Mortgage loan officers (MLOs) generally have been treated as exempt from FLSA overtime and minimum wage requirements based on a Wage and Hour Opinion Letter issued in 2006 that reached the conclusion that MLOs satisfied the administrative exemption. However, on May 3, 2010, the United States Supreme Court declined to review a case in which loan underwriters employed by a subsidiary of a very large multinational bank holding company (the Bank) were found not to be “exempt employees” under the administrative exemption of the Fair Labor Standards Act (FLSA). This result comes on the heels of a March 24, 2010, Administrator’s Interpretation issued by the United States Department of Labor (DOL) that opined that an individual performing the “typical duties” of a mortgage loan officer (MLO) will not qualify for the administrative exemption. For details about the 2010 DOL Administrator’s Interpretation, see Bricker & Eckler’s Bulletin Mortgage Loan Officers Generally Not Exempt From Wage and Hour Laws (April 12, 2010.  

Administrative Exemption

Generally, to determine if an employee works in an exempt administrative capacity, the employee’s job duties and compensation must meet all of the following criteria:  

  • The employee must be compensated on a salary or fee basis at a rate not less than $455 per week;  
  • The employee’s primary duty must be 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  
  • The employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

Production Work v. Administrative Work

In the Bank case, the United States Court of Appeals for the Second Circuit focused solely on the second criteria, and determined that the duties of the loan underwriters were related to the production operations of the employer and not the management or general business operations (i.e., administrative operations). Thus, the court of appeals found that the Bank could not establish the second criteria of the administrative exemption test, and the underwriters were not exempt from federal wage and hour laws. The failure to satisfy the second criteria rendered it unnecessary for the court of appeals to address whether the Bank could establish the third criteria related to the exercise of discretion and independent judgment.  

The court of appeals relied on the following facts to support its decision:  

  • The loan underwriters’ primary duty was to sell loan products  
  • Loan underwriters were given loan applications and followed the procedures in the Bank’s Credit Guide to produce a “yes” or “no” decision on the application  
  • The underwriters were not expected to advise customers as to what loan products would best meet their needs  
  • The Bank categorized the loan underwriting department as “production” rather than “operations”  
  • The Bank evaluated the underwriters based on compliance with the Credit Guide and their productivity was measured by the average number of decisions made per day  
  • Loan underwriters were occasionally paid incentives based on factors such as the number of decisions they made.  

In light of these facts, the court of appeals determined that the job of loan underwriter at the Bank fell under the “production” category rather than the “administrative” category. This determination was reached because the MLOs “performed work that was primarily functional rather than conceptual,” “they were not at the heart of the company’s business operations,” and “they had no involvement in determining the future strategy or direction of the business, nor did they perform any other function that in any way related to the business’s overall efficiency or mode of operation.”  

Conclusion

The financial services industry can no longer rely on a blanket administrative opinion that all MLOs are exempt. As a result, application of the administrative exemption to MLOs and loan underwriters in the financial services industry should now be revisited and re-examined on a case-by-case basis. Each employee’s actual job duties and compensation, not the employee’s job title, determine whether that employee is exempt or nonexempt. Financial services organizations with MLOs and loan underwriters should carefully review the actual duties of their MLOs and loan underwriters in order to determine whether the FLSA administrative exemption applies to these employees to ensure that the employer’s minimum wage and overtime obligations are satisfied.