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The Financial Services Industry: An Easy Target for Overtime Class Actions

Posted in Class Actions, Exemptions

A collective/class action lawsuit against Merrill Lynch, which is just getting under way in the US District Court for the Southern District of New York (sitting in Manhattan) has been temporarily placed in limbo while the litigants wait for the decision of an Oregon court, which may approve a $43.5 million settlement in a similar type of a case.

The potential settlement could resolve a number of similar cases involving allegations of misclassification under the exemption rules. In these eleven lawsuits, financial advisers allege that they are due overtime because they are really non-exempt employees who have been erroneously classified as exempt. As a side issue, the plaintiffs also contend that that suffered illegal deductions. Incredibly, these settlements could involve almost 22,000 workers.

Under the terms of the deal, Merrill Lynch would distribute as much as $43.5 million and the majority of this sum would go to the class members. The Company would also hold back some of the monies for unclaimed funds. The settlement would entail, as a starting point, an agreed-upon designation (and certification) of a collective group in connection with the FLSA claims and another designated class for Rule 23 purposes for inclusion in the state claims.

These employees were not earning “minimum wage.” They are likely to be high-end earners and that is why the exposure on these cases is so astronomical. Employees who perform these jobs are likely being classified as exempt under the administrative exemption. This is a problem. This exemption is the toughest one of the three white-collar exemptions to qualify for as the employees must use discretion and independent judgment, which is difficult to define and even more difficult to implement as a job function in this industry. The more regulated an industry is, with significant reliance upon guidelines and procedures manuals and practices, the tougher it is to argue that the requisite amount of discretion is being utilized.

One answer is to ensure, insofar as operationally possible, that the job description and actual operating practice make clear that manuals are used only for guidance and the employee must then use discretion and independent judgment to evaluate courses of action (e.g. financial investments) and then choose from those the best alternative for a particular client.  As is evident, the stakes are dramatically high.