TBA Law Blog

Posted by: Christy Gibson on Oct 9, 2012

By: Brian Clifford*

     In Mortgage Bankers Assoc. v. Solis et al., Case No. 1:11-cv-00073 (D.D.C. June 6, 2012), the D.C. District Court affirmed the U.S. Department of Labor’s (DOL) interpretation that typical mortgage loan officers are not exempt from the Fair Labor Standards Act’s overtime requirements under the administrative exemption.  This interpretation reverses the DOL’s 2006 interpretation.

Administrative Exemption

     The administrative exemption applies to employees when their employment satisfies the following three components:

(1) compensated on a salary or fee basis at a rate of not less than $455/week;

(2) primary duty is 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

(3) primary duty includes the exercise of discretion and independent judgment with respect to matters of significance.

2006 DOL Interpretation

     In 2006, the DOL found issued mortgage loan officers met the FLSA’s administrative exemption.  The DOL defined “work that is directly related to the management of general business operations” as “work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.”  The DOL concluded these loan officers were likely exempt because they “ha[d] a primary duty other than sales, as their work include[d] collecting and analyzing a customer’s financial information, advising the customer about the risks and benefits of various mortgage loan alternatives in light of their individual financial circumstances, and advising the customers about avenues to obtain a more advantageous loan program.”

2010 DOL Interpretation

     On March 24, 2010, the DOL issued another interpretation on its own accord reversing its 2006 interpretation and concluding that loan officers are not exempt.  This interpretation focused on whether the primary duty of the typical mortgage loan officer “is office or non-manual work directly related to the management or general business operations of their employer or their employer’s customers.”  The DOL stated this “includes work in functional areas such as accounting, budgeting, quality control, purchasing, advertising, research, human resources, labor relations, and similar areas” - basically that the administrative exemption was designed for “employees whose work involves servicing the business itself.” 

     The DOL concluded “a mortgage loan officer’s primary duty is making sales” because a significant portion of their compensation is composed of commissions from sales, their job performance is evaluated based on their sales volume, and much of the non-sales work is completed in furtherance of their sales duties. 

     On the other hand, the DOL suggested that “the administrative exemption can also apply if the employee’s primary duty is directly related to the management or general business operations of the employer’s customers.  It further suggests that a loan officer “might qualify under the administrative exemption” if the loan officer’s customer “is a business seeking advice about, for example, a mortgage to purchase land for a new manufacturing plant, to buy a building for office space, or to acquire a warehouse for storage of finished goods.”  Therefore, a typical mortgage loan officer does not qualify.  The DOL explicitly withdrew its 2006 interpretation “because of its misleading assumption and selective and narrow analysis.”    

Federal Case

     The Mortgage Banking Association filed a Complaint asserting: (1) “once an agency gives its regulation an interpretation, it can only change that interpretation as it would formally modify the regulation itself: through the process of notice and comment rulemaking;” and (2) “because the [interpretation] conflicts with existing DOL regulations, and because those regulations have been afforded the force of law by courts, [it] is arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with law.” The Association claims it and many financial institutions relied on the 2006 interpretation to classify loan officers as exempt and did not pay overtime.

     On the first issue, the court held the Association was required to demonstrate that it “substantially and justifiably” relied upon a “well-established agency interpretation.”  The court concluded it had not done so because the previous interpretation was only four years old and there was no evidence of a substantial reliance.  The court further stated the Association could rely upon the Portal-to-Portal Act to “prove[] that the [failure to pay overtime] was in good faith in conformity with and in reliance on any written administrative . . . interpretation” and an employer “shall [not] be subject to any liability or punishment” for doing so.

     On the second issue, the court held that “it is clear that [the FLSA regulation] was intended to provide examples, not an alternative test for the applicability of the administrative exception.”  Thus, the court found the DOL’s 2010 interpretation “is not inconsistent with the [FLSA] regulations, and it “is not arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law.”

What Now?

     The DOL’s position is that the typical mortgage loan officer is not exempt from the overtime requirements of the FLSA under the administrative exemption.  The courts remain divided on the issue.  However, this does not mean they are not otherwise exempt from overtime under another exemption, such as the outside sales exemption.  As with every employee, the exempt status of a mortgage loan officer will depend on the nature of the job, the salary paid, the duties performed, and for now, the jurisdiction in which that employee works. 


*Brian Clifford is an Associate at Waller Law Firm in Nashville, where he represents employers in employment-related matters. He graduated from University of Tennessee College of Law in 2010. Mr. Clifford received his B.S. at Middle Tennessee State University in 2007. He may be reached at (615) 850-8504 or brian.clifford@wallerlaw.com.