Employment Law Report

Wage and Hour Division Issues Interpretation Regarding Loan Officers

By Edwin S. Hopson

In March, 2010, the Wage and Hour Division of the U.S. Department of Labor announced that it would periodically issue “Administrator Interpretations” of the Fair Labor Standards Act (“FLSA”) in order to clarify and interpret statutory or regulatory issues that affect broad cross sections of the economy.  Previously, the Administrator would from time to time respond to requests for opinions involving specific employer fact patterns and issue analytical opinion letters which were then made public.  In its press release, the Division indicated that it would no longer issue such letters other than to respond with information about applicable statutes, regulations, etc.

 In the first Administrator Interpretation, No. 2010-1, the Deputy Administrator, Nancy Leppink, dealt with the administrative exemption under Section 13(a)(1) of FLSA and whether it could be applied to employees who perform the typical job duties of a mortgage loan officer so as to exempt them from FLSA’s overtime pay requirements.

 The ultimate conclusion reached in the Administrator Interpretation was that such persons could not qualify as bona fide administrative employees exempt from the overtime requirements under Section 13(a)(1).

 The typical job duties cited for a loan officer employee in the Interpretation were: 

 -receives internal leads and contacts potential customers or receives contacts from customers generated by direct mail or other marketing activity;

 -collects required financial information from the potential customer such as the customer’s income, employment history, assets, investments, home ownership, debts, credit history, prior bankruptcies, judgments, and liens; run credit reports;

 -enters the collected financial information into a computer program that identifies loan products that can be offered based on the information provided;

 -assesses the loan products identified and discuss with the customer the terms and conditions of particular loans, while trying to match the customer’s needs with one of the available loan products; and

 -compiles customer documents for forwarding to an underwriter or loan processor, and may finalize documents for closings.  

 The following cases in support of its conclusion were cited in the Administrator Interpretation: Yanni v. Red Brick Mortgage, 2008 WL 4619772, at *1 (S.D. Ohio 2008); Pontius v. Delta Financial Corp., 2007 WL 1496692, at *2 (W.D. Pa. 2007); Geer v. Challenge Financial Investors Corp., 2007 WL 2010957 (D. Kan. 2007), at *2; Chao v. First National Lending Corp., 516 F. Supp. 2d 895, 904 (N.D. Ohio 2006), aff’d, 249 Fed.App. 441 (6th Cir. 2007); Epps v. Oak Street Mortgage LLC, 2006 WL 1460273, at *4 (M.D. Fla. 2006); Rogers v. Savings First Mortgage, LLC, 362 F. Supp. 2d 624, 627 (D. Md. 2005); Casas v. Conseco Finance Corp., 2002 WL 507059, at *1 (D. Minn. 2002). 

 To fall within the administrative exemption, an employee’s job duties and compensation must meet all of the following tests:

 -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;

 -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

 -the employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.

 The Interpretation focused on the second test.

 It was noted in the Interpretation that under 29 C.F.R. § 541.200(a)(2), a mortgage loan officer’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 must be “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.” 29 C.F.R. § 541.201(a). The administrative exemption is “limited to those employees whose primary duty relates ‘to the administrative as distinguished from the production operations of a business.’” 69 Fed. Reg. 22122, 22141 (April 23, 2004), quoting a 1949 source. The “production versus administrative” dichotomy, according to the Interpretation, is intended to distinguish “between work related to the goods and services which constitute the business’ marketplace offerings and work which contributes to ‘running the business itself.’”  Bothell v. Phase Metrics, Inc., 299 F.3d 1120, 1127 (9th Cir. 2002), quoting Bratt v. County of Los Angeles, 912 F.2d 1066, 1070 (9th Cir. 1990).

 Some attention was also given to whether the typical loan officer employee could be found to be, in essence working for the customer, so as to meet the criteria for the administrative exemption.  However, it was concluded that the “work 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.”

 Deputy Administrator Leppink also cited Martin v. Cooper Electric Supply Co., 940 F.2d 896 (3d Cir. 1991), cert. denied, 503 U.S. 936 (1992), in which the court evaluated the status of inside salespersons who sold electrical products for their employer. The court found that such inside salespersons were “production” workers who did not qualify for the administrative exemption because the company’s primary business purpose was to sell electrical products.  A number of cases in which loan officers were found to be non-exempt were also cited.  She then stated, “[t]hus, a careful examination of the law as applied to the mortgage loan officers’ duties demonstrates that their primary duty is making sales and, therefore, mortgage loan officers perform the production work of their employers.”

 Finally, Leppink analyzed two prior Wage and Hour Opinion letters and stated, “Opinion Letter FLSA2006-31 does not comport with this interpretive guidance and is withdrawn. Similarly, an Opinion Letter dated February 16, 2001, 2001 WL 1558764, also is withdrawn as inconsistent with this analysis.”