slowed.  This month, yet another proposed collective action for unpaid overtime was filed by a loan officer of a mortgage company in federal court in Maryland.

As with the brokers, the problem for some of these companies is that they pay their loan officers entirely by commission.  To satisfy the administrative or highly-compensated employee exemption, the employee must be paid a guaranteed salary or fee of not less than $455 per week, although he or she may receive additional compensation in the form of commission. 

Two additional difficulties with qualifying loan officers as administrative exemptions have historically been that they are either considered to have sales as their primary duty or they lack the required exercise of discretion and independent judgment.  But an opinion letter published last month by the Wage and Hour Division of the U.S. Department of Labor gives employers hope on both counts.

The opinion quotes from the FLSA regulations, stating that individuals whose duties include collecting and analyzing information regarding the customer’s income, assets, investments or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer’s financial products are exempt administrative employees.

“Great, that’s what our guys do,” you proclaim!  Not so fast.  “However,” the regulation goes on, “an employee whose primary duty is selling financial products does not qualify for the administrative exemption.”  (Emphasis added.)  Well, what does that mean?

The opinion letter accepted the very narrow interpretation of sales duties offered by the company requesting the opinion:  “[C]ustomer-specific persuasive sales activity, such as encouraging an individual potential customer to do business with his or her employer’s mortgage banking company rather than a competitor, or to consider the possibility of a mortgage loan if they have not expressed prior interest.”  Because the company stated that the loan officers in question engaged in this type of sales activity less than 50 percent of their working time, the DOL agreed that sales was not their primary duty and approved the administrative exemption.

The DOL’s position on use of technology should be encouraging to employers, both inside the financial industry and out.  The DOL was not daunted by the fact that the loan officers used software tools to assist in the selection of mortgages for their customers, a fact which some would argue tends to show that they do not exercise discretion and independent judgment.  It said that, as long as the software programs do not select the loan for the loan officer and the officer is still responsible for assessing alternatives and making recommendations, “the use of technological tools would not mean that the mortgage loan officer does not exercise the necessary discretion and independent judgment.”

But don’t breathe a sigh of relief just yet.  Although this opinion letter will undoubtedly be offered in the defense of some of these lawsuits, the plaintiffs’ bar is hardly likely to withdraw in defeat because of it.  First, although opinion letters are often given a certain amount of deference, courts are not required to follow them.  Second, opinion letters, including this one, are often very fact-specific; therefore, a court can easily find that the facts of the opinion letter do not match the facts before the court in a given lawsuit. 

Finance industry employers with brokers, loan officers, financial consultants, or similar positions to whom overtime is not being paid, should re-evaluate the overtime exemptions for these employees, paying close attention to their method of compensation and their primary job duties.

As always, please contact a member of Constangy’s Wage Hour Practice Group or your primary Constangy attorney for guidance on this issue.

For a printer-friendly copy of this Client Bulletin #367, click the PDF.
Constangy, Brooks & Smith, LLC has counseled employers, exclusively, on labor and employment law matters since 1946. The firm represents Fortune 500 corporations and small companies across the country. More than 100 lawyers work with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Georgia, South Carolina, North Carolina, Tennessee, Florida, Alabama, Virginia, Missouri, and Texas. For more information about the firm's labor and employment services, visit www.constangy.com, or call toll free at 866-843-9555.


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