A class-action suit seeking overtime pay for unlicensed employees hired by a bank to sell insurance and investment products after they obtained, on their own time, the necessary insurance and security licenses recently failed in Federal Court in Boston.
The lawsuit had sought to recover unpaid overtime compensation for three plaintiffs who worked for the Citizens Financial Group and its subsidiaries (“bank” or “Citizens”). The plaintiffs were seeking unpaid overtime compensation for not only themselves but a national class under the Fair Labor Standards Act ( “FLSA” ) and two state class actions for Massachusetts and Pennsylvania under the federal statute and the Massachusetts Wage Act, M.G.L. c. 149, § 148.
The plaintiffs were classified as “Licensed Bankers” or various other titles involving the term “licensed” including Licensed Relationship Bankers, Senior Licensed Relationship Bankers, and Associate Licensed Relationship Bankers (collectively, “Licensed Bankers). Citizens employs Licensed Bankers at their branch locations within the United States and, in many cases, recruits its Licensed Bankers before they are properly licensed. After obtaining the life and health insurance and securities licenses and completing training, the Licensed Bankers work in bank branches to engage existing and potential Citizens customers to attempt to sell them the financial and insurance products that the bank offers.
The complaint alleged the plaintiffs worked between 48 and 65 hours per week
According to the complaint, the bank’s supervisors knew that the unlicensed employees would routinely work off the clock before and after their scheduled shifts and from home to prepare for their licensing exams. The claim by the plaintiffs was that the defendants avoided paying overtime to the persons required to obtain these insurance and securities licenses by not allowing them to record their “off-the-clock” time.
A Massachusetts plaintiff, who was employed by the defendants as a Licensed Banker in Citizens Bedford branch from December until August 2017, claimed that she worked routinely between 48 and 55 hours per week without the bank paying her the required overtime. The other plaintiffs also claimed that they worked in branches for Citizens in Pennsylvania anywhere between 55 to 65 hours per week without receiving overtime.
The complaint sought class-action status, multiple damages, and attorney fees for FLSA violations
The plaintiffs alleged that the failure to pay overtime wages affected approximately 1,000 current and former Licensed Bankers similarly situated to the plaintiffs in their seeking class-action status. The claims were that as part of its regular business practice, the parent company and subsidiaries “intentionally, willfully and repeatedly engaged in the pattern, practice, and policy of violating the federal Labor Standards Act with respect to their Licensed Bankers.”
The plaintiffs sought for the court to certify the requested classes and after trial award the unpaid overtime pay and the liquidated damages allowed under FLSA (double the unpaid overtime) the federal Labor Standards Act, and treble damages and attorney fees for the Massachusetts class under the Massachusetts Wage Act.
Citizens denies liability for requiring that plaintiffs study for licenses on their own time
Citizens denied all liability and moved for summary judgment claiming that the plaintiffs did not have a case based upon the applicable regulation of the Department of Labor concerning training and prior decisions of the First Circuit Court of Appeals which is the federal court that has appellate jurisdiction for the federal courts in Massachusetts, Maine, New Hampshire, Rhode Island, and Puerto Rico.
In her decision, the federal judge found that Citizens’ Licensed Bankers consisted of employees who had obtained Series 6 and Series 63 securities licenses and life and health insurance licenses from the Insurance Department where they were employed. The judge also determined that Citizens’ Licensed Bankers also included employees who were in the process of obtaining these licenses. The unlicensed employees studying to become Licensed Bankers were required to develop “a basic awareness of core investment products and could refer customers to Licensed Bankers but could not recommend products directly. The Licensed Bankers who had the required licenses would advise customers about securities and insurance products that the bank offered.
There was no dispute about the material facts related to the training time for the Licensed Bankers. The bank did not dispute that it did not compensate the employees studying to become Licensed Bankers for the time they spent outside of regular working hours studying for their license exams.
The bank also did not contest that the Licensed Bankers without the required license were employees subject to FLSA’s overtime rules. The standard employment offer to such Licensed Bankers stated in its “Compensation” section:
Your position is considered non-exempt and, as such, will be eligible for overtime compensation in the form of compensatory pay for any hours worked in excess of 40 hours per week, unless otherwise required in accordance with applicable overtime regulations…Your overtime rate will be 1.5 times your regular rate of pay for hours worked over 40 in a given work week, or in accordance with applicable overtime regulations.
The bank advised the prospective employee they would have to study ten hours a week for approximately fourteen weeks to pass all their exams. If the employee did not pass one of the security licensing exams, they could restudy on their own time to take that exam again. Likewise, if they failed the life and health insurance license exam, they could restudy on their own time to retake that exam.
In recruiting the applicants, the bank’s talking points about compensation, at least in 2015, were that:
Based on our current incentive plans, our fully licensed, experienced Licensed Bankers have the opportunity to earn an average of $70,000 in total compensation per annum, though please note earnings are uncapped and unlimited.
Even with a projected salary of $70,000 a year or more, the Licensed Bankers, as inside salespeople, would still hold a non-exempt status with the right to overtime for more than a 40 hour week until the exceeded the limit for “highly compensated employees” of $107,432 and performed at least one of the duties of an exempt executive, administrative or professional employee. See Agency Checklists’ article of January 7, 2020, “New Rule Raises Minimum Salary for Overtime to $35,568 as of January 1, 2020.
