New woes dog WMA on broker complaint

A Montana ruling this month could have far-reaching implications for a troubled national securities firm that the state says misclassified a broker as part-time and thus owes her back pay.

The company, WMA Securities Inc. of Norcross, Ga., has 9,000 brokers, many of whom are part-timers working from home. The decision against it came from the Montana Department of Labor and Industry, which ruled in favor of the former broker, who is seeking $5,500.

WMA representatives did not return telephone calls, and the company still has time to appeal the decision.

It’s an extra piece of trouble for a company that has been forced to improve compliance because of scrapes in other states and, as of last month, was being investigated by the Securities and Exchange Commission.

Federal laws that determine many worker benefits, ban job discrimination and allow for medical and family leave don’t extend to independent contractors, nor do employers have to withhold income, Social Security or Medicare taxes for them.

State laws tend to mimic federal laws when it comes to labor issues, says L. Steven Platt, president of the National Employment Lawyers Association in Chicago.

“It’s a dangerous precedent for that company,” says Mr. Platt. “If it’s been dinged by a state agency of Montana, the feds are going to want to take a look at it.

This case could reignite an issue the broker-dealer industry has struggled with for years. The Internal Revenue Service a few years ago came up with a 20-factor test for all companies to determine a person’s employment status.

The WMA situation follows the Supreme Court’s refusal to upset a similar ruling against Microsoft Corp. A federal appeals court in San Francisco ruled that the company had misclassified as many as 10,000 employees as independent contractors and owes them as much as $100 million.

The WMA case stems from a claim filed late last year by Christine Clough, who says the brokerage failed to pay her a total of $5,500 after she left in February 1999.

“I tried to work with WMA for six months to get my wages and they just didn’t bother,” she says. “I had no other alternative. They put me in a really bad situation.”

The state Labor Department sent a letter to WMA asking for either payment or a response.

According to the claim, the company responded past the deadline, requesting a redetermination. In the redetermination, a compliance specialist turned the case over to the Independent Contractor Central Unit to determine whether Ms. Clough was an employee or an independent contractor.

The unit determined that Ms. Clough, and “also any similarly situated individuals,” are employees, not independent contractors.

Further, the claim says WMA did not provide “credible evidence to support their claim” that Ms. Clough was an independent contractor.

More important, the ruling says: “The determination may affect your [WMA’s] liability in matters related to Unemployment Insurance, Uninsured Employers’ Fund, Wage and Hour, State Income Tax Withholding and the Old Fund Liability Tax.”

At least one former Montana broker says he’s going to sue. Chris Racicot of Great Falls, who now works for Asset Advisory Group, says, “Again, WMA has misled people and got caught. I’m filing my wage claim as we speak.”