Alert April 06, 2010

Department of Labor Concludes that “Typical” Office-Based Mortgage Loan Officers are Eligible for Overtime Pay

The U.S. Department of Labor’s Wage and Hour Division recently issued an “Administrator’s Interpretation” in which it concluded that employees who perform the “typical duties of a mortgage loan officer” do not qualify as exempt from overtime eligibility under the commonly used exemption for “administrative employees.”  In reaching this conclusion, the Wage and Hour Division specifically withdrew two earlier Wage and Hour Division opinion letters in which it had concluded that mortgage loan officers could qualify as exempt from overtime eligibility as administrative employees.

The Fair Labor Standards Act (the “FLSA”) provides that employees are entitled to overtime pay at the rate of time and one-half for hours worked over 40 in a workweek unless an FLSA exemption applies.  The time and one-half calculation is applied to most forms of pay, including wages, salaries, commissions and many forms of bonuses. 

In recent years, there has been considerable litigation on a class action or “collective action” basis seeking overtime pay, including some claims by groups of mortgage loan officers.  Employers typically defend such claims by mortgage loan officers based on one or both of two FLSA exemptions – the outside sales exemption and the administrative exemption.  For the outside sales exemption to apply, a mortgage loan officer must, among other requirements, “customarily and regularly” work away from the employer’s offices and even any home office.  This requirement makes that exemption inapplicable to mortgage loan officers who do not spend a substantial portion of their work time away from both an employer office and a home office.  Employers that classify office-based mortgage loan officers as exempt from overtime pay eligibility have therefore relied on the administrative exemption.

The basic standard for application of the administrative exemption is that an employee must (1) have a base salary of at least $455 per week; and (2) have a “primary duty” of performing “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers.”  That primary duty must include “the exercise of discretion and independent judgment with respect to matters of significance.”  29 C.F.R. §541.200. 

The application of the administrative exemption to employees who sell mortgages and financial products has been hotly debated and increasingly litigated.  Until the issuance of the Administrator’s Interpretation, the Wage and Hour Division had provided considerable support for the application of the administrative exemption to such positions through opinion letters issued during the most recent Bush administration. 

The Administrator’s Interpretation expressly changes the Wage and Hour Division’s position concerning mortgage loan officers, including by specifically withdrawing two opinion letters that had found the administrative exemption applicable to certain mortgage loan officers.  In the Interpretation, the Wage and Hour Division rejected most of the arguments that employers have frequently raised to support the position that mortgage loan officers are engaged in work that is directly related to management or general business operations.  Courts are not bound by the Administrator’s Interpretation, but it is entitled to some deference by courts and may well be relied upon by courts to support the conclusion that mortgage loan officers may qualify for overtime pay.  Potential liability could be substantial.  Among other considerations, awards of overtime pay are subject to possible doubling under the FLSA’s liquidated damages provision.  The statute of limitations is at least two years and can be three years in some circumstances.  Successful plaintiffs’ lawyers can obtain awards of their attorney’s fees from the employers that they sue.  

Employers of mortgage loan officers should review their compensation practices in light of the Administrator’s Interpretation and consider modifications if they have treated office‑based mortgage loan officers as ineligible for overtime pay.