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August 23, 2012 at 10:48 AM
In a potentially precedent-setting case, the U.S. District Court for Southern California handed down a legal victory for Waddell & Reed upholding the firm’s classification of its brokers as independent contractors, ruling against brokers claiming they should be regarded as employees.
The California court granted Waddell’s motion for two summary judgments, but allowed the two former broker plaintiffs to add a third broker to their suit. That new broker now has 30 days to amend the complaint.
The decision has potentially far-reaching consequences for broker-dealers because the plaintiffs specifically alleged that SEC and FINRA regulations with which Waddell & Reed was legally bound to comply—matters such as how a broker can advertise, what his business card says and how to treat e-mail—indicated the sort of control found in an employee relationship.
The court, however, was unimpressed with that argument, relying heavily on an analogous case that came out in January involving the role of an insurance agent, says Orrin Harrison of Akin Gump Strauss Hauer & Feld, Waddell’s attorney.
“It’s precedent if [the plaintiffs] decide to take it on appeal. There are other cases that hint around this … but nothing that is really up front on a national basis,” Harrison said.
“The difference between the insurance cases and the broker-dealer cases,” Harrison continued, “is the level of control that a broker-dealer has to exercise over a financial advisor due to the legal requirements.
“Financial advisors are essentially the same as an insurance agent. They solicit their clients, they sell their own products and they are not subject to the dictates of the insurance carrier or BD in terms of how they exercise their business,” he said.
The court also granted a summary judgment in favor of Waddell with regard to a new California act regarding the misclassification of independent contractors, ruling that that law—passed after the plaintiffs’ affiliation with Waddell ended—is not retroactive. (Phone and e-mail efforts by AdvisorOne to reach plaintiffs’ attorneys went unanswered.)
