Compensation and Overtime
In the financial industry, unpaid interns and “trainees” are used to solicit business through cold calls. Here, a common pattern emerges: trainees are expected to work five days a week for up to as much as sixty hours a week without being paid for months at a time. Often, brokerage firms and companies do not record or track the hours trainees work – there are no sign-in sheets, punch cards, or invoices filled out. Even so, trainees are expected to attend daily meetings as part of their preparation for selling certain kinds of financial products over the phone.
The promise often made here – but seldom fulfilled – is that, if a trainee earns a certain quota of sales during his or her training period, he or she will be hired as a paid broker sometime in the future.
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Unpaid Trainees and Violation of the Fair Labor Standards Act
Companies that use trainees in this way, however, are potentially in violation of the Fair Labor Standards Act (FLSA) since trainees are required to work without being properly paid. What is at issue here is FLSA Section 16(b), 29 U.S.C. § 216(b), as it pertains to minimum wage requirements and the withholding of wages by an employer. Under the FLSA, there are certain requirements that classify employers as non-exempt and exempt from the minimum wage requirements of the FLSA. Companies in the financial industry that use unpaid trainees in this way risk violating the FLSA.
Brokerage houses that do not pay trainee brokers a minimum wage or time and half for any time worked beyond a schedule forty-hour workweek are in violation of the Fair Labor Standards Act.
Contracts and Skirting the FLSA
In order to sell certain financial products, a broker must be licensed and registered with the Financial Industry Regulatory Authority. Brokerage firms and companies typically try to avoid the requirements of the FLSA by arguing that, since trainees are not licensed or registered, they cannot sell certain financial products to customers. As a result, they are not paid a commission. If during a cold call, a customer chooses to purchase a product, trainees must transfer the call to a licensed broker and typically do not receive any portion of the commission earned as a result.
Overtime and Unpaid Trainee Brokers
The high-pressure environment of brokerage firms often results in long hours worked by brokers. Consequently, unpaid trainee brokers often find themselves working anywhere between fifty to ninety hours a week. And, since trainee brokers are typically not paid, trainee brokers do not earn overtime as a result of their long hours.
Again, brokerage firms and financial services companies that engage in this practice are in violation of the overtime requirements of the FLSA, specifically, 29 U.S.C. §207. Although a company may not have a time sheet, punch cards, or a way of recording hours worked, there are a number of ways to verify overtime worked. As a result, unpaid trainee brokers are eligible to receive time and half payment for any hours worked over and above a forty-hour workweek.