Financial Advisers and Private Client Advisers May Be Entitled to Unpaid Award Entitlements

couple in a meeting with a financia; adviser

Are you a financial adviser or private client adviser paid by commission in the banking, finance and insurance industry? You may have outstanding award-based entitlements following a court ruling that the roles of “private client adviser” and “associate adviser” are covered by the Banking, Finance and Insurance Award 2010 (BFI Award).

In the recent Theodorou v Ord Minnett Holdings Pty Ltd decision in the Federal Circuit and Family Court of Australia, Judge Manousaridis held that leading wealth management firm Ord Minnett failed to pay the minimum salary and entitlements prescribed under the BFI Award to an award-covered employee in the period of 2015 to 2019, breaching multiple obligations under the BFI Award and the Fair Work Act 2009 (Cth)(FW Act). The judge held that employers cannot use commission, or “extra-award payments”, to set off minimum payments of salary and entitlements.

In addition to any payment of commission, Mr Evangelos Theodorou should have been paid the minimum annual salary for his Level 6 classification, plus a 17.5% annual leave loading under the BFI Award, annual leave, personal or carer’s leave and public holiday pay under the National Employment Standards of the FW Act. In total, Ord Minnett faces potential compensation orders to pay Mr Theodorou about $230,000 plus penalties.

The matter is listed for directions on 26 June 2024 to set payment of compensation and schedule a penalty hearing.

How was Mr Theodorou covered by the BFI Award?

The legal issue was whether Mr Theodorou was covered by clause B6 of Schedule B of the BFI Award (clause B6), which would classify him as a Level 6 employee. To determine this, the judge considered Mr Theodorou’s position and the nature of the tasks he performed in light of the proper construction of clause B6.

The judge rejected Ord Minnett’s argument that Mr Theodorou was engaged as a stockbroker, rather finding that Mr Theodorou was a “Private Client Adviser” or “Associate Adviser”. The judge took into account that the highest source of revenue was consistently derived from “Platform advice fees”, which was a portfolio management service provided through the PARS platform, not brokerage fees associated with buying or selling shares, which only accounted about 15% of his generated revenue. Mr Theodorou’s role was recognised to involve stockbroking, but also extended beyond stockbroking as he “provided comprehensive advice in relation to superannuation, retirement planning and portfolio management” per the Statement of Advice issued by Ord Minnett. As part of his role, Mr Theodorou sought out and met potential clients, and once those clients were secured, provided them with services and gave effect to client’s instructions based on advice Mr Theodorou had provided, and recorded them in Ord Minnett’s information systems.

Judge Manousaridis held that the expression “middle managerial role” read within the context of clause B6 extends beyond its ordinary meaning of managing a department or supervising other employees. This is supported by the indicative job list which includes “financial planners”, “information technology specialists” and “senior analysts” within this Level 6 classification despite the roles not having the title “manager”. Mr Theodorou was covered by the Award as a client “manager” who could “control the conduct of a part of the employer’s business” where “decisions are regularly made” and “responsibility accepted on matters relating to the administration and conduct of the part of the business”. In particular, the judge found Mr Theodorou controlled part of Ord Minnett’s business by seeking out and soliciting potential clients for Ord Minnett, and providing services to clients that comprised the book of clients.

Judge Manousaridis found that even if Mr Theodorou’s role was a stockbroker, the work he performed as an employee was “not of a nature that was not regulated at all by award” and was traditionally covered by the award system.

Ord Minnett cannot Set Off Commission Payments against its Obligations under the Award

The judge had to determine whether the payments of commission could discharge Ord Minnett’s obligations to pay Mr Theodorou’s entitlements accrued under the employment contract and the BFI Award.

The judge found that the obligation to pay commission is based on Mr Theodorou’s interactions with his clients and the value of the portfolio of his book of clients. This is unlike a regular and equal payment of salary, which is paid on a weekly, fortnightly or monthly basis in exchange of Mr Theodorou’s services. Ord Minnet was not entitled to set off payments of commission against its obligation to pay Mr Theodorou the minimum salary provided for by the BFI Award.

As a result, the Court held that Ord Minnett breached the BFI Award and sections 44, 45, 90, 99 and 116 of the FW Act.

Two Key Takeaways

This decision sends an important compliance message to finance sector employers who may now need to urgently review their employees’ appropriate classification, award coverage and entitlements.

The first key takeaway is that client advisers and private client advisers are indisputably covered by an award. Mr Theodorou’s lawyer, Solicitor Director, Adrian Barwick, who successfully represented Mr Theodorou, states that “for some years, many employers have operated under the misunderstanding that persons performing those types of roles have been award free”. It follows that employers operating in the finance industry have a range of obligations for employees covered by the BFI Award with respect to payment of salary, leave loading and other entitlements.

A second key message is that  payment of commissions cannot discharge an employer’s obligations to pay salary and other entitlements, even where the total renumeration is above the amounts in the award. Mr Barwick says that employers risk overlooking their obligations by remunerating their employees under a commission-only model. The Court found that “some commission payments did not have a close correlation with the minimum rates of pay under the award”.

From this ruling, Mr Barwick says that he “wouldn’t be surprised if there’s still many people out there in the finance industry who potentially have claims available to them”. However, there is a statutory time limit of 6 years to make an underpayment claim from the date the underpayment occurred.

If you are on a commission-only arrangement in the banking, finance and insurance industry, and believe you have a claim for unpaid employee entitlements immediately contact the employment law specialists at WilliamsonBarwick. We will assess your situation before making a claim and assist you with potential avenues of how to pursue your claim.

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