The Employee versus Independent Contractor Saga Continues

Last week, in the ever-evolving “employee versus independent contractor” battle, Judge Anthony Battaglia of the U.S. District Court for the Southern California in a decision added additional fuel in a decision in the broker-dealer/registered representative arena.  Battaglia upheld Waddell & Reed’s classification of its reps as independent contractors, ruling against two brokers who claimed that they should have been treated as employees.  Earlier, in 2010, the court refused to dismiss a putative class action against Waddell & Reed that alleged that the financial services giant misclassified its financial advisors or registered representatives as independent contractors rather than employees.  In the current decision, the court granted Waddell’s motion for two summary judgments, but allowed the two former rep/plaintiffs to add a third broker to their suit.

Clearly, the Taylor v. Waddell & Reed  ruling is, by no means, the last word on the issue.  And, don’t expect the SEC and FINRA to weigh in any time soon.  Nor should broker-dealers expect that simply enhancing a boiler-plate  employment contract provision will necessarily do the trick.

Further, the classification of workers as independent contractors will continue to draw scrutiny from the Department of Labor, the Internal Revenue Service, state agencies and legislatures, and the plaintiffs’ bar.  For broker-dealers this may mean, at a minimum, three considerations.  First, broker-dealers will need to review how they utilize their registered representatives’ services.  Second, they’ll need to have a clear understanding of the laws they’re relying on for the independent rep classification.  Finally, they’ll need to consider the legal exposure and what proactive steps may be necessary (i.e. potential liability) if they’ve been misclassifying a particular rep.

Author: Dexter Johnson

The author is a an attorney who for the past 14 years has concentrated his practice in representing, successfully, investment advisers, broker-dealers, corporations and individuals who are subject to SEC, FINRA, State or other regulations and who may be the subject of regulatory examination, review or investigation. He formerly worked at the SEC. His regulatory and litigation experience has encompassed virtually every type of securities issue in the industry. He has also negotiated favorable outcomes in many of these matters for his clients.