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Don't Reclassify Those Mortgage Loan Officers Just Yet

June 23, 2011

In March 2010, the U.S. Department of Labor declared that mortgage loan officers are not exempt from the minimum wage and overtime requirements of the Fair Labor Standards Act (FLSA). Reversing and withdrawing two prior opinion letters on the subject, the DOL stated in an administrator's interpretation that employees who perform the typical duties of a mortgage loan officer do not qualify as administrative employees exempt from overtime under the FLSA. This new interpretation caused confusion not only in the banking industry, but also in many other industries that have used the administrative exemption to treat their white-collar office employees as exempt from overtime pay.

Under the administrative exemption, an employer need not pay overtime to an employee if three conditions are met: (1) the employee is paid on a salary basis of at least $455 per week; (2) the employee's primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and (3) the employee's primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. In the March 2010 administrator's interpretation, the DOL said the typical mortgage loan officer does not meet the second condition, because he or she is primarily engaged in making "sales."

Although the March 2010 administrator's interpretation was, on its face, limited to mortgage loan officers, in recent DOL investigations some local DOL investigators have cited to this interpretation when arguing that other white-collar jobs – jobs which have nothing to do with the position of mortgage loan officer -- should be non-exempt. It thus appears that at least some DOL staff members are taking the position that the March 2010 administrator's interpretation is the new definitive authority on the administrative exemption.

Recent court developments, however, indicate that the DOL's new position will be subject to serious challenge. First, in a court filing here in Michigan in December 2010, the DOL admitted that its new position on the exempt status of mortgage loan officers was a "substantive change" in the Department's interpretation of the administrative exemption, and therefore only applied prospectively, not retroactively. See Brief of the Secretary of Labor in Henry v. Quicken Loans, Inc. (E.D. Mich. Dec. 9, 2010).

Second, in that same federal case here in Michigan, the jury concluded on March 17, 2011 that Quicken Loans had correctly classified its mortgage loan officers as exempt. Rejecting the claims of some 350 mortgage loan officers in Michigan and Ohio who had filed suit back in 2004, the jury found that the loan officers were not entitled to overtime pay. Instead, it found that the loan officers specifically met the requirements of the administrative exemption. Henry v. Quicken Loans, Inc. (E.D. Mich. Mar. 17, 2010).

Finally, in January 2011, the Mortgage Bankers Association filed suit against the DOL in federal court in Washington, D.C., claiming that the March 2010 administrator's interpretation was "arbitrary, capricious, an abuse of discretion, and otherwise contrary to the law." The Association is seeking to have the federal court declare the March 2010 interpretation unlawful. No decision has yet been made in that case.

It remains to be seen whether the DOL's March 2010 interpretation on the exempt status of mortgage loan officers will stand or fall. What is certain is that the question of who is – and who is not – exempt from overtime pay under the FLSA's administrative exemption will remain a thorny question for many employers for a long time. If you have questions about the application of the administrative exemption to members of your workforce – or any question regarding work hours or pay – please contact a member of Varnum's Labor and Employment Relations Group.

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