Lawsuits Against Banks Proliferate Over Employee Pay

September 13, 2009 – In The News

Hundreds of banks and other financial institutions may be sued for overtime pay by staff they have misclassified as "exempt" professionals. The issue has manifested itself into hundreds of lawsuits since a 2004 revision of federal wage and hour regulations, including a new class action filing against Franklin First Financial, the national mortgage broker based in Melville, N.Y. Banks similarly are vulnerable.

There has been a "wholesale misclassification of employees in this industry" as exempt from overtime pay, warns attorney Mark Tabakman, who has defended many class actions and says they're proliferating. "There have been hundreds of these cases. Anecdotally, there is not a week that goes by that there is not a report of a financial services employer being sued in such a class action" by loan officers, loan originators, mortgage brokers and similar titles.

Banks and other financial institutions should conduct regular internal audits of each individual salaried position - actual duties, not job description - to determine if it is properly classified as exempt, Tabakman says.

"This scrutiny must focus on the regulatory definition of exemption for financial services people," he says. Since loan officers, loan originators and mortgage brokers typically don't supervise more than one person and usually don't fall under the definition of "professionals" - FLSA classifies supervisors and professionals as exempt - the only other applicable white collar exemption is the "administrative exemption."

That's a tough one to prove and typically gets attacked in bank cases, Tabakman says. The administrative exemption requires that the employee:

(a) Primarily performs office work - not sales - related to management or general business operations (including marketing, promotion and business operations),

(b) Exercises "discretion and independent judgment" on significant matters by making decisions or recommendations as opposed to using "skill and experience" in applying existing standards, and

(c) Be paid a salary of no less than $455 per week under the FLSA.

In financial services, the employee is considered exempt if the primary duty is analysis of customers' financial situations in order to recommend financial products, Tabakman says, citing a 2004 revision to FLSA Part 541. But even this is murky because the analysis, which is exempt work, typically is done to set-up a sale, which is not exempt. If sales turns out to be more than 50% of that job, but you classify the employee as exempt and he or she works overtime, you are vulnerable.

This is a "perfect storm of bad news for an employer trying to defend an action," Tabakman says: highly paid employees working long hours in arguably non-exempt jobs.

One danger for banks is that because they are "extraordinarily regulated," discretion and independent judgment may not come into play because loan officers and others are governed by compliance regs, as well as credit scores and bank policies, Tabakman says. Excessive reliance on manuals could lead to the perception that the employee is "merely looking up the answer" - a skill that does not entail discretion.

Result: Banks are misclassifying "in a wholesale manner those kinds of folks as exempt from overtime," Tabakman says. "Many of these employees are making pretty high salaries - $50,000, $100,000 per/year. Con-commitment to that, you have people working 45, 50 hours or more. So you have the potential for a big liability."

The liability grows if the case moves to class action status - "the horrible danger for the employer community" - particularly if it, for instance, comprises every loan originator in the country for a money center bank, Tabakman adds. "It just takes one. It drives up the stakes geometrically... You have the possibility of just a mess."

Read the full article, view the September 13 issue.