On Monday, the U.S. Supreme Court accepted review of two lower court decisions of significant importance to the banking and financial services industries. The cases involve the question of whether mortgage loan officers are exempt from overtime requirements under the Fair Labor Standards Act. Specifically, the Court will review appellate court decisions concluding that a 2010 interpretation of the exemption by the Obama administration impermissibly contradicted a 2006 Opinion Letter issued during the Bush administration that classified these workers as exempt.
The overtime exempt status of mortgage loan officers has a long and convoluted history. Mortgage loan officers typically assist prospective borrowers with identifying and applying for various mortgage offerings. Financial service industry employers contend that the loan officers qualify as Administrative employees, exempt from the FLSA’s overtime and minimum wage requirements. Plaintiffs representing these employees have sued, claiming that they are nothing but glorified salespersons, and therefore do not meet the duties test for the Administrative exemption.
After taking contradictory positions on this issue over the years, in 2006 the Department of Labor issued an Opinion Letter concluding that the loan officers primarily provide support services, educating prospective borrowers about various options, therefore meeting the requirements for the Administrative exemption. In 2010, DOL issued a new “Administrator’s Interpretation” explicitly withdrawing the 2006 letter, and stating that loan officers typically do not meet the requirements for the Administrative exemption.
The Mortgage Bankers Association sued, contending that DOL could not reverse the 2006 Opinion Letter without going through the full rulemaking process. Last year, the D.C. Circuit Court of Appeals agreed with the industry, declaring that the 2010 interpretation was legally invalid because it did not follow federal rulemaking requirements. The Supreme Court will review this decision.
The Court will likely not decide the substantive issue of whether mortgage loan officers qualify as Administrative exempt. However, if the Court affirms the lower court’s decision, it will reinstate the 2006 DOL opinion until any rulemaking can be finalized, which could take years at best. The Court could also declare the case moot based on DOL’s recent announcement that it is initiating a rulemaking procedure to review all of the FLSA exemptions, including the Administrative one.
However, until such rulemaking procedure is completed and survives inevitable legal challenges, DOL would be bound by the earlier interpretation. Private parties could still contend that the 2006 interpretation is invalid, but would have to overcome the legal presumption that the agency has the authority to interpret its own rules.
For the industry, even a final DOL or Court decision classifying mortgage loan officers as qualified for the Administrative exemption may not end litigation on this issue. The Administrative exemption requires that the employees in question exercise significant discretion and independent judgment in the carrying out of their duties. In recent litigation, plaintiffs have argued that even if mortgage loan officers can fall under the Administrative exemption, individual financial institutions have forfeited their right to claim the exemption by imposing standardized procedures on the officers, therefore depriving them of this element of discretion and judgment.
Based on these factors, wage and hour litigation involving mortgage loan officers is likely to continue for the foreseeable future. The Supreme Court will schedule oral arguments on these cases in the Fall, with a decision expected in 2015.