Mortgage loan officers may qualify for the administrative exemption from the overtime wage provisions of the Fair Labor Standards Act, the D.C. Circuit Court of Appeals held July 2, striking down a 2010 Administrator’s Interpretation from the Department of Labor.

The court’s opinion reverses a reversal by the DOL, which had been challenged by the Mortgage Bankers Association. In 2006 the agency issued an opinion letter that determined that mortgage loan officers “with archetypal job duties” qualified for the administrative exemption of the FLSA. The employees at issue typically assist prospective borrowers in identifying and then applying for various mortgage offerings.

But just four years later DOL Deputy Administrator Nancy J. Leppink issued an Administrator’s Interpretation – the first ever from the agency – taking the opposite position: “‘employees who perform the typical job duties’ of the hypothetical mortgage loan officer ‘do not qualify as bona fide administrative employees,’” she declared.

Representing more than 2,200 real estate finance companies with more than 280,000 employees nationwide, the Mortgage Bankers Association filed suit against the DOL, arguing that the Administrator’s Interpretation had not been promulgated through the notice and comment rulemaking procedure as required by the Administrative Procedure Act. A federal district court judge disagreed, granting summary judgment for the agency.

But on appeal the D.C. Circuit reversed and vacated the Administrator’s Opinion. Quoting prior precedent, the three-judge panel said that when “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 DOL argued that the mortgage loan officers had not demonstrated “substantial and justifiable” reliance upon the 2010 position and, therefore, failed to plead a required prong of the statutory analysis.

Not so, said the three-judge panel. Plaintiffs must establish only two elements: definitive interpretations and a significant change. “[T]here is no discrete reliance element. Reliance is just one part of the definitiveness calculus,” the court wrote, acknowledging that the formula “is more art than science. Courts must weigh the role reliance plays on a case-by-case basis to ascertain its value.”

Because the DOL conceded at oral argument the existence of two definitive – and conflicting – agency interpretations and the new position was clearly a significant change, the court’s decision was made easier.

Reversing the district court’s order dismissing the Mortgage Banker Association’s motion for summary judgment, the court vacated the 2010 Administrator’s Interpretation.

“If the DOL wishes to readopt the later-in-time interpretation, it is free to do so,” the panel added. “We take no position on the merits of their interpretation. DOL must, however, conduct the required notice and comment rulemaking.”

To read the decision in Mortgage Bankers Assoc. v. Harris, click here

Why it matters: A clear victory for the Mortgage Bankers Association – and mortgage loan officers – the D.C. Circuit’s decision is beneficial to employers in one regard: it clarifies the official position of the DOL with regard to the administrative exemption for such employees, which currently is its 2006 opinion letter that classified them as exempt. It also sets a clear standard to be applied when agencies decide to change an official position, making a quick change of heart harder to do. As the panel noted, however, the DOL is free to switch gears on the matter if it follows the required notice and comment rulemaking procedure. As a result, this ruling will not likely be the last word on this issue.