The Department of Labor regulation concerning employee training not applicable
The bank cited in support of its position that the Department of Labor had issued a regulation for determining whether training hours spent by employees constituted “hours worked” for purposes of overtime under FLSA. The regulation provided that:
Attendance at lectures, meetings, training programs, and similar activities need not be counted as working time if the following four criteria are met:
- Attendance is outside regular working hours.
- Attendance is, in fact, voluntary.
- The course, lecture or meeting is not directly related to the employee’s job; and
- The employee does not perform any productive work during such attendance.
The judge ruled that the bank had established the first criteria applied since the plaintiffs’ case was based on their exam study occurring outside regular working hours. The judge also found the bank had established the fourth criteria since the employees’ study time did not amount to their performing any productive work for Citizens.
On the second factor, the bank argued that the employees’ outside studying was, in fact, “voluntary.” The bank claimed that because it had disclosed to the Licensed Bankers, it hired that outside studying was required and that they would be demoted or terminated if they did not study and pass the required licensing exams they would be terminated that the employees “voluntarily” accepted these conditions of their employment.
The judge summarily found that the bank’s position did not satisfy the regulation because it contained “no such exception for a pre-employment disclosure of mandatory training.”
The judge also found that the bank’s arguments failed on the third prong of the regulation because she found that Citizens “by requiring that the employees complete the training and pass the examination to stay in their Licensed Banker position, the training must be viewed as intended to help the Licensed Banker handle their present job more effectively.”
Ordinarily, the judge’s decision on the training regulation of the Department of Labor would have ended the case favorably for the plaintiffs. However, the judge had to apply the decisions of the First Circuit Court of Appeals, which she might question but could not refuse to follow.
The First Circuit’s “pre-condition test” for training under FLSA
There was no dispute that Citizens hired or promoted employees into the Licensed Banker position before they obtained the required insurance and securities licenses on condition they would participate in the mandatory training and obtain the licenses.
The First Circuit Court of Appeals decisions that Citizens relied upon held that an employer was not “liable for overtime pay for time its employees spend as students, rather than as workers, simply because [the employer] has decided to hire its employees on a probationary basis until they complete the training required to hold the job on a permanent basis.”
Under this pre-condition test standard, the judge found that she was required to follow this precedent as the law she had to apply.
However, after articulating the pre-condition test that the First Circuit Court of Appeals applied to similar cases in denying that FLSA applied where an employer made training a pre-condition to continued employment, the judge wrote the final five pages of her 15-page decision analyzing why she believed the law she had to apply was questionable or, at least, something that should be revisited.
In particular, the judge noted that the Appeal Court decision had minimized a United States Supreme Court case that had held under similar circumstances that “[W]ithout doubt [FSLA and the Portal-to-Portal Act] covers trainees, beginners, apprentices or learned if they are employed to work for an employer for compensation.” (Emphasis in judge’s decision).
The court noted that in her opinion, “the Supreme Court, therefore, draws a line between employees who engage in training (who are to be compensated for the training), and persons who “without promise or expectation of compensation, but solely for his personal purpose or pleasure,” engage in training provided by a potential future employer. The judge noted that her contrary reasoning which she could not apply to this case implied:
- An employer can choose only to hire individuals who have already completed the required training. In this case, there would be no training needed.
- An employer can hire employees without training and offer them a promotion if they voluntarily complete the training. In this case, there would be no need for payment under the Department of Labor training test as such training would be voluntary and provided skills for advancements; or,
- As Citizens did in this case, it can hire probationary employees and require them to complete training or face termination.
In this third case, the judge concluded that the training was directly related to the Licensed Banker position and integral and indispensable to the principal activities of the position, and therefore, should be compensable under the Fair Labor Standards Act and the Department of Labor Regulations.
The judge after questioning the law as stated by the Court of Appeals states she must follow it
While the judge’s decision questioned the legal conclusions of the Court of Appeals, she noted she was constrained to apply the law as interpreted by that court and enter judgment in favor of Citizens, stating:
This court is bound by precedent. Eulitt v. Maine, 386 F.3d 344, 349 (1st Cir. 2004) [case stating the district court’s duty to follow precedent]. Accordingly, for the reasons, under Ballou and Bienkowski, [Citizens’] Motion for Summary Judgment [#44] is ALLOWED.
Plaintiffs have thirty days to appeal
The decision, in this case, was that there was no liability for overtime; however, in a lucid and clear explanation of the statute and the case law involved, the judge in the District Court hearing this case articulated grounds why there might be liability if the plaintiffs appeal and the First Circuit Court of Appeals reconsiders the decisions that resulted in a favorable judgment for Citizens.
Based upon the final judgment entered on February 5, 2020, the plaintiffs have thirty days to appeal, under the Federal Rules of Civil Procedure, this decision to the First Circuit Court of Appeals to see if that court will give their prior decisions on this issue a fresh look like the judge, in this case, has suggested.
Agency Checklists will keep its readers posted.