CLASS ACTION SOUGHT LAWSUIT HITS AMEX OVER TREATMENT OF ADVISERS: EMPLOYEES OR CONTRACTORS? ANSWER MAY COST MILLIONS

A former planner for American Express Financial Advisors is suing to force Big Green to treat members of its 9,000-strong sales force as employees instead of independent contractors.

The lawsuit, filed March 29 in federal court in the American Express Co. unit’s hometown of Minneapolis, requests class-action status and strikes at the core – and perhaps most controversial -part of the AmEx structure.

By managing its salespeople as independent contractors, AmEx saves significant costs, including Social Security payroll taxes. It’s one reason the adviser unit earned $818 million on $5.1 billion of revenues in 1998 – accounting for about 38% of the $2.14 billion the New York-based parent netted last year.

Being categorized as contractors especially rankles some in the AmEx sales force because the company claims ownership of clients and sues salespeople who leave with their customers.

“They treat us as employees when it’s to their benefit, which is to claim the clients as theirs,” says one West Coast adviser who spoke on condition of anonymity. “But then they get to save on expenses which other firms have to pay.”

The suit asks that AmEx award advisers the same benefits it offers employees and repay the expenses – everything from rent to stationery – that they racked up as independent contractors.

Not surprisingly, AmEx has told advisers it is bracing for a long, tough fight.

“We believe the company has strong defenses to this lawsuit and we plan to fight vigorously,” AmEx officials said in an April 20 memo sent to all its advisers. The memo also told the sales force to forward media calls to headquarters and to preserve all documents pertaining to “our field sales force.”

An AmEx spokesman declined comment on the case, except to confirm the company had been served with papers for a lawsuit.

The spokesman notes that the Internal Revenue Service upheld the AmEx advisers’ independent contractor status in the 1970s.

In addition, he says, the IRS supported the AmEx contractor classification for a particular adviser in a private ruling in December 1997.

(An IRS spokesman says the agency doesn’t comment on such issues.)

Ironically, the litigation comes when the company is trying to reorganize its sales structure. AmEx is moving toward a new three-tier organization in which one class of advisers will be salaried.

The suit was filed by Neil Lambert, who is identified as an AmEx adviser in Mount Pleasant, S.C., from 1996 through 1998. Backed by six law firms, Mr. Lambert says he represents a class that includes current and former advisers employed by AmEx from Jan. 1, 1993, through the present.

subject of speculation

Mr. Lambert could not be reached for comment. Spokesmen for his lead law firm, Trujillo Rodriguez & Richards LLC in Philadelphia, declined to comment.

Speculation about mounting a legal challenge to the independent contractor status has percolated for years.

The suit also is being filed against a backdrop of litigation against other corporations over whether long-term temporary workers should be treated as employees. The highest-profile example is a long-running case involving Microsoft Corp. of Redmond, Wash.

Mr. Lambert’s core argument in the suit is that the company exerts too much control over its advisers for them to be considered independent contractors and not employees.

Financial advisers, according to the suit, are categorized by American Express as employees during their training and first year, after which they become independent contractors – “notwithstanding the fact that very little, if anything, has changed in the job duties and conduct” of the advisers.

The suit cites the American Express “Client Relations Guide” to illustrate the level of control the adviser unit exerts over its independent contractors.

Among the guidelines noted in the 17-page complaint: All business cards and stationery must be ordered through AmEx’s stationery services instead of a local printer, all advertising must be approved by the corporate office and only products and services that the company distributes or authorizes can be sold.

Additionally, the suit says, advisers are required to buy AmEx software and work and pay rent in an office location designated by AmEx. Big Green also can restrict the clients an adviser handles.

“In short, Financial Advisors are told when, where and how to work,” the suit says.

‘fight … to the death’

The suit argues that advisers are common law employees and thus owed the same compensation and benefit plans given to employees, including 401(k) plans, health insurance, vacation, holidays and a waiving of the requirement to pay for rent and office supplies.

(AmEx does offer subsidized health and life insurance plans to advisers who meet certain performance standards.)

Anthony Paduano, a lawyer who represents advisers sued by AmEx for taking clients when they leave the company, predicts that Mr. Lambert and his legal troops are in for a battle.

“AmEx will fight this to the end, to the death,” Mr. Paduano says. “I don’t begrudge the lawyers the amount of work they’ll have to do.