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Financial Advisors Exempt From Overtime Under FLSA

Most employers are familiar with the Fair Labor Standards Act (FLSA), but the rising number of FLSA suits signals ongoing struggles with compliance.  According to figures released by the Administrative Office of the U.S. Courts, FLSA suits reached record highs in recent years.  The uptick may be due to ambiguities in the law and the changing landscape of modern workplaces, which make compliance challenging for even the most well-intentioned employers, or perhaps it is owed to a general increase in awareness about workers’ rights among potential plaintiffs.  Whatever the cause, employers covered by the FLSA must be mindful of their obligations and continuously audit their internal policies and compliance efforts.

Wells Fargo recently beat overtime claims in a proposed collective action under the FLSA.  In Tsyn v. Wells Fargo Advisors, LLC, No. 14-cv-02552-LB, 2016 U.S. Dist. LEXIS 18587 (N.D. Cal.  Feb. 16, 2016), the plaintiffs were financial advisors employed by Wells Fargo who claimed that they were misclassified as exempt from overtime.  The judge granted Wells Fargo’s motion for summary judgment, finding that the plaintiffs fell within the administrative exemption under the FLSA.  She also denied the plaintiffs’ request for certification of a collective action under the FLSA.

The FLSA requires that most employees receive overtime pay at a rate of not less than one and one-half their regular rates of pay, for every hour over 40 hours worked in a workweek.  There are certain exemptions to the overtime requirement, and the one at issue in Tsyn was the administrative exemption.  To qualify for the administrative exemption under the FLSA, all of the following criteria must be met:

1.) The employee must be compensated at least $455 per week, on a salary or fee basis (as defined in the regulations);
2.) The employee’s primary duty must be 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 include the exercise of discretion and independent judgment regarding matters of significance.
 
There was no question that the plaintiffs in Tsyn satisfied the first requirement.  Rather, the dispute focused on what were the plaintiffs’ “primary duties.”  The plaintiffs argued that their jobs boiled down to sales, as all of their duties revolved around the sale of investment products.  They also asserted that their jobs did not involve sufficient discretion and independent judgment to classify them under the administrative exemption.  Wells Fargo, on the other hand, contended that the plaintiffs primarily collected and analyzed client information, assessed clients’ financial needs, and recommended appropriate financial products, which plainly fell within the administrative exemption.    

The judge ultimately ruled in favor of Wells Fargo and rejected the plaintiffs’ attempt to “conclusorily” label their primary duties as sales.  In an exacting review of the plaintiffs’ job duties, the judge noted that each plaintiff held a Series 7 securities license, along with other licenses and credentials.  As such, FINRA’s rules helped define their responsibilities, which included understanding and analyzing clients’ circumstances and recommending appropriate investments for them.  The plaintiffs’ own testimony showed that their primary duties went beyond sales. 

In finding that the administrative exemption under the FLSA covered the Tsyn plaintiffs, the judge placed heavy reliance on a 2006 Opinion Letter from the U.S. Department of Labor (DOL) and noted that great deference should be afforded to the DOL’s interpretation of its own regulations.  This is a good reminder for employers covered by the FLSA to stay on top of the various guidance issued by the DOL.