Morgan Stanley has agreed to pay up to $42.5 million to settle a class action suit against 4,000 of their employees and former employees for failing to pay overtime to them even though they were eligible for overtime pay under the law. [1] Similar cases have been filed against Citibank, Wachovia, and Bear Steams Cos. [2]

The plaintiffs alleged that improper deductions were taken for their wages and that they were not compensated for overtime performed at Morgan Stanley. [3] Morgan Stanley defends itself by alleging that the company should not have to pay overtime to financial advisors because financial advisors are exempt professionals under the law. [4] The attorney for Morgan Stanley says that if their classification of brokers is wrong now, "this means the industry has to start treating brokers more as advisors whose primary duty must be advising clients and not as sales people if they want to avoid paying overtime." [5]

Wachovia has also had to pay back wages to its brokers for the same issue when an audit showed that they had not paid overtime to qualified workers. [6] They performed the audit themselves in cooperation with the U.S. Department of Labor. [7] Some of their employees in operations, technology, and other divisions had jobs that were improperly categorized as being  salaried when they were actually not. Those people received a lump sum from the company in back wages. [8] A Wachovia spokes woman, Christy Phillips, said that Wachovia would be taking a proactive stance about classifying jobs in the future. [9]

According to the U.S. Department of Labor, employees that are permitted or required to work more than forty hours per week are generally owed premium premium pay for such overtime work. [10] Their website says that, "employees covered by the Fair Labor Standards Act (FLSA) must receive overtime pay for hours worked in excess of 40 in a workweek of at least one and one-half times their regular rate of pay." [11] Banks have tried to get around this by classifying jobs so that employees don't qualify under the FLSA, but unfortunately for those companies, the Department of Labor looks at the work actuality performed and not how the bank classifies the position when determining who should earn overtime. [12]

Firms that purposely try to get around employment laws by misrepresentation should not only have to pay back wages, but should also pay punitive damages to the government. When an employer knows that if sued, it only has to pay the money that it owed the employee in the first place, the employer is less likely to pay initially and instead waits to see if anyone challenges them. In that situation, if the bank is eventually made to pay, it has not lost anything. The law would be more effective if employers knew that they could be punished for misrepresentations they make in order to get around paying their employees in accordance with FLSA laws.

[1] Juan, Evelyn, Morgan Stanley Settles Overtime Claims for 42.5 mln (Labor Lawyer.net), available at http://laborlawyer.net/Marketwatch-Morganstanley..pdf#search='Wachovia%20not%20paying%20overtime'.

[2] Id.

[3] Id.

[4] Id.

[5] Id.

[6] Charlotte Business Journal, Wachovia Pays Back Wages (BizJournals.com), available at http://www.bizjournals.com/charlotte/stories/2003/02/24/dailey19.html .

[7] Id.

[8] Id.

[9] Id.

[10] Department of Labor, Overtime Pay, (DOL.gov), available at http://www.dol.gov/dol/topic/wages/overtimepay.htm .

[11] Id.

[12] Id.