eLABORate: D.C. Circuit to DOL: You Can't Just Change Your Mind About Mortgage Loan Originators

July 08, 2013

Last week, a unanimous panel of the D.C. Circuit Court of Appeals vacated a 2010 Department of Labor Administrator Interpretation (AI) in which the DOL had stated that mortgage loan originators are non-exempt, but instead must be paid minimum wage and overtime under the Fair Labor Standards Act. Mortgage Bankers Association v. Harris, No. 12-5246 (D.C. Cir. July 2, 2013). In 2010, the Department of Labor announced that in lieu of its historic practice of issuing opinion letters in response to specific factual scenarios presented by petitioners, it would issue more generalized guidance in the form of Administrator Interpretations (AIs) when it found it necessary to provide further clarity regarding the proper interpretation of a statutory or regulatory issue. The first AI rescinded a 2006 opinion letter which had stated that mortgage loan officers as described in that letter qualified for the FLSA's administrative exemption, and employers were not required to pay them overtime. The 2010 AI reversed DOL's position, stating that mortgage loan officers performing "typical" duties did not meet the administrative exemption, and so were owed overtime compensation. Plaintiffs' lawyers rejoiced.

The Mortgage Bankers Association filed suit against the DOL arguing that the Administrative Procedure Act (APA) and underlying case law explicitly require the DOL to go through the typical channels of notice-and-comment rulemaking when seeking to reinterpret a regulation. The D.C. Circuit agreed and found that the DOL's 2010 AI ran against the court's "ostensibly straightforward rule" that was announced in Alaska Professional Hunters Ass'n v. FAA, 177 F.3d 1030 (D.C. Cir. 1999) ("Alaska Hunters") in which the court held that, "[w]hen an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish [under the APA] without notice and comment." The court agreed with the MBA that the APA required the 2010 AI to go through the full regulatory process: a proposed regulatory revision, a public comment period, consideration of the received comments, and a final regulation (collectively known as "notice-and-comment" rulemaking). The court remanded the case to the district court with instructions to vacate the 2010 Administrator Interpretation.

It is important to note that the appeals court did not address the merits of the AI. In fact, it made clear that the DOL is free to take the position it took in the AI in the future. However, the DOL will be required to take on the heavy lifting mandated by the APA if it intends to make this fundamental interpretive change. Although the exempt status of mortgage loan officers continues to be litigated heavily, for now, the DOL's effort to preemptively win cases for plaintiffs has been stopped. Further, it will be interesting to see whether courts consider that the vacating of the DOL's AI reinstates the 2006 opinion letter that the AI withdrew, and whether they consider that it does so retroactively to 2010.