Citigroup's Smith Barney brokerage unit has agreed to pay $98 million to settle claims on behalf of thousands of current and former brokers who said they were owed overtime pay and other reimbursements.
The proposed settlement is the latest and largest by securities firms that claimed brokers were exempt from state and federal overtime laws because they are salaried, administrative employees. A broker's draw on commissions, a monthly loan that most brokers receive, qualifies as a salary, the firms argued.
"We are pleased to have this matter resolved," a Citigroup spokesman said.
The securities industry swallowed hard in making the argument that brokers are salaried employees because it likes to portray them as trusted financial advisors, not just administrators, said Mark Thierman, a lawyer in Reno.
He is one of more than a dozen class-action labor lawyers who have brought the suits on behalf of brokers, primarily in California.
The brokers argue that they are not salaried but receive incentive-based compensation, such as commissions, that are tied to sales. They also countered the brokerage firms' claims that the Fair Labor Standards Act exempted salespeople from overtime pay because the exemption applied only to store sales, not the trading of securities.
The preliminary settlement was reached last week, pending final approval by a federal district court in San Francisco. It would affect about 11,000 full-time equivalent employees at Smith Barney -- which translates to many more individuals who worked as far back as six years from the final settlement date, Thierman said.
Citigroup's proposed nationwide settlement is the highest to date because of the number of employees affected and because of its size, he said. People close to the bank said it had reserved money to cover most of the settlement.
In February, the UBS Wealth Management unit of Swiss banking company UBS agreed to pay $89 million in a nationwide settlement to financial advisors who sued for overtime pay and to recover charges assessed by the firm for sales assistants, computers and trading errors.
Last year Morgan Stanley agreed to pay $42.5 million and Merrill Lynch & Co. said it would pay $37 million to settle claims involving California brokers. Additional claims against the firms are pending in Connecticut, New York and New Jersey.