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Taylor v. Waddell & Reed

August 12, 2010

MICHAEL TAYLOR, ET AL., PLAINTIFFS,
v.
WADDELL & REED INC., ET AL., DEFENDANTS.



[Doc. 25.]

ORDER DENYING WADDELL & REED INC.'S MOTION TO ALTERNATIVELY, MOTION TO STRIKE DISMISS, AND,

Pending before the Court is Defendant Waddell & Reed, Inc.'s ("W&R Inc.") motion to dismiss Plaintiffs' First Amended Complaint ("FAC") for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and alternatively, to strike certain allegations pursuant to Rule 12(f). The matter came on for hearing on July 23, 2010. Michael Grace, Graham Hollis, Diane Richard, and Thomas Rutledge appeared on behalf of Plaintiffs. Orrin Harrison, Raymond Bertrand, and Gregory Knopp appeared on behalf of Defendants. For the reasons set forth below, W&R Inc.'s motion is denied.

Pending before the Court is Defendant Waddell & Reed, Inc.'s ("W&R Inc.") motion to dismiss Plaintiffs' First Amended Complaint ("FAC") for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6), and alternatively, to strike certain allegations pursuant to Rule 12(f). The matter came on for hearing on July 23, 2010. Michael Grace, Graham Hollis, Diane Richard, and Thomas Rutledge appeared on behalf of Plaintiffs. Orrin Harrison, Raymond Bertrand, and Gregory Knopp appeared on behalf of Defendants. For the reasons set forth below, W&R Inc.'s motion is denied.

I. BACKGROUND

This matter is a proposed wage and hour class action brought by former Waddell & Reed ("W&R") financial advisors ("Advisors").*fn1 (FAC ¶ 1.) Plaintiffs allege they were classified as independent contractors, when, in fact, they were employees. (Id. at ¶¶ 3, 5.)

W&R is in the business of selling financial products, which are distributed through a sales force of Advisors. (Id. at ¶ 2.) When Advisors begin working for W&R, they are required to sign a "Professional Career Agreement" ("PCA"). (Id. at ¶ 37.) This agreement provides the basic terms governing the association with W&R Inc. and Waddell & Reed Affiliates ("W&R Affiliates"). (Id.) Advisors were classified as independent contractors and were paid on a commission basis. (Id. at ¶ 34, 114.) Advisors did not receive a salary or hourly wage and were not paid overtime. (Id. at ¶¶ 114, 117-118.)

According to Plaintiffs, Advisors should have been classified as employees because, among other things, Advisors could sell only under the name of W&R and could only sell securities authorized by W&R. (Id. at ¶¶ 40-41.) Advisors were assigned clients by W&R and had to surrender all client files, client lists and client data to W&R upon termination of the working relationship. (Id. at ¶ 49.) Advisors were required to work a specified number of hours and generally adhere to a schedule proposed by W&R. (Id. at ¶ 57.) Advisors were encouraged to work at W&R's offices and had to explain any activities conducted outside the office. (Id. at ¶¶ 60-61.) Advisors were required to attend meetings or face disciplinary action, and were subject to periodic performance reviews by Defendants. (Id. at ¶¶ 68-69.)

Plaintiffs filed suit on December 28, 2009, alleging nine claims for violations of the Fair Labor Standards Act ("FLSA"), 29 U.S.C. §§ 206-207, the California Labor Code, and California's Unfair Competition Law ("UCL"), Cal. Bus. & Prof. Code § 17200, et. seq. On April 28, 2010, Plaintiffs filed the FAC. W&R Inc. filed a motion to dismiss Plaintiffs' complaint on April 30, 2010, which the Court construed as a motion to dismiss the FAC. (Doc. 26.) Plaintiffs filed an opposition and Defendant filed a reply. (Docs. 33 & 40.) Additionally, on July 16, 2010, the Court received an amicus brief from Financial Services Institute, Inc. regarding issues raised in Defendant's motion. (Doc. 42.)

II. DISCUSSION

W&R is a registered broker-dealer in the financial services industry, a highly regulated field. W&R is a member of the Financial Industry Regulatory Authority, Inc. ("FINRA") and is subject FINRA, SEC and California insurance regulations. Defendant argues that Plaintiffs' allegations of employment indicia are requirements imposed by law, and are therefore irrelevant to the determination of Plaintiffs' employment classification. Defendant argues that when allegations regarding legally mandated conduct are stripped away, Plaintiffs fail to state a claim under the FLSA or California law.

A. Legal Standard

In two recent opinions, the Supreme Court established a more stringent standard of review for 12(b)(6) motions. See Ashcroft v. Iqbal, ___ U.S. ___, 129 S.Ct. 1937 (2009); Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). To survive a motion to dismiss under this new standard, "a complaint must contain sufficient factual matter, accepted as true, to 'state a claim for relief that is plausible on its face.'" Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 570). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). "Determining whether a complaint states a plausible claim for relief will ... be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id. at 1950 (citing Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir. 2007)). The reviewing court must therefore "identify the allegations in the complaint that are not entitled to the assumption of truth" and evaluate "the factual allegations in [the] complaint to determine if they plausibly suggest an entitlement to relief." Id. at 1951.

B. Analysis

Wage and hour laws apply to employees, not independent contractors. Under the FLSA, an employee is defined as "any individual employed by an employer." 29. U.S.C. § 203(e)(1). In determining whether an individual is an employee or an independent contractor, courts apply an "economic realities" test. Hale v. Arizona, 993 F.2d 1387, 1393 (9th Cir. 1993); Real v. Driscoll Strawberry Associates, Inc., 603 F.2d 748, 754 (9th Cir. 1979). The test examines a number of factors, such as: 1) the degree of the alleged employer's right to control the manner in which the work is to be performed; 2) the alleged employee's opportunity for profit or loss depending upon his managerial skill; 3) the alleged employee's investment in equipment or materials required for his task, or his employment of helpers; 4) whether the service rendered requires a special skill; 5) the degree of permanence of the working ...


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