Mortgage loan officers are typically not covered by the administrative exemption to the Fair Lair Standards Act’s (FLSA) overtime and minimum wage requirements, according to Administrative Interpretation No. 2010-1, issued by the United States Department of Labor (DOL) on March 24, 2010.  The DOL interpretation withdrew two previous opinion letters that suggested mortgage loan officers are exempt employees.

THE DOL's New Interpretation

 

The administrative exemption applies to employees 1) who are compensated on a salary or fee basis at a rate of at least $455 per week, 2) whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance, and 3) whose primary duty is the performance of office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers.  29 C.F.R. § 541.200.  Those employees qualifying for the exemption are not subject to the FLSA’s minimum wage or overtime pay requirements.    

Generally, exempt administrative employees perform support functions related to the operations of a business, rather than producing or selling the goods and services offered by the business in the marketplace.  Examining the typical duties of mortgage loan officers, the DOL found that their primary duty is making sales of loan products.  Therefore, the DOL determined that typical mortgage loan officers are not entitled to the administrative exemption because they perform the “production” work of their employers, rather than administrative work related to the company’s “management or general business operations.”  The DOL limited its interpretation to employees spending the majority of their time working inside their employer’s place of business; the interpretation does not address the FLSA’s outside sales exemption, which applies to certain employees primarily engaged in making sales away from the employer’s place of business. 

The DOL also rejected the argument that mortgage loan officers’ primary duty relates to the management or general business operations of the employer’s customers, at least with regard to residential mortgage sales:    “[W]ork for an employer’s customers does not qualify for the administrative exemption where the customers are individuals seeking advice for their personal needs, such as people seeking mortgages for their homes.”  The administrative exemption could be available, however, to the extent mortgage loan officers primarily serve business customers as general financial advisors or as consultants on the proper way to conduct business.    

This DOL interpretation departs from previous opinion letters not only in substance, but also in form.  Departing from  its longstanding practice of issuing opinion letters specific to a particular set of facts, the DOL states on its website that it will now “set forth a general interpretation of the law and regulations, applicable across-the-board to all those affected by the provision at issue.”  Accordingly, Administrative Interpretation No. 2010-1 applies generally to typical employees with job titles such as mortgage loan officer, mortgage loan representative, etc., although one’s job title is not determinative.

Practical Implications

 

Although the DOL’s interpretation finding most mortgage loan officers subject to the overtime and minimum wage provisions of the FLSA is not binding on courts, it is likely to be given substantial deference by courts addressing the issue.  Therefore, in light of this interpretation, employers in the banking and mortgage loan industries should review their employee classifications, paying special attention to the “production” versus “administration” dichotomy for administrative employees, to ensure that employees primarily engaged as loan officers are not improperly classified as exempt administrative employees.  Employees misclassified as exempt could recover up to three years of unpaid overtime wages under the FLSA, plus liquidated damages and attorneys’ fees.  Changing a misclassified employee’s status from “exempt” to “nonexempt” promptly upon discovering the misclassification can reduce the employer’s exposure to liability.  Employers reclassifying loan officers as nonexempt should bear in mind that in addition to paying nonexempt employees premium pay for work in excess of forty hours in a workweek, employers must keep more detailed payroll records with respect to nonexempt employees, including records of the hours worked by those employees.