eLABORate: Sixth Circuit Reopens Debate on Exempt Status of Mortgage Loan Officers Under FLSA

February 06, 2013

In 2010, the Department of Labor sought to settle the question of whether a mortgage loan officer constitutes an administrative employee exempt from the Fair Labor Standards Act's minimum wage and overtime requirements. In its novel Administrator's Interpretation, the Department opined that a "typical" mortgage loan officer would not satisfy the exemption, because he or she would be primarily engaged in sales. In the wake of the Administrator's Interpretation, many companies reclassified their mortgage loan officers as non-exempt, and litigation has been rampant. An October 2012 decision from the Sixth Circuit, however, affirming a jury verdict in favor of Quicken Loans that its mortgage bankers were properly classified as exempt administrative employees, throws the debate open again, and calls into question the continuing impact of the DOL's Interpretation.

On March 24, 2010, the Department of Labor's Wage Hour Division Deputy Administrator ("DOL") issued an Administrator's Interpretation, taking the position that employees who perform job duties typical of a mortgage loan officer ("MLO") do not qualify as bona fide administrative employees who are exempt from the Fair Labor Standards Act ("FLSA") minimum wage and overtime requirements. The DOL analyzed the MLO's duties under the second prong of the administrative exemption, 29 C.F.R. 541.200(a)(2), which requires that an employee's "primary duty [be] the performance of office or non-manual work directly related to management or general business operations of the employer or the employer's customers." The other two prongs of the exemption, which were not analyzed, are that (1) the employee be paid on a salary basis of at least $455 per week, and (2) that his or her "primary duty includes the exercise of discretion and independent judgment with respect to matters of significance." 29 C.F.R. 541.200(a)(1),(3).

In reaching its conclusion, the DOL defined the typical job duties of a MLO as follows: receiving internal leads and contacting potential customers; collecting financial information from customers; running credit reports; entering the collected financial information into a computer program which identifies potential loan products for the customer; assessing the loan products; discussing the terms and conditions of loans with customers; matching a customer to a type of loan; compiling documents for forwarding to an underwriter or loan processor; and finalizing documents for closings. The DOL first analyzed these "typical" job duties to determine whether such duties are primarily administrative in nature, as compared to duties which involve the production operations of a business, the so-called "production administrative dichotomy." The DOL concluded that, because a MLO's primary duty is to make sales, such duties involve the production operations of the business, and cannot meet the requirement that the employee's duties be "directly related to management or general business operations."

The DOL also concluded that, because most mortgages were home mortgages for individual homeowners, the MLOs could not be performing work that was directly related to management or general business operations of the employer's customers. With respect to this second conclusion, the DOL reasoned that, because home mortgages are "purely personal" business engaged in by consumers, rather than, for example, a sole proprietor making a business purchase, they are not the kind of "customer" contemplated by the administrative regulation, including its example in 29 C.F.R. 541.203(b) of employees in the financial services industry who "generally" would meet the administrative exemption on the basis of advising their employer's customers. Finally, the DOL rejected and withdrew a 2006 opinion letter that concluded that mortgage loan officers were exempt under the administrative regulation (and also withdrew a 2001 letter which reached a similar conclusion). Accordingly, the DOL concluded that typical MLOs are not administrative employees exempt from the FLSA's mandatory minimum wage and overtime requirements.

Following the DOL's interpretation, district courts within the Sixth Circuit rejected challenges to the interpretation's validity. A district court in Ohio in Lewis v. Huntington National Bank, 838 F.Supp.2d 703 (S.D. Ohio 2012), denied a motion for summary judgment which sought to challenge the DOL opinion in part by arguing it was inconsistent with the federal regulation defining examples of administratively exempt financial services employees under the FLSA. The court disagreed and concluded that the DOL opinion was not plainly erroneous or inconsistent with the federal regulation because the DOL opinion applied the FLSA exemption test consistent with the examples contained in the federal regulation. A few months later, another district court in Ohio in Swigart v. Fifth Third Bank, 870 F.Supp.2d 500 (S.D. Oh. 2012), adopted the conclusions of Lewis and denied summary judgment to another employer.

During the same period, however, in March 2011, a jury in a federal district court in Michigan found Quicken Loans' mortgage bankers (or mortgage loan consultants) were properly classified as exempt administrative employees. Following thorough briefing, including an argument by plaintiffs that the DOL's Administrator Interpretation required reversal of the jury verdict, in October 2012, the Sixth Circuit affirmed the jury's verdict in Henry v. Quicken Loans, Inc., 698 F.3d 897 (6th Cir. 2012).

The duties of the Quicken Loans mortgage bankers as accepted by the jury were similar to those listed by the DOL as "typical" MLO duties. Further, the mortgages were primarily for home mortgages, not businesses. Nevertheless, the jury found that the mortgage bankers satisfied the administrative exemption, importantly, because the jurors credited the evidence that the mortgage bankers' primary duty was not sales. The Sixth Circuit determined that the jury's verdict was supported by the evidence and that it was not a "seriously erroneous result." Responding to plaintiffs' briefing and citation of the DOL's Administrator's Interpretation, the Sixth Circuit refused to overturn the jury verdict, referring generically to non-binding DOL opinion letters, and likewise distinguishing as non-binding an unpublished, unappealed, district court summary judgment decision relied on by plaintiffs and cited heavily by the DOL in its Administrator's Interpretation. The Sixth Circuit, however, did not conclude that the Administrator's Interpretation was "wrong as a matter of law," only that the jury's verdict in Henry was also permissible on the facts credited.

The Sixth Circuit's decision is a significant contribution in the debate over the exempt status of mortgage loan officers. First, the court's decision effectively limited the DOL's interpretation to its facts and granted it no deference as an agency interpretation. Second, the court's decision implicitly rejects the DOL's broad (and dubious) determination that an individual consumer cannot be the kind of "customer" contemplated by the administrative exemption. The limitation of the DOL's interpretation gives employers an opportunity to evaluate or reevaluate the job duties of their employees in similar positions to those in Henry and the DOL's Administrator's Interpretation to determine whether they should classify such employees as exempt. The evaluation should be approached with caution, however, because the Sixth Circuit decision explicitly stated that the DOL's opinion was not wrong as a matter of law, its holding was to affirm a jury verdict, and it is one of thirteen courts of appeal. The litigation over the exempt status of mortgage loan officers and other employees in the financial services industry continues and results vary, but employers have more ammunition going forward in 2013 than they have had since March 2010.