Sixth Circuit Confirms Exempt Status of Mortgage Loan Originators

by Butler Snow LLP

Employers who rely on exempt classifications to avoid paying overtime—and particularly employers in the banking and financial services industries—should take in interest in a recent ruling affirming the exempt status of a group of mortgage bankers.
The defendant in this case, Quicken Loans, offers mortgages to customers in all fifty states.  The company utilizes mortgage bankers to play a lead role in the lending process.  Mortgage banker Ryan Henry and 445 of his colleagues sued Quicken, claiming the company failed to pay them overtime wages from 2003 to 2007, in violation of the Fair Labor Standards Act, 29 U.S.C. §201 et seq. (“FLSA”).  In fact, Quicken had not paid overtime, relying on the administrative exemption from the overtime requirements of the FLSA.   (Under the FLSA, time records must be kept and overtime must be paid for all employees, unless the employer can prove that an exemption applies).
For the administrative exemption to apply, an employee must be compensated on a salaried basis of at least $455 per week, must have a primary duty of “office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers” and which includes the “exercise of discretion and independent judgment with respect to matters of significance.”  In addition, the United States Department of Labor (“USDOL”) has provided specific guidance regarding the applicability of the administrative exemption to employees in the financial services industry.  The USDOL regulations state that while certain analytical and customer service functions may qualify as exempt administrative work, “an employee whose primary duty is selling financial products does not qualify for the administrative exemption.”  29 C.F.R. § 541.203(b). 
In this case, Quicken and the mortgage lenders agreed about the salaried basis of payment for the position, but not about much else.  The mortgage lenders insisted that they were nothing more than glorified salesmen, told constantly to “sell, sell, sell,” and that they worked off of a 2-page document outlining a ten-step process for developing business.  This undermined the argument that they exercised sufficient discretion and independent judgment to qualify for the position.  Nonsense, countered Quicken.  Mortgage lenders are far more than salesmen; they are the “quarterbacks” of the lending team, charged with collecting and analyzing relevant information and understanding client’s objectives goals and needs. 
Neither side was able to obtain summary judgment (meaning, a ruling on the law eliminating the need for a trial), so the issue was presented to a jury.  The trial went on for five weeks and included testimony from the plaintiffs, from supervisory personnel of Quicken, and from Quicken mortgage lenders who had not joined the class.  The mortgage lenders pushed hard on policies and other documents supposedly proving that mortgage lending was a “by the numbers” sales job.  Meanwhile, Quicken scored some points by pointing out how some of the mortgage lenders, while downplaying their roles for the case, had bragged on their resumes about important job responsibilities they carried out at Quicken.
In the end, the jury sided with Quicken, and ruled that the mortgage lenders were in fact exempt employees and so Quicken did not have to pay them any overtime.  The plaintiffs appealed, and the decision ended up in front of the United States Court of Appeals for the Sixth Circuit. 
Court’s ruling

The Sixth Circuit basically concluded that both sides had had their say, and that Quicken won fair and square.   The mortgage lenders argued that the case never should have been sent to the jury to begin with.  They argued that since other courts and the USDOL had previously issued rulings and opinions that the administrative exemption does not apply to mortgage lenders, the trial court in this case should have followed suit and ruled for them as a matter of law.  But the Sixth Circuit pointed out that, for FLSA exemptions, a determination must be made based on the facts of each situation.  In this case, concluded the court, Quicken presented ample evidence from which the jury could reasonably have concluded that the mortgage lenders were not just glorified salespeople.  Henry et. al. v. Quicken Loans, Case No. 11-2125.
Bottom line
This case is good news for employers in the financial services industry, who have been struggling in recent years with the issue of whether to reclassify mortgage loan originators in light of a 2010 USDOL opinion stating that the position is non-exempt.   Employers may wish to take a close look at the job descriptions utilized by Quicken, as described in the court’s opinion, in tailoring their own job descriptions.    But does this case mean that mortgage loan originators are automatically exempt?  Unfortunately, no.  The case make clear that courts are supposed to consider the facts on a case-by-case basis, and that more often than not, the issue should be decided by a jury. 
Employers generally should take heart that neither the trial court nor the Sixth Circuit in this case deferred to the prior rulings from the USDOL.   As the USDOL becomes more and more aggressive in narrowly defining exemptions, employers may find a better (though admittedly quite costly) forum for resolution of these issues in the judicial process.  This case also serves as a reminder for all employers relying on exempt classifications to ask themselves whether they could establish the exemption criteria for each position, if challenged.   Wage and hour classification audits are the best prevention for misclassification lawsuits, so, if you haven’t done one lately, consider putting that task on your “to do” list for 2013.

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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