Brokers are exempt from both federal and New Jersey state overtime requirements, because the Know Your Customer Rule requires them to exercise discretion and independent judgment in their evaluation of their customer’s investment needs and because they receive a predetermined base salary.
Morgan Stanley Smith Barney LLC Wage and Hour Litigation, In Re, No. 2:11:3121 (D. N.J., 2/28/17).
Overtime and the FLSA
Plaintiffs brought a putative class action against their employer, Morgan Stanley, asserting overtime claims under the Fair Labor Standards Act (“FLSA”) and various state labor laws. Plaintiffs were financial advisors (“FAs”) who claimed that Morgan Stanley violated the FLSA and New Jersey labor laws by failing to pay them overtime wages. Morgan Stanley moved for summary judgment, arguing that the FAs’ jobs satisfied the administrative exemption to the FLSA. The FAs contended that fact issues precluded summary judgment, including whether they were paid the required minimum salary of $455 per week, whether their primary duty was the performance of office or non-manual work directly related to Morgan Stanley’s management or general business operations, and whether their job required they exercise discretion and independent judgment in significant matters. All three factors are required to qualify them as exempt from overtime requirements, under the FLSA, 29 C.F.R. §541.200(a).
Duties, Discretion and the DOL
The Court notes that the primary duty requirement means that an employee must perform work directly related to the running or servicing of the business, as opposed to working on a production line or selling at a retail outlet. The discretion requirement involves the comparison and evaluation of a possible course of conduct, and acting or making a decision after considering various possibilities. In November of 2006, the U.S. Department of Labor (“DOL”) issued an opinion letter addressing whether FAs meet the exemption requirements, and concluded that they do. Comparing the job description in the DOL’s letter with the one described by the Plaintiffs in their depositions, the Court concludes that they are essentially identical. The FAs collect client financial information, analyze it, compare and evaluate several possible investment options, and formulate an investment strategy to meet their clients’ needs. The DOL concluded that FAs have a primary duty other than sales, because their work in collecting data and advising clients on investing relates directly to general business operations, and they satisfy the discretion requirement because they are required by the Know Your Customer Rule to evaluate their clients’ particular needs and assess and compare alternatives before making recommendations for investment options. The FAs claim that these duties are “part and parcel” of selling financial products, and that their primary duty is sales. The Court rejects this argument, as it defies the regulations applicable to FAs. The DOL opinion was dispositive of the primary duty and discretion issues.
Are Brokers Paid a Salary?
Plaintiffs also claim that they are not paid a “salary” as required by the exemption, because their compensation is structured as a draw on their commissions, and if they do not produce enough gross revenues to cover their monthly draws, their commissions will be reduced in subsequent months to cover the deficiency. Here, however, the testimony shows that the FAs do receive a predetermined amount of at least $1,972.00 per month, which satisfies the requirement. Finally the Court concludes that the New Jersey statute, 43 N.J.R. 2352(a), is not materially different from the FLSA, and the FAs are exempt from overtime rules under that regime as well. The employer’s motion for summary judgment is granted.
(SLC Ref. No. 2017-21-06)
NOTICE: The court decision synopsis published above represents an abbreviated description of the actual decision and is re-printed here for its educational value. The author's effort is to report concisely the substance of the decision or a selected portion of the decision; commentary or analysis is generally reserved for the italicized section at the bottom of the summary. Subscribers to SAC's Online Litigation Alert (SOLA), from which this synopsis is excerpted, have immediate access to the full decision, in addition to the synopsis.
Like what you see here?
Twice a week we present blog posts consisting of one write-up from each of our two flagship weekly online Alert services. Consider a subscription to these publications to receive the full array of coverage right on your desktop every week. Give it a try and sign up for a free trial to the Securities Arbitration Alert and the Securities Litigation Alert.