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Morgan Stanley Defeats Financial Advisor Overtime Class Action

By George C Miller, Esq.  of Shustak Reynolds & Partners, P.C. posted on Wednesday, April 13, 2016.

George C. Miller

George C. Miller


Location: San Diego, California
Phone: (619) 696-9500 (Ext. 105)
Direct: (619) 501-8270
Email[email protected]

On Monday, District Court Judge William J. Martini of the Third Circuit declined to certify a class action brought by a group of current and former Morgan Stanley financial advisors. The case, captioned In Re Morgan Stanley Smith Barney LLC Wage and Hour Litigation, MDL 2280, was a consolidated, multi-district case involving three separate putative class action claims against Morgan Stanley. In each of those cases, the financial advisor plaintiffs alleged they were “non-exempt” employees under federal wage and hour laws who worked more than 40-hours per week and were entitled to significant overtime, back pay and other benefits. The plaintiffs also alleged claims for unreimbursed business expenses, likely relating to significant bonuses and other payments made to sales assistants.  Partner George Miller was recently quoted in a FundFire article discussing the case and significant victory for Morgan Stanley.  

The plaintiffs claimed Morgan Stanley’s financial advisors act merely as sales representatives who are required to cold call prospective clients and sell financial products under close supervision by Morgan Stanley’s managers and supervisors. Plaintiffs compared their activities to those of mortgage loan officers, who courts have considered to be “non-exempt employees” who are entitled to certain overtime benefits. Morgan Stanley argued that its advisors were professional, licensed individuals who exercised independent judgment and discretion in advising their clients and were therefore “exempt employees” not entitled to overtime pay. Morgan Stanley also argued that many members of the prospective class were disqualified, as they had signed broad releases upon retiring from Morgan Stanley under the firm’s Former Advisor Program (“FAP”). That program allows retiring advisors to leave their book of business to a junior advisor while continuing to receive commission payouts on the business for several years.    

In denying class certification, the Court held the plaintiffs had not shown their claims were “typical” of those of the potential class. The Court also held the plaintiffs failed to show that common questions or law or fact predominated in the case. The Court noted that the named plaintiffs themselves had engaged in different types of cold calling practices and had been subjected to different management styles at the firm. These facts, coupled with the fact many of the prospective class members had released their claims against Morgan Stanley through the FAP agreement, led the Court to deny certification. The Court did not address the plaintiffs’ claims for unreimbursed business expenses in its opinion. 

While the class action is effectively over, the named plaintiffs and prospective class members may still pursue individual claims against Morgan Stanley, particularly those relating to the firm’s alleged non-payment of business expenses. In California, advisors may be able to recover unreimbursed business expenses, including payments to sales assistants, marketing expenses, business travel costs and other expenses, under California Labor Code section 2802. 

Shustak Reynolds & Partners, P.C.’s San Diego FINRA attorneys have extensive experience representing investors, registered representatives and investment advisors in a variety of securities-industry matters, including investment disputes involving churning, unauthorized trading, unsuitable investment recommendations and breach of fiduciary duty.  Contact us today for a free confidential consultation. 

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