Friday, June 24, 2011

Insurance Agent Exempt from Overtime Despite Regulatory Restrictions on How He Performed His Job

A federal district court has granted summary judgment to New York Life Insurance Company (New York Life) in a dispute involving whether an insurance agent with “Series 6” and “Series 63” licenses was eligible for overtime under federal and New York State labor laws. However, the court said that the agent could pursue his claim that New York Life had made improper deductions from his pay [Gold v. New York Life Insurance Co., DC NY, Dkt. No. 1:09-cv-03210-WHP, 5/19/11].

The facts. Avraham Gold worked for New York Life as an insurance agent between 2001 and 2004. He was compensated on a commission basis only. In addition to licenses that permitted him to sell traditional “fixed” insurance policies and annuities, Gold had obtained “Series 6” and “Series 63” licenses which permitted him to sell “registered” products, including variable life insurance policies, mutual funds, and other products regulated by the Financial Industry Regulatory Authority (FINRA). With these licenses, Gold became a “registered representative,” a title that encompassed certain enhanced duties to clients. These duties included the “Know Your Customer Rule,” which required registered representatives to “use due diligence to learn the essential facts relative to every customer, every order, every cash or margin account accepted or carried by such organization and every person holding power of attorney over any account accepted or carried by such organization.”

The law. New York State law mandates that overtime be paid according to the provisions in the federal Fair Labor Standards Act (FLSA). Under the FLSA, an employee classified as an “outside salesman” may not receive overtime. One requirement to be classified as an outside salesman under 29 CFR 541.500(a) in the FLSA is that the employee's primary duty must either be making sales, or obtaining orders or contracts for services.

Gold argued that his primary duty was to provide financial advice, rather than sales.

The ruling. The court cited its ruling in Chenensky v. New York Life Insurance Co., DC NY, Dkt. No. 1:07-cv-11504, 12/21/07, and held that Gold was an outside salesman. It said that the facts in both cases were very similar. The court also said that the fact that Gold's employment was subject to certain regulatory requirements in the FINRA did not mean that compliance with the regulations was his primary duty under the FLSA. These regulations simply place restrictions on how Gold performs his employment duties; they do not convert a sales position into an advisory one.

In addition, the court believed that Gold's argument was undermined by his commission-based compensation. He was paid solely on commission. If he did not make any sales, he would not be paid. He received no compensation for pure financial advice in the absence of a sale. Such advice was not his primary duty — “it was simply one mark of a good salesman.”

Deductions from pay. In Pachter v. Bernard Hodes Group, NYS Ct. App., 10 N.Y. 3d 609, 6/10/08, the New York Court of Appeals determined that when an employee is paid by commission, N.Y. Lab. Law §193 does not prohibit deductions “if they were made before the commissions were earned.” New York Life argued that commissions were not fully earned until after the policyholder died and it was determined that the insurance policy could be paid. Therefore, New York Life claimed that it was allowed to deduct expenses from Gold's commissions, such as computer support, liability insurance, office space, and telephone service. The federal district court ruled that even if Gold was aware that New York Life could make these deductions right up until the policyholder died, Gold may not have understood “its drastic and arguably unreasonable consequences.” As a result, the court denied summary judgment to New York Life on this issue.

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