As you may recall, the DOL threw the mortgage industry into a tizzy when it issued a sweeping Administrator Interpretation in 2010 that reversed its prior opinion letters and announced its view that mortgage loan officers were not exempt from the minimum wage and overtime requirements of the FLSA (at least under the administrative exemption). Since then, there’s been much uncertainty and costly litigation concerning the proper classification of loan officers.
First, a recap. The mortgage industry has traditionally classified loan officers as exempt employees — a decision that was supported by various opinion letters from the DOL dating back to 2006, which, subject to specific facts, concluded that loan officers were administratively exempt employees. The DOL’s 2010 and first-ever Administrator Interpretation marked a sharp 180 degree change. In it, the DOL explicitly rejected its prior opinions and after summarizing the “typical” duties of mortgage loan officers, concluded that loan officers do not qualify for the administrative exemption. In sum, the DOL found that loan officer were primarily focused on sales, and therefore did not perform administrative work. The Mortgage Bankers Association (MBA) sued the DOL in 2010 on account of its flip flop, contending that the DOL failed to follow proper procedure for rulemaking.
Initially, the District Court sided with the DOL, holding that the agency had not run afoul of the Administrative Procedures Act when it flip flopped its position about whether loan officer were overtime eligible. However, as we reported here, the D.C. Circuit reversed the District Court’s ruling and vacated the Administrator Interpretation. Although the Court of Appeals did not opine on the proper classification of MLOs, it cited to prior Circuit Court decisions to find that the DOL could not so drastically revise its interpretation unless it abided by the notice and comment rulemaking standards of the Administrative Procedures Act. This means that before changing its interpretation, the DOL must first propose regulatory revisions, elicit public comments, review and analyze those public comments and only after multiple layers of approval, issue final regulations.
Clearly unhappy with this outcome, three former loan officers who had intervened in the MBA’s case asked the DC Circuit to take another look, requesting en banc review of the panel decision. The loan officers argued that the case law the panel relied upon was actually contrary to the APA and therefore worthy of reconsideration by the full court. Late last week, the D.C. Circuit Court of Appeals rejected the loan officers’ petition for en banc review, noting simply that no member of the Court had requested a vote.
In short, the DC Circuit has now told the DOL- twice- that it may not circumvent the APA’s regulatory process and that changing the classification of mortgage loan officers from exempt to non-exempt won’t be so easy as issuing a letter. The DC Circuit’s rulings have left the DOL’s Administrator Interpretation without effect while simultaneously reviving the DOL’s prior opinions. Even so, the dust on the proper classification of loan officer has not yet settled. It is unclear at this point whether the DOL will seek to take the case to the Supreme Court or whether it will abide by the DC Circuit’s finding and perhaps begin the process of issuing proper regulations that could resuscitate it 2010 Administrator Interpretation.