Mortgage loan officers might be now entitled to a 40-hour work week and overtime pay, after the U.S. Supreme Court ruled that the Department of Labor acted within its authority when it reclassified loan officers as non-exempt employees who are eligible for overtime.

The ruling stems from a 2010 decision by the Department of Labor to reclassify loan officers. According to its “Administrator’s Interpretation”, loan officers in the mortgage banking industry generally do not qualify as exempt from overtime under the administrative exemption of the federal Fair Labor Standards Act (FLSA).

In 1999 and in 2001, the DOL Wage and Hour (W&H) Division issued Opinion Letters concluding that mortgage loan officers do not qualify for the administrative exemption, and therefore must be paid minimum wage and overtime.  Then, following the DOL’s update of the Fair Labor Standards Act (“FLSA”) regulations in 2004, the Mortgage Bankers Association (MBA) requested a new opinion interpreting the revised regulations. Therefore, in 2006, the DOL changed course and issued a new Opinion Letter, stating that loan officers could generally qualify as exempt from minimum wage and overtime requirements under the FLSA.

In order to comply with this administrative exemption under the FLSA, an employee’s job duties and compensation must meet all of the following tests:

1. The employee must be compensated on a salary or fee basis as defined in the regulations at a rate not less than $455 per week;
2. The employee’s primary duty must be 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. The employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

However, in 2010 the DOL issued an “Administrator Interpretation” concluding that mortgage loan officers generally do not perform the type of duties necessary to qualify for the administrative exemption of the FLSA.  In fact, the 2010 interpretation focuses on the application of the second test to employees who perform the typical jobs duties of a mortgage loan officer, that is, whether the primary duty of employees who perform the typical job duties of a 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.

According to the facts found during the DOL Wage and Hour Division investigations and the facts set out in the case law establish, the typical mortgage loan officer job duties are: speaking with potential customers, collecting their financial information, running credit reports, and giving those potential customers information about the loan products that suit them more based on the matches than a computer program does based on the financial information provided.

The DOL based its 2010 interpretation in the difference between work related to the goods and services which constitute the business’ marketplace offerings (in this case, loans) and work which contributes to ‘running the business itself’. Thus, the DOL’s interpretation of law states that mortgage loan officers’ primary duty is making sales.

The new interpretation of the FLSA administrative exemption, prompted the Mortgage Bankers Association (MBA) to sue, arguing that because the DOL had previously issued an Opinion Letter in 2006 determining that loan officers could generally qualify as exempt from minimum wage and overtime under the administrative exemption, the DOL could not change its prior position without first issuing a written notice and allowing a comment period pursuant to the Administrative Procedure Act (APA). The federal District Court disagreed with the MBA, and ruled in favor of DOL. The MBA appealed, and the D.C. Circuit Court of Appeals agreed with the MBA and vacated the Administrator’s Interpretation. In late 2013, following the decision by the Court of Appeals, the federal District Court issued an order on remand vacating and setting aside the 2010 DOL Interpretation, rendering it of no effect. However, the DOL appealed to the U.S. Supreme Court.

On March 9, 2015, the Supreme Court reinstates the 2010 Interpretation which represents the current position of the agency. As noted by the Supreme Court, the 2010 Interpretation is merely an “interpretative rule” that is issued to advise the public of the DOL’s construction of the statutes and rules which it administers and is not a “legislative rule” that has the “force and effect of law.”  Furthermore, the Department of Labor is not subjected to the APA’s public notice-and-comment requirement because it doesn’t apply to interpretive rules; ”because  an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures to amend or repeal that rule,” Justice Sonia Sotomayor wrote in the consensus opinion.

The Supreme Court case is Perez et al. v. Mortgage Bankers Association, case number 13-1041, and Nickols et al. v. Mortgage Bankers Association, case number 13-1052, decided March 9, 2015.

Finally, as the DOL clearly remarks, a job title (in this case, “mortgage loan officer”) does not determine whether an employee is exempt. The employee’s actual job duties and compensation determine whether the employee is exempt or nonexempt. Therefore, if you currently hold a mortgage loan officer position and you want to find out about your particular situation, please feel free to contact our staff for a free and confidential consultation.

If you have worked as a loan officer or in a similar capacity and were denied overtime pay, please contact Swartz Swidler today to speak to one of our New Jersey employment attorneys.  There is no cost for the consultation, and we typically accept cases on a contingent basis, meaning there is no upfront cost to you, and we only get paid if we obtain a recovery in your favor.