|Love's labor lost|
New Fair Labor Standards Act interpretations spark drama worthy of Shakespeare
May 14, 2010
To exempt or not to exempt, if you are an HR specialist at a bank, that is the question. Recent developments at the United States Supreme Court and the Department of Labor have created a drama worthy of Shakespeare as the industry comes to grips with a sudden shift in the previously-settled understanding of how to apply the Fair Labor Standards Act (FLSA) exemptions to employees working in the mortgage loan area, especially underwriters and loan officers. Changes are afoot that could impact how your institution classifies mortgage-related positions and whether these employees qualify for overtime pay under the FLSA.
While it isn’t as sexy as, say, federal preemption, the issue of FLSA compliance is hardly “Much Ado About Nothing.” Most of the banking industry treats mortgage underwriters and other similar positions as “exempt” from the overtime requirements of the FLSA. One of the most common exemptions applicable to bank personnel holding this type of position is the “administrative” exemption. To qualify, the position must be “directly related to management policies or general business operations” and the employee “customarily and regularly exercises discretion and independent judgment.”
Two recent events have challenged the longstanding assumption that mortgage personnel qualify as exempt under the FLSA. First, in late 2009 the United States Court of Appeals for the Second Circuit issued its opinion in J.P. Morgan Chase v. Whalen. The plaintiffs in Whalen, mortgage loan underwriters, challenged the bank’s classification of their position as exempt under the “administrative” exception to the FLSA’s overtime requirements. The court found that a loan underwriter was essentially in a “production” position—loans were the bank’s product—and they had limited discretion in carrying out their duties. The court emphasized that a “production” position isn’t necessarily tied to the creation of a tangible item; for a bank, a financial product qualifies.
At the time that it was decided, Whalen appeared to be an aberration. Supreme Court review seemed likely given that the decision created a split in the Circuits. However, on May 3, 2010, the U.S. Supreme Court turned down a petition by J.P. Morgan (supported by numerous amici, including the American Bankers Association) to review the opinion.
The second event, and (returning once more to the Bard for inspiration) perhaps the “unkindest cut of all,” the Department of Labor issued an “Administrator’s Interpretation” (No. 2010-1, March 24, 2010) specifically taking up the “exempt” status of mortgage loan officers. Much like the Second Circuit’s analysis in Whalen, the DOL stated that mortgage loan officers “do not qualify as bona fide administrative employees” who are exempt under FLSA.
While this interpretation is not a binding rule, nor does it bear the required trappings of a formal rulemaking, it sends a clear signal that the current Administration has the banking and mortgage industry in its sights. More troubling, the DOL issuance will clearly encourage an opportunistic trial bar to “Cry "Havoc!" and let slip the dogs of war” and file litigation. Institutions with exempt mortgage personnel on the payroll should certainly review their FLSA policies in light of these recent developments.
[This article was posted on May 14, 2010, on the website of ABA Banking Journal, www.ababj.com, and is copyright 2010 by the American Bankers Association.]
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