By:  John F. Fullerton III

On May 16, I co-hosted a small roundtable discussion here at the firm entitled “Employee Misclassification Issues in the Financial Services Industry:  Preventive Maintenance and Proactive Strategies.”  The topics included proper application of the administrative exemption from federal and state overtime laws; the nettlesome employee v. independent contractor question; and contingent workforce issues.  In attendance was a healthy mix of in-house employment counsel, human resources professionals, management consultants and outside counsel.  We had a terrific, free-flowing discussion about the unique challenges that these classification issues present in the financial services industry, and strategies to address the problems when they arise.

Based on our ninety minute discussion, I have identified the following, non-exclusive “top three” preventive and proactive strategies:

  • Audit.  An initial internal audit and periodic follow-up audits is perhaps the only way for in-house attorneys and HR professionals to get their arms around the existence and scope of the problem, if there is one.  These should be conducted mindful of the written record that is created and attorney-client privilege issues.  Once any problems are identified, the right approach to fixing the problem, which will vary based on the facts and circumstances, can be discussed with counsel and with management to obtain the necessary buy-in.
  • Draft.  Accurate, current job descriptions written with the administrative exemption standard in mind (or any of the other “white collar” exemptions, for that matter) is critical. The job description is often the first thing the Department of Labor and other enforcement agencies review when they conduct an audit.  The same is true of independent contractor and contingent workforce agreements:  there are numerous provisions that can help correctly define the relationship and provide a degree of protection to the end-user of the services, including express independent contractor provisions, non-exclusivity, broadly defined discretion, and indemnification by the service provider.
  • Train.  Ensure that managers and supervisors are aware of the legal standards.  In many instances, for example, decisions about whether to hire one or more consultants and treat them as independent contractors are made without review by the legal department. It is therefore good practice to make sure management is provided with and aware of the guidelines they must follow.  EEO and sexual harassment training for management is now commonplace; the same should be true regarding the overtime exemptions and independent contractor standards.

I drew upon a variety of resources in putting together the materials for the roundtable discussion that I thought I’d also share with readers of this blog.  For a nicely packaged discussion of independent contractor issues, I recommend Employee Misclassification: Improved Outreach Could Help Ensure Proper Worker Classification, which was a statement (PDF) given to the U.S. General Accountability Office by the Director of Education, Workforce and Income Security.  For a focus on contingent workforce issues, check out “Legal Status of Contingent Workers” from the July 2003 issue of Compensation & Benefits Review.  (Subscription required).  Finally, during the roundtable we discussed many of the issues I raised in this article regarding the administrative exemption in the financial services industry that was published earlier this year.