Federal Court Finds No Willful Violation for Misclassification of Mortgage Loan Officers

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A federal court in Oklahoma delivered another blow to claims by mortgage loan officers that they are entitled to overtime under the Fair Labor Standards Act (FLSA). In Chapman v. BOK Financial Corporation, the court considered whether BOK Financial acted willfully in misclassifying its mortgage loan officers as exempt and for failing to pay them back wages after it changed their classification to non-exempt.

Initially, BOK Financial classified its mortgage loan officers as exempt from the FLSA’s overtime requirements based on guidance issued by the U.S. Department of Labor (DOL) in 2006. In March 2010, the DOL reversed course, issuing new guidance finding mortgage loan officers to be non-exempt and entitled to overtime. In light of the DOL’s reversal, BOK Financial reevaluated its classification decision, and ultimately concluded at the end of 2010 that the classification should be changed to non-exempt, effective January 1, 2011. BOK Financial did not pay back wages to affected employees for the period between March 2010 and January 1, 2011. The plaintiffs argued that this failure to do so constituted a willful violation of the FLSA, entitling them to liquidated damages under the statute. The plaintiffs premised their claim on the allegation that BOK Financial knew or showed reckless disregard as to whether its classification decision violated the law.

The court disagreed. It noted that BOK Financial took a number of steps to assess its obligations under the FLSA, including by consulting outside resources, such as banking trade organizations; sending its employees to seminars regarding the effect of the 2010 DOL guidance on mortgage loan officers exempt status; evaluating the applicability of other FLSA exemptions; and surveying peer banks as to their interpretation of the 2010 DOL guidance. The court also rejected the plaintiffs’ argument that the company’s failure to pay back wages for the period between issuance of the DOL guidance and the effective date of its classification decision demonstrated reckless disregard of the law.

Notably, the propriety of the DOL’s about-face already has been rejected by one federal appellate court, and is now under review by the U.S. Supreme Court. The 2010 DOL guidance became the subject of intense litigation in the U.S. Circuit Court of Appeals for the D.C. Circuit, Mortgage Bankers Association v. Harris, which ultimately nullified the guidance and held that the DOL failed to follow the appropriate rulemaking procedures in issuing it. The mortgage loan officers at issue in Harris petitioned the D.C. Circuit to reconsider its position, but the court declined that invitation. The Supreme Court, however, agreed to consider the issue, and oral argument before the Court will be held later this year.

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