New York Securities Lawyer Blog
The U.S. District Court for the Southern District of California (“U.S. District Court”) recently ruled in favor of Waddell & Reed, Inc. (“Waddell & Reed”) in a dispute resulting from Waddell & Reed’s common practice of classifying its Financial Advisors as independent contractors, rather than as firm employees. (Taylor v. Waddell & Reed, Inc., 2012 U.S. Dist. LEXIS 117258 (S.D. Cal. Aug. 20, 2012).) In December 2009, current and former Financial Advisors of Waddell & Reed, Inc. filed a class action suit against the firm and alleged that the firm’s misclassification of their employment status is in direct violation of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. §§ 206-207, the California Labor Code, and California’s Unfair Competition Law (“UCL”), Cal. Bus. & Prof. Code § 17200. In making its determination to reject the Financial Advisors’ claims, the District Court referred to California’s common law test for determining worker status and considered a number of factors including, but not limited to: (1) whether the advisor’s work was done under the direction of the principal or by a specialist without supervision; (2) the skill required in the occupation; (3) the length of time for which the services were/are to be performed; (4) the method of payment; (5) whether the work is part of the regular business of the principal; and (6) whether the parties believe they are creating an employment relationship. See S.G. Borello & Sons, Inc. v. Department of Industrial Relations, 48 Cal. 3d 341, 256 Cal. Rptr. 543, 769 P.2d 399 (1989). As was implied in the Taylor decision, the likelihood for the formation of such a relationship is commiserate with the level of autonomy exerted by the Financial Advisors over their clientele, reported earnings, planning services, and the work location. See Taylor v. Waddell & Reed, Inc. After weighing and considering these factors as a whole, the District Court ultimately held that the terms of the employer/employee relationship as evidenced between Waddell & Reed and its Financial Advisors was representative of a true independent contractor relationship. This potentially precedent-setting case serves as a reminder to Financial Advisors throughout the country of the necessity to devise appropriate risk management strategies in order to safeguard against alternative employee classification. At Lax & Neville LLP, we represent individuals, securities industry employees and securities industry companies seeking representation in employment matters and securities-related and commercial litigation. Please contact our team of attorneys for a consultation at (212) 696-1999.