Wednesday, May 31, 2006

Smith Barney Overtime Settlement

Logo_smith_barney_2It seems like these overtime class action lawsuits keep getting settled for more and more money.


Citigroup's (C) Smith Barney brokerage unit has agreed to pay $98 million to settle claims on behalf of thousands of current and former brokers that they are owed overtime pay and other reimbursements

The proposed settlement is the latest and largest by securities firms that claim brokers are exempt from state and federal overtime laws because they are salaried, administrative employees. Brokers' draw on commissions, a monthly loan most receive, qualify as a salary, they argued.

The securities industry swallowed hard in making the argument that brokers are salaried employees because it likes to portray them as trusted financial advisors, not mere administrators, said Mark Thierman, a lawyer in Reno, Nevada. He is one of more than a dozen class-action labor lawyers who have brought the suits on behalf of brokers, primarily in California.

Their primary argument is that brokers are not salaried but receive incentive-based compensation, such as commissions, that are tied to sales. They also countered the brokerage firms' claims that the Fair Labor Standards Act exempt salespeople from overtime because the exemption applies only to store sales, not trades of securities.

It would be interesting to see what would happen if one of these cases made its way to trial.  I don't think either side would have a slam dunk case under the salary basis test of the Fair Labor Standards Act (FLSA), and that might well explain why Smith Barney was so willing to settle.

Anyone else aware of any cases that discuss the exempt status of securities brokers?  To the extent that these employees make fairly large salaries and carry out sophisticated job duties, is there not a policy argument that the FLSA was not meant to protect employees like these?


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No. While they might meet the salary basis test, they are unlikely to meet the duties test for the administrative exemption (they clearly are not professional or executive). If they could I suspect they would not have settled. They generally don't perform work "directly related to the management or general business operations" of the business. They are essentially sales people.

Posted by: dmh | May 31, 2006 10:54:03 AM

What about errors? Part of this settlement had to do with trading errors. I'm an ex-employee of SB. I was charged for trading errors while an employee of SB, but when the error resulted in a gain, SB kept the money.

Posted by: John Malone | Aug 30, 2006 7:36:24 AM

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