Citigroup has agreed to pay up to a record $98 million, a record-breaking figure, to past and present advisors to settle their overtime-pay claims.
It’s the fourth major financial firm to settle a class-action suit regarding overtime pay within the past 10 months. Citigroup’s national settlement consolidated three suits—from New York, New Jersey and California—and represents roughly 20,000 advisors and trainees.
In February, UBS chose to settle nationally, paying $87 million to its advisors. In March, Morgan Stanley agreed to pay $42.5 million to one group of California advisors, but faces additional overtime suits across the nation. In August, Merrill Lynch also settled in California, paying $37 million.
The recent wave of overtime class-action suits has caused unrest on Wall Street, where brokerage firms claim that reps are exempt from the Fair Labor Standards Act and, therefore, ineligible for overtime compensation. Opponents of the suits say the FLSA was never intended to protect white-collar professionals like reps whose paychecks are generally for a lot more money than what the average blue-collar worker receives.
In order to qualify for the administrative exemption, the FLSA states that individuals must “regularly exercise discretion and judgment in their work,” and be paid a guaranteed weekly salary of at least $455. This salary requirement is what appears to trip up the brokerages, because their reps are paid on a commission basis that is not guaranteed.
Yet the firms continue to settle for millions, citing litigation expense and negative exposure as reasons for not taking the matter before a judge. There has been no official word of any firm adjusting the way it compensates its reps after settling the suits. In addition to overtime claims, advisors says firms have made illegal deductions from their pay for things like sales assistants’ salaries.
Mark Thierman, a Reno-based labor lawyer, has represented advisors in all of the settlements, including Citigroup’s. He has at least 25 additional overtime suits, including suits against Edward Jones, Wachovia Securities, Wells Fargo, Prudential and A.G. Edwards. “We’re happy,” Thierman says. “This is the second national settlement from a big brokerage house, and we hope to have more of them with the remaining firms.”
Citigroup could not be reached for comment.