SDNY: Outside Sales Exemption Applies to Registered Representatives

In a collective and putative class action under New York’s overtime and minimum wage laws, the U.S. District Court for the Southern District of New York recently held that the act of being a registered representative pursuant to the Financial Industry Regulatory Authority (FINRA) does not in itself absolve an insurance agent from the “outside salesman” exemption under the Fair Labor Standards Act (FLSA). Gold v. New York Life Insurance Co.  In Gold, the plaintiff worked for New York Life Insurance Co. as an insurance agent. During his employment, the plaintiff was compensated on a purely commission basis and received no remuneration based on the number of hours he worked. In addition to selling traditional “fixed” insurance policies and annuities, the plaintiff also obtained “Series 6” and “Series 63” licenses, which permitted him to sell “registered” products, including variable life insurance policies and other products regulated by FINRA. With these licenses, Gold became a “registered representative” – a title which requires enhanced duties to clients under FINRA, such as the “Know Your Customer Rule” and the “Suitability Rule.” It was based on these enhanced duties that Gold, in an attempt to escape summary judgment, argued that he should not be considered an “outside salesman” under the FLSA, but rather a financial advisor. The court disagreed.

The court began its analysis by first explaining that the FLSA controls because New York’s overtime statute is defined and applied in the same manner as the FLSA. The court then explained how the FLSA exempts from its overtime requirements any employee whose primary duty is making sales, among other criteria. The court noted that although the determination of an employee’s primary duty must be based on all of the facts in a particular case, consideration is also given to certain “hallmark activities” such as whether the employee generates commissions for himself through his work; and the amount of work done away from the employer’s place of business.

In its analysis, the court first noted that the plaintiff’s case was almost identical to that of Chenensky v. New York Life Insurance Co., in which New York Life won summary judgment against a similarly situated plaintiff – although not a registered representative – whose primary duty was sales. The court declined to distinguish Gold’s case from Chenensky on this fact, declaring that “the fact that Gold’s employment is subject to certain regulatory requirements does not mean that compliance with the regulations is his primary duty under FLSA.” In other words, compliance with the FINRA regulations “[did] not convert a sales position into an advisory one.”

The court next highlighted the fact that the Gold had been paid solely on commission, received no compensation for pure financial advice in the absence of a sale, and consistently followed his employer’s six-step “Sales Cycle,” which involved mandated sales practices such as prospecting and closing the sale. In response, Gold cited case law in which courts found that a registered representative’s primary duty was something other than sales. The Gold court, however, distinguished these cases as inapplicable because, among other things, the FLSA’s “outside sales exemption” was not at issue in any of the cases. The court was similarly unpersuaded by Gold’s reliance on Department of Labor (DOL) opinion letters, one of which stated that a registered representative may qualify for the FLSA’s administrative exemption. Indeed, the court rejected the DOL letters as non-binding, and further held that because Gold’s duties did not involve managerial or promotional responsibilities, the FLSA’s administrative exemption did not apply.

Gold’s other claims, involving violations of New York’s minimum wage law and allegations of illegal deductions, either survived summary judgment or were allowed to move forward by the court. The case is significant in that it further solidifies insurance agents whose primary duty is sales as subject to the “outside salesman” exemption of the FLSA. The case also provides further support for application of the exemption even where an insurance agent has taken on arguably non-sales duties, such as due diligence, in order to comply with FINRA’s regulations.

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