Supreme Court: Mortgage loan officers today are more likely than not entitled to "overtime" compensation

Posted on 03/25/2015 at 03:08 PM by Russell Samson

The United States Supreme Court was unanimous in Perez v. Mortgage Bankers Association in affirming an DOL administrative interpretation that an individual performing the typical duties of a mortgage loan officer as described by the DOL would not be exempt from the minimum wage and perhaps more critically, from the maximum hours / overtime pay provisions of the Fair Labor Standards Act. DOL WHD Administrator's Interpretation No. 2010-1. This decision may be of some interest on two different levels. First, this is of some importance to businesses which employ persons who perform the typical duties of a mortgage loan officer. In the 2010 Administrative Interpretation, the DOL described the typical duties as:

Mortgage loan officers receive internal leads and contact potential customers or receive contacts from customers generated by direct mail or other marketing activity. Mortgage loan officers collect required financial information from customers they contact or who contact them, including information about income, employment history, assets, investments, home ownership, debts, credit history, prior bankruptcies, judgments, and liens. They also run credit reports. Mortgage loan officers enter the collected financial information into a computer program that identifies which loan products may be offered to customers based on the financial information provided. They then assess the loan products identified and discuss with the customers the terms and conditions of particular loans, trying to match the customers’ needs with one of the company’s loan products. Mortgage loan officers also compile customer documents for forwarding to an underwriter or loan processor, and may finalize documents for closings.

The DOL concluded that persons with those duties, “have a primary duty of making sales for their employers and, therefore, do not qualify as bona fide administrative employees exempt under section 13(a)(1) of the Fair Labor Standards Act, 29 U.S.C. § 213(a)(1).” Employers in the financial services industry who employ individuals with duties similar to those described in the 2010 Administrative Interpretation and classify them as exempt from overtime pay should quickly retain a competent professional to review that determination. There may be different duties which would justify an exemption for all or for some segment. While one is looking in this area to make certain that individuals are properly classified as “exempt,” it would be prudent to expand the review to all persons who are classified as exempt under the “administrative” exemption. Under the FLSA, a nonexempt employee is entitled to receive one and one-half times his or her “regular rate” for all hours worked in excess of 40 in a work week. It may also be prudent to review the DOL’s requirements on how payments of commissions (29 CFR § 778.117 -- § 778.122) and payment of bonuses (29 CFR § 778.208 -- § 778.215) are to be considered in determining the “regular rate.” Nonexempt employees who receive bonuses or commissions may under the law be entitled to receive a premium over and above the amount of the commission or the bonus if there were “overtime hours” worked during the period covered by the commission or the bonus. The second, and broader, area of importance of the Perez decision is for practitioners before administrative agencies. Those individuals need to have an appreciation of the different types of “administrative rules” under the federal Administrative Procedures Act. As it relates to the case before the Supreme Court in Perez, the Department of Labor had in 1999 and again in 2001, issued letters opining that mortgage loan officers would not qualify for the FLSA administrative exemption. The FLSA empowers the Secretary of Labor to “defin[e]” and “delimi[t]” the categories of exempt employees through regulation. In 2004, the DOL substantially revised all of the regulations explaining the exemption under the FLSA through “notice and comment rulemaking” under the federal Administrative Procedures Act. The then-new regulations included examples of various types of jobs which might or might not meet the standards established by the then-new regulations. One of the examples in 29 CFR § 541.203 specifically addresses “employees in the financial services industry.” While noting the types of duties which would qualify a person as being exempt from overtime as an “administrative employee,” the example concludes, “However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” In 2006, reportedly at the behest of the Mortgage Bankers Association, the DOL issued an “advisory letter” -- FLSA2006-31 -- While the letter is portrayed as a broad statement that mortgage loan officers are exempt as “administrative employees” under the FLSA, in fact the letter uses language like “our opinion that the mortgage loan officers you describe are exempt administrative employees” and “Please note, however, that an employee’s exempt status is not determined based on job title or job classification; rather, it is determined by analyzing each particular employee’s actual job duties and compensation under the applicable regulations.” The 2006 opinion letter specifically noted that, “You ask that we assume for purposes of responding to your request that less than 50 percent of the mortgage loan officer’s working time over a representative period is spent on customer-specific persuasive sales activity.” Given all that, one wonders whether the 2010 DOL WHD Administrator's Interpretation No. 2010-1 was a ”change in position” or a review of a completely different job, one that had a “primary duty” of making sales versus one which had an assumed less than 50% of time making sales. The Supreme Court’s opinion in Perez noted a difference between what it called a “notice-and-comment rule” and what it called an “interpretive rule.” The latter, explained the Court, is something issued by an agency “to advise the public of the agency’s construction of the statutes and rules which it administers.” “Interpretive rules” do not, however, have the force and effect of law, and are not accorded that weight in the adjudicatory process.” The United States Court of Appeals for the District of Columbia Circuit had a “binding precedent” established in Paralyzed Veterans of Am. v. D. C. Arena L. P., 117 F. 3d 579 (D.C. Cir. 1999) that when an agency wishes to issue a new interpretation of a regulation that significantly differs from a previously adopted interpretation, the agency must use the notice and comment procedures of the federal Administrative Procedures Act. While the precedent no doubt provided work for attorneys in the District of Columbia for clients that wished to challenge “switches” in views by administrative agencies, the Supreme Court in Perez left no doubt that the decision is no longer viable. 

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