Department of Labor Administrative Interpretation States Duties Of Mortgage Loan Officers Do Not Qualify As Exempt Duties

By Ronald W. Novotny

As we previously reported here, On March 24, 2010, the United States Department of Labor ("DOL") Wage and Hour Division made a significant change in its compliance assistance by moving from its longstanding practice of issuing fact specific opinion letters to issuing more general, across-the-board Administrator's Interpretations. The change is significant because it likely signals the DOL's intention to more aggressively establish its own interpretation of federal wage and hour laws.

In the first such Administrator's Interpretation, the DOL revisited the seemingly settled issue of whether mortgage loan officers qualify as exempt employees under the Fair Labor Standards Act ("FLSA"). Reversing two prior determinations that mortgage loan officers ordinarily qualify as exempt employees and therefore not entitled to be paid premium pay when they work overtime, the DOL now takes the position that the routine duties of such employees do not qualify as exempt duties.

The DOL defined the position as persons employed by financial institutions as mortgage loan officers, representatives, consultants, or originators. The typical duties include receiving internal leads, contacting potential customers, collecting required information from customers and entering that information into a computer, assessing and recommending loan products, and compiling customer documents for handling by underwriters or loan processors.

The DOL revisited the issue of whether such duties should be characterized as "non-manual work directly related to the management or general business operations of the employer or its customers" and therefore within the scope of the "administrative employee" exemption from the premium pay requirements of the FLSA.

The DOL now concludes that loan officers do not qualify as exempt employees because the work they perform is predominantly "production work" and not "administrative work." Likening mortgage loan officers to inside salespersons, the DOL now characterizes loan officers' duties as the "production work of an employer engaged in selling or brokering mortgage loan products" and not related to internal management of the business. The DOL now takes the position also that loan officers' duties do not relate to the "general business operations" of the employer's customers (who are typically individual consumers).

As part of its interpretation, the DOL withdrew a 2001 opinion letter and a 2006 opinion letter stating mortgage loan officers can qualify as exempt employees.

We think this new administrative interpretation signals a willingness on the part of the Obama Administration to reverse prior administrative interpretations interpreting FLSA exemptions more broadly.

Although this more recent administrative interpretation is not binding on the courts, current or former employees asserting they are or were misclassified as exempt employees can cite to this new administrative interpretation as persuasive authority from the administrative agency charged with enforcement of the FLSA.

In light of this new interpretation, financial institutions should consider consulting with experienced counsel to determine whether employees previously thought to be exempt would still be considered exempt employees.

Click here to download and to read a copy of the administrative interpretation.

Court of Appeal Affirms Denial Of Class Certification Of Claims By Allegedly Misclassified Restaurant Managers

By Christopher S. Andre

Today, the California Court of Appeal certified for publication its decision in Arenas v. El Torito Restaurants, et al., holding that the trial court did not abuse its discretion when it denied class certification of the plaintiff restaurant managers' claims that they and other managers were improperly classified as exempt employees.

The plaintiffs were employed as salaried managers at El Torito, El Torito Grill and GuadalaHarry's restaurants. They alleged that they were improperly classified as exempt employees because their duties did not meet the exemption requirements of Industrial Welfare Commission Wage Order 5-2001 and that they defendants were therefore liable to them and to the alleged class for unpaid overtime, for missed meal periods, for missed rest periods, and for related claims.

The trial court denied the plaintiffs motion for class certification on the ground that the plaintiffs failed to meet their burden of showing that common issues of law and fact predominated over individual issues of law and fact such that litigating the claims on a class basis would be superior to litigating the claims on an individual basis. The trial court found that the evidence presented in support of and in opposition to the motion for class certification showed that the issue of whether the managers' duties met the exemption requirements was not susceptible to common proof. The trial court ruled that findings as to one or a few managers could not be applied to other managers because how managers spent their time varied from store to store. The court stated: "Based on the record presented, the plaintiffs have not demonstrated that resolution of the common issues of act and law will be accomplished by common proof that can be extrapolated to all class members. Instead, the plaintiffs have demonstrated that the case is replete with individual factual issues."

On appeal, the court held that the trial court applied the correct legal standards when it determined that the plaintiffs' claims were not susceptible to common proof and that the trial court's decision was supported by substantial evidence. Further, the court rejected plaintiffs' contention that defendants "cannot on one hand assert they have determined, based on job activities, that all managers are exempt but on the other hand argue a court must examine each individual's tasks to determine whether that person is exempt." In other words, the court held that just because an employer has classified a category of employees as exempt does not necessarily mean that the issue of whether the employees were correctly classified as exempt can properly be adjudicated on a class basis.

The court's decision is welcome news for California employers because it provides trial courts direction about what plaintiffs must show to demonstrate their claims can be decided based on common proof.

Click here to download and to read a copy of the court's decision.