United States District Court Upholds Department of Labor's Administrator's Interpretation Finding Mortgage Loan Officers Non-Exempt Under FLSA

On June 6, 2012, a federal district court in Washington, D.C., rejected the Mortgage Bankers Association's (MBA) challenge to a recent U.S. Department of Labor (DOL) Administrator's Interpretation, which takes the position that mortgage loan officers do not qualify for the administrative exemption under the Fair Labor Standards Act (FLSA).

Under the FLSA, employees are generally entitled to minimum wage and overtime compensation, unless they work "in a bona fide executive, administrative or professional capacity." 29 U.S.C. §  213(a)(1). Over the last fifteen years, the DOL has taken varying positions on the issue of whether mortgage loan officers come within this provision and qualify for the administrative exemption.

Beginning in 1999, the DOL issued an opinion letter stating that "loan officers are engaged in carrying out the employer's day-to-day activities rather than in determining the overall course and policies of the business" and, as such, determined them to be non-exempt.

In 2004, the DOL took a change of position and amended the FLSA regulations to provide:

Employees in the financial services industry generally meet the duties requirements for the administrative exemption if their duties include work such as collecting and analyzing information regarding the customer's income, assets, investments or debts; determining which financial products best meet the customer's needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing or promoting the employer's financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption . 29 C.F.R. §  541.203(b) (emphasis added).

In 2006, relying in part on the above regulation, the DOL issued an opinion letter concluding that mortgage loan officers are exempt under the FLSA, finding that they "have a primary duty other than sales, as their work includes collecting and analyzing a customer's financial information, advising the customer about the risks and benefits of various mortgage loan alternatives in light of their individual financial circumstances, and advising the customer about avenues to obtain a more advantageous loan program." Relying on this opinion letter, many employers in the financial services sector began to classify their mortgage loan officers and other similar personnel as exempt.

In 2010, the DOL changed positions yet again and issued its first ever "Administrator's Interpretation." The Administrator's Interpretation took the position that employees who "perform the typical job duties of a mortgage loan officer . . .  do not qualify as bona fide administrative employees"  because such individuals "typically have the primary duty of making sales on behalf of their employer." The Administrator's Interpretation explicitly withdrew the 2006 opinion letter finding mortgage loan officers to be exempt.

In January 2011, the MBA filed a lawsuit seeking to invalidate the Administrator's Interpretation under the Administrative Procedures Act (APA), 5 U.S.C. § 702. In its Complaint, the MBA argued that the DOL acted improperly in reversing the 2006 opinion letter without first engaging in a rulemaking process with notice and an opportunity for public comment. The MBA also asserted that the Administrator's Interpretation was arbitrary and capricious. Judge Reggie B. Walton of the U.S. District Court for the District of Columbia rejected both of the MBA's claims, finding the Administrator's Interpretation was lawfully adopted and was consistent with the language of the statute and the corresponding regulations.

The DOL's interpretation is not binding on courts. However, in light of this decision, employers in the financial services industry are encouraged to carefully evaluate their classification of loan officers, underwriters, personal bankers, consultants and other similar personnel under the FLSA.

Employers with questions may contact Ellen Hoeppner at (313) 965-8262 – ehoeppner@clarkhill.com , or any of Clark Hill's Labor and Employment Law or Banking & Financial Institutions Industry Team attorneys.