Loan Officers Petition D.C. Circuit To Review Decision Regarding Overtime Exemption

by Ballard Spahr LLP

Three loan officers at Quicken Loans Inc. have petitioned the U.S. Court of Appeals for the District of Columbia Circuit for en banc reconsideration of a recent ruling that invalidated U.S. Department of Labor (DOL) guidance on the applicability of an "administrative exemption" to loan officers in determining eligibility for overtime pay under the Fair Labor Standards Act (FLSA). The petition follows a decision by a D.C. Circuit panel on July 2, 2013, in Mortgage Bankers Assn. v. Harris. The court held that the DOL had failed to follow proper rulemaking procedures when it issued a 2010 Administrator's Interpretation reversing its own longstanding "definitive interpretation" that loan officers can qualify as administrative employees exempt from the FLSA's overtime requirements.

The FLSA generally requires that employers compensate non-exempt employees at one and one-half times their regular rate of pay for all hours worked in excess of 40 hours per workweek. The FLSA exempts certain categories of employees from the overtime obligation, among them "any employee employed in a bona fide executive, administrative, or professional capacity." To qualify for the "administrative" exemption, an employee must:

  • be compensated on a salary or fee basis at a rate of not less than $455 per week;
  • have as a primary duty the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and
  • exercise discretion and independent judgment with respect to matters of significance in carrying out their job duties.

In a 2006 Opinion Letter, the DOL had applied the administrative exemption to employees performing a specified set of duties as loan officers, finding that they met the exemption and were not entitled to overtime. According to the letter, loan officers fall under the administrative exemption if they "market, service, and promote their employer's financial products," and "evaluate different courses of action and make decisions after various possibilities have been considered."

The DOL reversed its position in a 2010 Administrator's Interpretation, however, and found that this exemption should not apply to loan officers because their primary duties almost exclusively involve facilitating the sale of the employer's "marketplace offerings," rather than providing advice regarding internal operations. Under this interpretation, loan officers fall outside of the exemption.

This "flip-flop" led to a flood of FLSA lawsuits related to the payment of overtime to loan officers. The Mortgage Bankers Association (MBA) challenged the DOL's decision to reverse its 2006 interpretation through an Administrator's Interpretation, rather than through the formal rulemaking procedures set forth in the federal Administrative Procedures Act (APA). These procedures require notice to the public and an opportunity to comment. The D.C. Circuit agreed with the MBA, holding that the DOL's 2006 letter constituted a "definitive interpretation" of the law, which the agency could overturn only by following the APA's rulemaking requirements.

It is clear that we have not heard the last word in this dispute. The recent petition filed by three Quicken Loans employees asks the D.C. Circuit, sitting en banc, to review the Mortgage Bankers Assn. ruling, which was decided by three judges. The employees all have pending FLSA lawsuits for unpaid overtime. The petition urges critical reexamination of the decision, asserting that it is at odds with the majority of federal appellate courts that have examined a federal agency's authority to issue interpretations of its regulations. The petition further asserts that the decision has implications reaching far beyond the DOL and its interpretation of FLSA regulations, potentially affecting all federal agencies subject to APA rulemaking procedures.

The DOL has indicated that it is preparing its own petition for rehearing en banc, which is due no later than September 6 under a request for extension of time filed by the DOL.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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