On March 9, 2015, the U.S. Supreme Court held that the U. S. Department of Labor (DOL) could issue a controversial “Administrator’s Interpretation,” which had concluded in 2010 that 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). The Supreme Court reversed a ruling of the U.S. Court of Appeals for the D.C. Circuit that had struck down the DOL administrative ruling. The Mortgage Bankers Association had challenged the 2010 Interpretation in court, arguing that because the DOL had previously issued an Opinion Letter in 2006 determining that loan officers could generally qualify as exempt from 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. However, the Supreme Court in a 9-0 decision ruled that because the 2006 DOL Opinion Letter was itself merely an interpretation of an existing rule and not a new rule with the force and effect of law, DOL could reverse its prior position and issue a new interpretation without a prior notice and comment rulemaking.
Under the administrative exemption of the FLSA, employees who are paid on a salary basis of at least $455 per week may be exempt from overtime compensation if the employee’s 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 their primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. Employees in the financial services industry generally meet the duties requirements for this exemption if their duties include work such as collecting and analyzing information regarding the customer’s income, assets, investments, or debts; determining which financial products best meet the customer’s needs and financial circumstances; advising the customer regarding the advantages and disadvantages of different financial products; and marketing, servicing, or promoting the employer’s financial products; provided, however, that their primary duty is not selling financial products. The 2006 DOL Opinion Letter determined that mortgage loan officers may qualify for this exemption, but the 2010 Interpretation concluded that they cannot. In late 2013, following the decision by the Court of Appeals, the federal District Court had issued an order on remand vacating and setting aside the 2010 DOL Interpretation, rendering it of no effect. That order had not been “stayed” pending review by the Supreme Court. However, as a result of the Supreme Court’s current decision, the 2010 Interpretation will be reinstated and represents the current position of the agency.
Based on the 2010 Interpretation, the DOL concluded on a broad “industry wide” basis that mortgage loan officers generally do not perform the type of duties necessary to qualify for the administrative exemption of the FLSA, and therefore, employers could not rely on that exemption to avoid paying overtime to mortgage loan officers. The 2010 Interpretation rescinded the contrary 2006 Opinion Letter, but did not address whether other exemptions, such as the outside sales exemption or highly compensated employee exemption, might be available under the FLSA. 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.” The Supreme Court upheld the ability of the DOL to issue such a contrary interpretation without having to first provide notice and comment rulemaking, but did not address the substantive merits of the DOL’s interpretation, including whether it is consistent with the FLSA, nor did it consider whether individual mortgage loan officers may, in fact, qualify as exempt from overtime under the administrative exemption of the FLSA. Although under certain circumstances a court may allow some deference to the agency’s interpretation, it is ultimately up to a court to decide whether the agency’s interpretation is plainly erroneous or inconsistent with the regulation. Thus, employers who may be subject to a DOL enforcement action or court proceeding regarding the exempt status of their mortgage loan officers under the administrative exemption may have the ability to challenge the DOL’s interpretation and argue that their loan officers do qualify as exempt under the FLSA. These issues will be addressed and further developed in subsequent cases.
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. The decision is available here.