With wage-and-hour lawsuits against employers proliferating, financial services companies face perhaps the biggest legal headache of all. The lengthy hours that many of their employees work potentially expose companies to tens of millions of dollars in penalties for failing to pay required overtime. But a recent jury verdict in a major class-action lawsuit against Quicken Loans Inc. could provide some relief.
In a case that began in 2004, the jury in the U.S. District Court in Detroit dashed the hopes of 359 former loan officers by finding that Quicken did not misclassify them as “administrative” employees exempt from overtime compensation. The verdict, which saved Detroit-based Quicken as much as $30 million in damages, has drawn the attention of employers across the country who have generally been under the gun in similar cases. “Insofar as certain financial services employees may no longer be pigeonholed as nonexempt, this verdict is a signal of hope for the employer community,” says Mark Tabakman, an employment defense lawyer who is a partner at the law firm Fox Rothschild in Roseland, New Jersey.
Overtime lawsuits became a particular headache for financial services employers after the Labor Department issued regulations in 2004 that said employees who exercise “discretion and independent judgment with respect to matters of significance” and whose duties are primarily office-related are exempt from overtime. This relatively narrow definition of an “administrative” employee specifically excluded financial services employees whose “primary duty is selling financial products.”
Since the regulations went into effect, major Wall Street companies including Merrill Lynch & Co., Morgan Stanley and UBS Financial Services Inc. have settled the overtime claims of stockbrokers and other employees rather than go to trial. Settlements have ranged from $11 million to $98 million. In 2009, a federal appeals court found that loan underwriters at JPMorgan Chase & Co. were nonexempt because they were “directly engaged in creating the ‘goods’—loans and other financial services—produced and sold by Chase.”
The potential liability for financial services employers is daunting. Not only do they face hefty back-pay awards going back three years for well-compensated employees, but the cases also are often filed as class actions, covering hundreds of workers. “These cases are difficult for employers to defend, and the stakes are very high,” says Quicken lawyer Jeffrey Morganroth of the law firm Morganroth & Morganroth in Birmingham, Michigan. “They’re really stacked up for settlements.”
The Quicken case involved mortgage loan officers who claimed they were owed overtime for work performed between March 2002 and September 2006. According to Morganroth, the defense was able to show the jury through documentary evidence and testimony that the loan officers’ work fit the administrative exemption.
“They were managing and administering the loan process,” Morganroth says. “They were not making sales calls.” Quicken, he notes, has a separate marketing division for generating prospective clients, and the loan officers exercised discretion in, among other things, deciding the pricing of loans and assessing the creditworthiness of loan applicants. In a 2010 “administrator’s interpretation” of the overtime regulations, the Labor Department said the primary duty of mortgage loan officers is making sales, but the interpretation does not apply retroactively, making it moot for the Quicken plaintiffs. “This was a case of an employer who said, ‘I’m not going to roll over and settle. ... Someone has to stand up,’ ” Morganroth says.
Whether other financial services employers should take a similarly aggressive approach toward overtime claims is not clear. Fox Rothschild’s Tabakman says the “conservative answer” for employers is to treat employees as nonexempt. But with employees often working 50 to 60 hours a week, that can mean paying out “millions of dollars on the front end” just to avoid the risk of being sued.
As for the Detroit verdict, the Quicken loan officers plan to appeal. Plaintiffs’ lawyer Don Nichols of the Minneapolis law firm Nichols Kaster says the trial judge erred in instructing the jury on the “discretion” standard for exempting employees from overtime. “They must have discretion in matters of importance,” he says. “That’s where the rubber meets the road.”
Nichols has three other overtime class-action lawsuits pending against Quicken. “The fight is not even half-over; it’s not even a third over,” he says.
Meanwhile, the lawsuits keep coming. Last December a former loan underwriter at Stearns Lending sued the Santa Ana, California, company in U.S. District Court in San Francisco, alleging it misclassified her as exempt. The trial is set for February 2012. “The bottom line is that lending companies whose underwriters are mainly responsible for the production and/or sale of loans, as opposed to the management and operation of the business, face significant risk and should engage in an internal examination of these types of classifications,” Tabakman says.
Workforce Management, May 2011, p. 6 -- Subscribe Now!