On June 6, 2012, the U.S. District Court for the District of Columbia upheld Administrative Interpretation 2010-1 ("AI") issued by United States Department of Labor's Wage and Hour Division ("Division") wherein the Division posited that mortgage loan officers, based on their typical duties, do not qualify for the administrative exemption from overtime pay under the Fair Labor Standards Act ("FLSA"). See Mortgage Bankers Association v. Solis, 2012 U.S. Dist. LEXIS 78270 (D.D.C. 2012). The Division's AI, unsuccessfully challenged by the Mortgage Bankers Association ("MBA"), is particularly unsettling because it directly conflicts with, and withdraws, the Division's prior opinion letter on the subject (FLSA 2006-31, issued on September 8, 2006) ("2006 Opinion Letter"), upon which the MBA's members relied in classifying loan officers as overtime exempt under the FLSA's administrative exemption.
In August 2004, the Department of Labor amended its regulations addressing the FLSA's exemptions from overtime pay requirements. Under the 2004 regulations, the administrative exemption from overtime applies to an employee (i) who is compensated on a salary or fee basis at a rate not less than $455 per week; (ii) whose primary duty is 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 (iii) whose primary duty includes "the exercise of discretion and independent judgment with respect to matters of significance." See 29 C.F.R. § 541.200. Portions of the 2004 regulations focused on how the administrative exemption may apply to financial services employees, whose duties involve collecting/analyzing information regarding customers' income, assets, investments or debts; determining suitability of financial products based on customers' needs and circumstances; giving advice regarding the advantages and disadvantages of financial products; and marketing/servicing/promoting an employer's financial products. See 29 C.F.R. § 541.203(b). However, the 2004 regulations also cautioned that "an employee whose primary duty is selling financial products does not qualify" for the administrative exemption. See id.
For over 40 years, the Division issued opinion letters that announced its interpretation of the FLSA in response to private parties' inquiries seeking guidance about the law's application to their businesses. Consistent with this approach, on September 8, 2006, the Division issued the 2006 Opinion Letter, referenced above, in response to an inquiry from the MBA concerning whether the duties of mortgage loan officers satisfied the administrative exemption. Relying on the MBA's description of a loan officer's duties (such as working with customers to assist them in identifying and securing a mortgage loan appropriate for their financial circumstances and achieving their financial goals) and its representation that "less than 50 percent of the mortgage loan officer's working time over a representative period is spent on customer-specific persuasive sales activity," the Division opined that loan officers were exempt administrative employees.
On March 24, 2010, however, the Division issued an unsolicited "Administrative Interpretation" that withdrew its 2006 Opinion Letter, precipitating the MBA's court challenge. See DOL Administrative Interpretation 2010-1. This new interpretation focused on whether the loan officers' primary duty was "office" work, as distinct from work relating primarily to customer sales. In rejecting the conclusion set forth just a few years before in the 2006 Opinion Letter, the Division's 2010 AI concluded that loans officers' primary duty "is making sales ... of loan products" and, thus, falls on the "production side of the business" rather than work that is directly related to the management and general business operations of their employer or their employer's customers, as required to satisfy the FLSA's administrative exemption.
Almost immediately after the issuance of the AI, the MBA filed suit in federal court in Washington, D.C., seeking to invalidate the AI on various grounds, including that the Division failed to engage in proper rulemaking procedures in issuing the AI. As indicated above, the District Court rejected the MBA's contentions.
Barring an appeal of the MBA v. Solis ruling and/or decisions from other courts declining to embrace the Division's current interpretation of the FLSA's administrative exemption, the District Court's recent rejection of the MBA's challenges to the Division's AI means that the availability of the administrative exemption from overtime pay essentially rests on whether the majority of a loan officer's working time is spent on employer or customer business issues, as distinct from whether it is spent primarily on making customer sales. In the former instance, the administrative exemption likely would apply; in the latter case, it would not in the (current) view of the Division.
An important qualification under the Court's ruling is its decisional note that, with the concurrence of the parties, the ruling does not decide the remaining issue of retroactivity, a matter left for resolution by the litigants. Furthermore, neither the Court's decision nor the Division's AI called into doubt the applicability of the "outside sales" exemption from overtime pay. As such, the outside sales exemption should still apply to loan officers who generate and service customer sales away from their employers' places of business under the criteria normally applied by the Division pursuant to 29 C.F.R. § 541.500.
The Court's ruling in favor of the AI exemplifies the need to keep constant watch on the dynamics of agency interpretations of existing rules and the need, with the guidance of counsel, to stay current in assessing compliance in order to avoid FLSA backpay assessments, liquidated damages and associated penalties. The statute contains a rolling statute of limitations of two years (extended to three years if the violation is willful), with prevailing plaintiffs entitled to recover attorneys' fees and costs.
In this respect, we are reminded that banking and mortgage institutions as employers are now particularly vulnerable to the consequences of failure to self-examine their employment policies and practices. Any member of our Labor and Employment Group is available to address these concerns and assist in evaluating compliance needs.