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Mortgage Loan Officers: Likely Exempt Under the Fair Labor Standards Act . . . For Now
November 20, 2013
This past July, the United States Court of Appeals for the District of Columbia (“D.C. Circuit”) vacated a 2010 Department of Labor (“DOL”) Interpretation Letter that concluded employees who perform the “typical” job duties of a mortgage loan officer do not qualify as administrative employees. This is important because “administrative employees,” defined as employees who exercise discretion on “matters of significance,” are exempt from the Fair Labor Standards Act’s (“FLSA”) overtime wage requirement. 
What does this mean to mortgage-lending employers? Under the current interpretation of the FLSA, mortgage loan officers may well be once again exempt under the administrative capacity exception. However, when the D.C. Circuit ordered the 2010 Interpretation Letter vacated, it did so on a technicality—the DOL failed to give the required notice and allow comments before the letter was issued. The D.C. Circuit expressly stated “[i]f 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.” Therefore, the issue of mortgage loan officers’ FLSA status is far from being resolved. 
The current uncertain categorization of mortgage loan officers under the FLSA is not entirely surprising given that within the past decade the DOL has reversed its position on whether mortgage loan officers fit within this administrative exception. In 2006, the DOL’s position was that mortgage loan officers, because they analyze customers’ financial information and advise them about various mortgage loan programs, exercise independent judgment and discretion making them “administrative employees” under the FLSA. More recently, the DOL adopted the that view that mortgage loan officers are not administrative employees under the FLSA because loan officers primarily engage in “sales” where they receive internal leads, contact potential customers, collect financial information from customers, run credit reports, and assess loan products and discuss the terms and conditions of those loans with customers. The DOL concluded that salespeople do not exercise discretion and are therefore not “administrative employees.” 
Today, businesses that employ mortgage originators should be aware of what may well become the DOL’s position on the “typical” mortgage loan officer, should it readopt the language in its most recent Interpretation Letter. On the other hand, even with a readoption, loan officers may still fall within an exception to the FLSA. Whether an employee is covered under the FLSA is a fact-intensive inquiry, and generalizations based on title alone are ill-advised. A “typical” mortgage loan officer standard, while perhaps efficient in classifying groups of employees from the DOL’s perspective, is dangerous for employers. If the DOL’s interpretation will be readopted, employers must look to the job-specific duties of their mortgage loan originators to determine whether they have discretion in matters of significance (exempt) or are merely selling a financial product (non-exempt).
A recent (January 2013) decision out of the Sixth Circuit reinforces this “fact-intensive” standard. The United States Court of Appeals for the Sixth Circuit affirmed a jury verdict that mortgage bankers are exempt from the FLSA under the “administrative exception,” in spite of the then-valid 2010 DOL Interpretation Letter. There, a jury decided that mortgage loan officers had discretion in matters of significance—they collected and analyzed clients’ financial information and goals to provide financial tools that satisfied clients’ needs on an individual basis. The jury agreed that these mortgage loan officers were the “quarterbacks” of the lending process and not merely glorified salespersons, and were necessarily administrative employees. 
Connecting these decisions highlights that employers must accurately determine the job duties and responsibilities of its loan officers. These duties should be explicitly and accurately described in the employee’s job description. But employers should also understand that title and job descriptions alone are not enough; it comes down to the day-to-day job duties and responsibilities of the mortgage loan officers. Are your mortgage loan officers salespersons, who simply connect a client to a loan without engaging in independent judgment and discretion of the merits of the loan? If so, then these employees should work at (or less than) 40 hours a week, or you will be required to pay overtime wages under the FLSA. On the other hand, are your mortgage loan officers “quarterbacks” in the lending arena, employing discretion and judgment in evaluating and analyzing individual client needs and goals? If so, then these officers are likely exempt from the FLSA under the “administrative” exception. Employers must take the time and effort to properly evaluate the job duties and responsibilities of its employees—only then can it determine whether its mortgage loan officers are exempted from the FLSA. 
Labor & Employment Law