UBS announced on February 9, 2006, that it had reached agreement to pay $89 million to settle a series of collective actions brought under the federal Fair Labor Standards Act and state law, which alleged that UBS improperly had classified as many as 25,000 financial advisors and trainees across the country as exempt from overtime requirements. UBS remarked that “it did not believe protracted litigation in multiple courts was in the best interests of employees or clients.”
On March 3, 2006, Morgan Stanley announced that it had settled one of four class/collective action overtime lawsuits pending against it. The $42.5 million settlement affects approximately 5,000 financial advisors based in California. Morgan Stanley has three similar lawsuits pending against it in New York and New Jersey, which it is currently seeking to have consolidated in the Southern District of New York. Although acknowledging the settlement of the California action, Morgan Stanley recently reiterated its position that financial advisors are exempt professionals under applicable wage and hour law who should not and need not be forced to record their work time and be paid on an hourly basis.
Plaintiffs in the UBS lawsuits alleged that they were salespeople who did not qualify for the administrative exemption, which requires payment of a minimum guaranteed weekly salary or fee basis and the primary duty of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, involving the exercise of discretion and independent judgment with respect to matters of significance. The plaintiffs argued that their entirely incentive-based compensation did not meet the minimum salary requirement, even though the average industry earnings for this type of position is $153,000. The plaintiffs also argued that their incentive-based compensation structure reinforced the fact that their primary duty was to sell securities and not simply to advise clients.
Plaintiffs in the UBS cases were represented by counsel who had successfully pursued a similar lawsuit against Merrill Lynch, which resulted in a $35 million settlement last year. Plaintiffs’ counsel reports being involved in wage and hour lawsuits against at least 10 other broker-dealers.
Each case, of course, turns on its own unique facts, and even slight differences in duties and the nature of compensation can have a significant impact on whether liability might exist for unpaid overtime. Undoubtedly, however, these settlements and the other reported lawsuits will engender other challenges to broker-dealer pay practices. Given the relatively short statute of limitations for some of these claims, an audit of pay practices, conducted at the direction of and with the benefit of experienced outside counsel has the potential to avoid or at least significantly limit liability under wage and hour laws.