Lessons for Employers from Wells Fargo Cross-Selling Scandal

In September, Wells Fargo agreed to pay $190 million to the federal Consumer Financial Protection Bureau, California prosecutors, and customers in the wake of revelations employees created fake accounts to meet aggressive cross-selling targets set by the bank. On the heels of the settlement, Wells Fargo announced it had terminated more than 5,000 employees over the last several years in connection with the fraud.

Wells Fargo now faces several lawsuits from former employees stemming from the cross-selling program. A federal class action alleges Wells Fargo violated Dodd-Frank, Sarbanes-Oxley, and the Fair Labor Standards Act (FLSA) for demoting or terminating employees who refused to participate in the illegal scheme. The bank also faces a California suit making similar claims. Though nothing is yet pending, Wells Fargo could also face litigation from the 5000 employees it says were terminated for engaging in unlawful practices if it can be proven the bank actively encouraged them to set up phony customer accounts.

An Object Lesson for Employers

For employers, the Wells Fargo provides a nearly perfect case study of what you shouldn’t do when establishing employee sales quotas. From setting unrealistic targets and tacitly encouraging employees to act unlawfully in meeting them, through to ignoring whistleblowers, Wells Fargo did nearly everything wrong.

What Wells Fargo should have done includes:

  • Setting realistic sales quotas that, though aggressive, do not require employees to engage in deceptive or outright illegal practices to achieve;
  • Creating an environment that incentivized employees who met or exceeded targets but did not threaten their compensation or continued employment if they did not go outside the law to achieve their goals;
  • Establishing clear policies that explicitly forbid illegal activities on behalf of employees and ensuring consistent communication and enforcement of those policies;
  • Using best practices when disciplining employees for not meeting sales targets, including proper documentation and creating a paper trail over time regarding poor performance;
  • Providing opportunities for employees to improve performance before even considering termination; and
  • Documenting instances of employee misconduct, including unlawful activity, to again provide a consistent paper trail for termination.

Sales Performance Should Never Come at the Expense of Following the Law

It appears that, in the pursuit of profit, Wells Fargo blatantly disregarded the law in its treatment of employees. In establishing unrealistic sales quotas and exerting extreme pressure on employees, to meet them the bank created the perfect environment for illegal activity – and that is exactly what happened. Wells Fargo also seemed to do little to stop employees who were creating phony accounts until the scandal broke.

The lesson here for all employers is that meeting quotas should never come at the expense of following the law. The Wells Fargo situation bears that out in stark detail.

Posted in Employment Law.