Are Mortgage Loan Officers "Exempt" Under the FLSA or Not?

On July 2, 2013, a three judge panel of the D.C. Circuit Court of Appeals  in Mortgage Bankers Association v. Harris held that the Department of Labor's 2010 Administrative Interpretation that Mortgage Loan Officers are not exempt from the overtime provisions of the Fair Labor Standards Act was not properly promulgated and must be vacated. But that does not mean that wholesale changes putting such individuals back into an exempt pay structure are in order. Here's the background leading up to this July 2, 2013, court opinion. In September 2006, the Department of Labor, Wage and Hour Division of the United States Department of Labor issued an Opinion Letter – FLSA 2006-31. At that time, the DOL concluded that the typical duties of mortgage loan officers were such that such individuals would fall within the 'administrative exemption' to the overtime pay requirements of the federal Fair Labor Standards Act. This Opinion Letter didn't mention it, but we have learned later that the opinion was issued at the behest of the Mortgage Bankers Association. As we discussed in a previous post, on March 24, 2010, the DOL's Wage and Hour Division (with new personnel given the change in Administration) issued its first ever 'Administrator's Interpretation' – No. 2010-1. This dealt with the exempt status of 'mortgage loan officers,' also. The 2010 Interpretation came to the opposite conclusion, stating that employees who 'perform the typical job duties of a mortgage loan officer . . . do not qualify as bona fide administrative employees.' (emphasis added) The agency determined instead that individuals with the duties and responsibilities as described in the Administrator's Interpretation 'typically have the primary duty of making sales on behalf of their employer.' As part of AI 2010-1, the DOL withdrew its September 8, 2006 Opinion Letter. As was discussed in our previous post, following the promulgation of AI 2010-1, the Department of Labor asserted in a friend of the court brief that the interpretation of its own 'ambiguous legislative regulations' announced in AI 2010-1 applied prospectively only. Following the DOL's change in interpretation, many financial institutions felt compelled to make significant changes to the compensation structure or the job duties of their mortgage loan officers to either convert them to non-exempt status or to attempt fit the jobs duties more clearly within one or more of the FLSA 'overtime' exemptions. In response to the change in interpretation (and perhaps also due to the more aggressive enforcement stance of the DOL on FLSA matters), the Mortgage Bankers Association sued the DOL in the United States District Court for the District of Columbia. The choice of that court was presumably not fortuitous: The United States Court of Appeals for the District of Columbia Circuit – the same court which earlier this year determined that President Obama's recess appointments to the NLRB were in violation of the Constitution -- had an established standard in reviewing administrative agency action: 'When an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish [under the federal Administrative Procedures Act] without notice and comment.' At the federal district court level, the court concluded that this standard did not apply to what the DOL did in changing its view regarding mortgage loan officers.  But, on July 2, 2013, the D.C. Circuit Court of Appeals reversed that determination. In an opinion that will be of interest primarily to a narrow segment of lawyers, the court concluded that the September 2006, Opinion Letter was a 'definitive interpretation' of the DOL's regulation regarding the administrative exemption under the FLSA, and that the 2010 Administrator's Interpretation was a 'significant revision' of that 'definitive interpretation.' The Court of Appeals applied its standard as to what an agency must do – and what the DOL did not to – when undertaking such a significant interpretive revision. It then sent the case back to the district court: "with instructions to vacate the 2010 Administrator Interpretation significantly revising the agency's 2006 Opinion Letter. If the Department of Labor ('DOL') wishes to readopt the later-in-time interpretation, it is free to. We take no position on the merits of their interpretation. DOL must, however, conduct the required notice and comment rulemaking. (emphasis added) This decision should not cause entities that employ mortgage loan officers to change their status back to being exempt under the FLSA. The circuit court gave a very clear statement that it was not taking any position on whether mortgage loan officers are or are not exempt from the FLSA. Additionally, the court provided a roadmap if the DOL wishes to 'readopt' the new interpretation. That will probably happen. Remember that the exempt status of any employee is determined by whether the employee's salary and duties meet the requirements of the regulations. These are very fact-specific inquiries. Any generalization, especially based on title alone – even a generalization of the sort found in the DOL's now-apparently soon-to-be reinstated Opinion Letter FLSA 2006- 31– is dangerous. Instead, one always needs to look at what an employee is actually doing. In its opinion, the Court of Appeals also noted the challenges that the DOL, and by implication, employers, generally face in adapting and applying 'an old law . . . to new circumstances.

 The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

- Russ Samson