In our July 2013 alert, we reported on a federal appellate court ruling in Mortgage Bankers Association v. Harris.  Mortgage Bankers Association challenged a U.S. Department of Labor (DOL) 2010 opinion letter in support of mortgage loan officer eligibility for overtime pay, and the federal appellate court ruled that the 2010 opinion is invalid.

On June 16, 2014, the U.S. Supreme Court granted review and the issues are being briefed to the Court over the next few months. The following is an update on this new legal development.

Background History The issues now before the Supreme Court date back to 2006, when the DOL issued a Bush-era opinion letter stating that archetypal mortgage loan officer job duties qualify for the administrative exemption to federal overtime laws, therefore these mortgage loan officers are not eligible for overtime pay.   However, the 2006 opinion was short lived.

After a change of administrations, the DOL reversed itself. Four years later, the DOL issued a new 2010 opinion letter stating that its previous 2006 opinion was withdrawn and that typical mortgage loan officer job duties do not qualify for the administrative overtime exemption, therefore these mortgage loan officers are eligible for overtime pay unless another exemption applies.

Mortgage Bankers Association brought a lawsuit challenging the DOL’s flip-flop. As we previously reported, this led to a ruling in July 2013 by the DC Circuit Court of Appeals, which invalidated the 2010 opinion on grounds that it was not properly implemented.

The appellate court ruled that the DOL’s 2006 opinion is a “definitive interpretation” that may only be significantly revised through the notice and rulemaking procedures of the Administrative Procedures Act (APA). The DOL did not follow those procedures, so the appellate court held that the DOL’s 2010 opinion is invalid. The DOL appealed the ruling, and the Supreme Court now has agreed to decide the issue.

What the Supreme Court Likely Will (and Will Not) Decide: This case focuses on federal agency rulemaking power. Agencies frequently issue opinions that are meant to be definitive interpretations of the statutes and regulations they are responsible for enforcing. Presumably it is intended that businesses will rely on such interpretations and courts will afford them deference. 

The Supreme Court’s upcoming decision will determine whether an agency may unilaterally reverse its own definitive interpretation when the agency changes its mind, and what procedural safeguards may apply. The Court is unlikely to reach the merits of the two DOL opinions that underlie the suit, i.e., as to whether or not mortgage loan officers typically qualify as exempt from overtime pay.

How Does This Relate to Mortgage Loan Officer Eligibility for Overtime Pay? The Mortgage Bankers Association litigation has created some confusion, because it skirts around the edges of the issue that is pertinent for financial industry employers: are mortgage loan officers eligible for overtime pay, or do they qualify as exempt? 

Applicability of exemptions is at times difficult, because the administrative exemption’s duties test can be nebulous when applied to certain positions.  For mortgage loan officers, this is borne out by the DOL’s two opinions over a four-year span that reached opposite conclusions.  Significantly for financial industry employers, as a consequence of the Mortgage Bankers Association litigation the apparent clarity that the 2010 opinion provided in support of mortgage loan officer eligibility for overtime may now be less clear. 

Some have argued that the DOL’s 2010 opinion definitively established that mortgage loan officers typically are entitled to overtime. The appellate court’s invalidation of the 2010 opinion makes that argument untenable, although those supporting it might argue in response that the rationale of the 2010 opinion should be accepted even though the opinion was invalidated due to a procedural technicality.

Others have argued that the federal appellate court’s invalidation of the 2010 opinion constitutes a reversion to the DOL’s 2006 definitive interpretation that mortgage loan officers with archetypal duties typically qualify for the administrative overtime exemption and are not eligible for overtime. Even if so, however, employers should not be too hasty to rely on the 2006 opinion for the following reasons.

First and foremost, the appellate court’s ruling is now under Supreme Court review, and it is not currently known whether its invalidation of the 2010 opinion will be upheld.  Moreover, even if the Supreme Court affirms the appellate court’s ruling, that still would permit the DOL to pursue a re-adoption of its 2010 opinion by following the APA’s notice and rulemaking protocols.

Further, although practitioners may debate which of the DOL’s two opinions has the better legal analysis and rationale regarding mortgage loan officers with typical or archetypal job duties, application of overtime exemptions to particular employees ultimately is a fact-specific inquiry and the results may vary depending on the circumstances.

Finally, to be exempt from overtime, mortgage loan officers not only must meet a federal exemption, they may also have to meet an exemption under the laws of the state in which they work. In California, the exemption requirements generally are more stringent than under federal law.

Determining whether an employee qualifies for an overtime exemption requires consideration of a variety of factors such as the employee’s actual duties and level of responsibility, the amount of time the employee spends on various duties, the amount and structure of the employee’s compensation, and the nature of the employer’s business. Experienced employment counsel can assist companies in determining whether particular employees are eligible for overtime or whether they qualify for an exemption. 

For companies or organizations that want to express their views to the Supreme Court, the deadline for filing amicus briefs in support of the appellate court’s ruling is one week after Mortgage Bankers Association files its brief, which currently is due by September 25, 2014.  In the meantime, we will continue to provide updates on these issues.