Avoiding Wage and Hour Lawsuits in the Financial Services Industry

Wage and hour lawsuits under the Fair Labor Standards Act (“FLSA”) make up a significant percentage of employment lawsuits in the United States, and particularly in Florida. That trend holds true in the financial services industry, despite such lawsuits being more commonly associated with lower paid jobs.

Below, we discuss three of the most common wage and hour issues that commonly arise in the financial services industry. Violations in these areas routinely lead to class action lawsuits, where the costs of defense and potential liability are substantial. Employers should be proactive in understanding their obligations and establishing compliant payroll practices.

Exempt Versus Non-Exempt

In 2008, the Department of Labor announced its position that mortgage loan officers generally do not meet the administrative exemption to the FLSA’s minimum wage and overtime requirements because their primary duty involves production – i.e., sales – rather than the management or general business operations of the employer. Since then, plaintiffs have attempted to expand the DOL’s reasoning to a variety of financial services employees that have traditionally been classified as salaried exempt.

If a court invalidates an exempt designation, the employee will be entitled to back wages for unpaid overtime hours, potential double damages in the same amount, and attorneys’ fees and costs. Misclassification lawsuits can be especially costly because they usually involve broad classes of employees. Further, employers often lack the time records to rebut their employees’ claims about how many hours per week they typically worked.

To qualify for a “white collar” exemption, such as an executive, administrative, professional or “highly compensated employee” exemption, an employee must be paid a threshold salary, as well as perform a certain standard of job duties. Financial services firms most often cite the administrative exemption as the basis for paying their employees a set salary for all hours worked. To qualify for that exemption, an employee must meet the following conditions:

1. The employee must be compensated at a rate of no less than $684 per week (i.e., $35,568 per year);
2. The employee’s primary duty must involve the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
3. The employee’s primary duty must involve the exercise of discretion and independent judgment as to matters of significance to the employer.

The DOL’s current guidance on the use of the administrative exemption in the financial services industry lists various work activities that tend to support an administrative exemption designation, including:

• Collecting and analyzing information regarding a 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.

Where a financial services employee performs sales work, yet also engages in the above-listed activities, litigation most often comes down to whether the exempt duties take primacy over the sales activities, in terms of both time and importance; and how much discretion the employee has in determining the appropriate course of conduct with respect to specific clients. While an employee’s exemption will not be invalidated simply because his or her determinations are subject to higher-level review and/or approval, those determinations must be afforded significant deference.

To avoid litigation on this issue, employers should ensure not only that the written job descriptions for exempt positions emphasize exempt duties over any sales work, but also that the employees’ actual work activities are consistent with those descriptions. If an employee’s actual work activities do not support the exemption, no job description or job title will save it.

Independent Contractors Versus Employees

Litigation in the financial services industry also commonly arises over the alleged misclassification of employees as independent contractors. The use of independent contractors is often seen with financial advisors, and it is oftentimes appropriate. However, what matters is not simply the existence of an “independent contractor agreement,” but rather the nature of the relationship between the company and the worker.

The classification of a worker as an independent contractor has significant implications for the worker’s compensation and benefits, as well as the taxes that must be paid by the company. In determining whether an independent contractor designation has been properly made, the Department of Labor and Internal Revenue Service will look at a number of factors, all of which are ultimately focused on the degree of control that the company has over the worker. Essentially, the more control a company has over the terms and conditions of an individual’s work, and what the worker can do in his or her “free time,” the more likely it is that the worker will be classified as an employee.

Financial services companies should absolutely require independent contractors to sign agreements that define and expressly acknowledge their independent contractor status. However, they should also ensure that their treatment of those independent contractors does not betray the status.

Off-the-Clock Work

For financial services workers, the connection between employees and their colleagues and clients does not end when they leave the office. On the contrary, with a smartphone in their pocket, employees can send or answer phone calls or emails during their lunch break or outside of normal business hours.

For salaried exempt employees, there is nothing wrong with this practice, as an employee’s regular salary covers all hours of work, no matter the location or time of day. On the other hand, heightened accessibility begets heightened danger in the case of hourly non-exempt employees. If an employee spends just a few unrecorded minutes per week attending to unexpected work items, a court will likely disregard that time as “de minimis.” But if off-the-clock work becomes routine, that work time must be recorded and fully compensated.

Employers who expect their non-exempt employees to remain in touch during non-work hours must develop a way for those employees to record their off-site work accurately and in real time. Otherwise, the best solution may be to take away the work phone and/or prohibit outside work, no matter how small the task.

Conclusion

Although the FLSA was enacted more than 80 years ago, the rate of violations has shown no signs of abating, and wage and hour lawsuits have become a prosperous cottage industry for the plaintiff’s bar. The financial services industry is a frequent target in this industry, and employers should consult an experienced wage and hour attorney to confirm that their payroll practices are fully compliant.