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FWW Employment Alert: Exemption July 18, 2012 |
Court Rejects Industry Challenge to DOL Interpretation on Loan Officer Exemption
A federal district court judge has rejected the Mortgage Bankers Association's ("MBA") challenge to the Department of Labor's ("DOL") ruling that loan officers are not exempt under the Fair Labor Standards Act ("FLSA"), and are, therefore, entitled to overtime compensation. This ruling follows a long and tortured administrative history related to the classification of loan officers under the FLSA. The saga started with a 2006 opinion letter issued by the DOL that concluded that mortgage loan officers were generally exempt under the administrative exemption. Thousands of financial institutions relied upon the 2006 opinion letter in not paying overtime to their loan officers. However, in March 2010, the DOL reversed course and ruled that loan officers did not qualify under the administrative exemption. This ruling has led to a number of lawsuits against financial institutions of all sizes by loan officers seeking back overtime pay from financial institutions who relied on the 2006 opinion letter.
The MBA filed a lawsuit against the DOL seeking to reverse the 2010 interpretation. The MBA argued that, once an agency interprets a regulation, it cannot change that interpretation without engaging in the formal rulemaking process. It also argued that the 2010 opinion was arbitrary, capricious and an abuse of discretion. Finally, the MBA argued that employers who relied on the 2006 opinion ought to be protected from suits for back wages. The court ejected all of the MBA's arguments, ruling that: 1) the DOL's actions were not arbitrary or capricious; 2) the 2010 interpretation was not inconsistent with FLSA regulations; and 3) employers could not satisfy the requirements for "substantial and justifiable" reliance on the 2010 opinion because financial institutions had treated loan officers as non-exempt prior to the 2006 opinion.
This ruling is a loss to employers trying to avoid back pay obligations to loan officers and serves as a reminder to verify that loan officers are properly-classified, as well as to regularly review the job descriptions and actual job duties of all other administrative employees to verify that they are properly-classified. The costs of an improper classification can be substantial and the employer's ability to challenge the employee's claim is often limited by the employer's lack of time records.
If you have any questions about this ruling, exemptions or wage and hour issues generally, please do not hesitate to contact any of the employment lawyers at Farleigh Wada Witt.
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