Department of Labor Reverses Course: Mortgage Loan Officers Do Not Meet the Administrative Exemption's Requirements

Author:Mr Robert Pritchard, R. Brian Dixon and Andrew J. Voss
Profession:Littler Mendelson

On March 24, 2010, the Department of Labor (DOL) abandoned its position on the exempt status of mortgage loan officers as "administrative" employees, vacating an Opinion Letter issued by the Wage and Hour Administrator less than four years ago on September 8, 2006.1 In its earlier September 2006 Opinion, the DOL found that mortgage loan officers generally meet the requirements of the administrative exemption to the federal Fair Labor Standards Act's overtime requirements if they are responsible for acquiring an understanding of a potential borrower's credit history and financial goals in order to advise the borrower regarding loan options; working with the borrower to create a loan package that best meets those goals while complying with lender requirements; and supervising the processing of the transaction to closing. In a new "Administrator's Interpretation,"2 the DOL has now concluded that the September 2006 Opinion was based upon a "misleading assumption" regarding the administrative exemption's scope, and a "selective and narrow analysis" of the administrative exemption's requirements. Relying upon facts found during DOL investigations and described in court cases that have focused on the exempt status of this job over the past decade, the DOL now rejects the proposition that mortgage loan officers perform work that is directly related to their employer's general business operations. In the DOL's current view, mortgage loan officers are primarily responsible for the sale of mortgage loans, and therefore, they fall on the "production" side of the "production vs. staff" dichotomy. As production workers, loan officers do not qualify for the administrative exemption.

The Department's abrupt change in position on this issue may well have a significant impact on mortgage lenders and other employers in the financial services sector that had previously relied upon the DOL's September 2006 Opinion (issued in the wake of extensive litigation over this job's proper classification) in determining whether loan officers are eligible for overtime compensation.

The FLSA and the Administrative Exemption

The FLSA requires covered employers to pay certain employees overtime at a rate of one and one-half times the employee's regular rate of pay for hours worked in excess of forty per week.3 This requirement is subject to a number of exceptions, including the so-called "white collar" executive, administrative, and professional exemptions that were the subject of regulatory revision to the FLSA in 2004.4 Under the current rules, in order to qualify for the administrative exemption:

An employee must be compensated on a salary or fee basis at a rate of not less than $455 per week, exclusive of board, lodging, or other facilities; The employee's primary duty must be 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 The employee's primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.5 The DOL's September 2006 Opinion assumed that the salary basis test had been met with respect to the mortgage loan officers at issue.6 In the new March 2010 Interpretation, the DOL focuses exclusively on the second prong of the test: whether loan officers perform office or non-manual work directly related to the management or general business operations of their employer or their employer's customers. Because the DOL has now concluded that the second prong of the test cannot be satisfied, the final question, whether such employees exercise independent judgment and discretion when performing their jobs, was not addressed.

The Primary Duty and the Meaning of "Work Directly Related to Management or General Business Operations"

The DOL introduced its discussion of the second prong of the administrative exemption by highlighting the regulatory distinction between administrative "work related to the management or general business operations" of an employer – running and servicing the business – and "working on a manufacturing production line or selling a product in a retail or service establishment."7 As examples of administrative work, the regulations identify functional areas such as accounting, budgeting, quality control, purchasing, advertising, research, human resources, and labor relations.8 According to the DOL, employees responsible for such responsibilities are "staff rather than line employees." Like an employee on a traditional manufacturing line, "production employees" on the other hand, are responsible for work related to the goods...

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