On March 24, 2010, in its first Interpretation Letter, the U.S. Department of Labor’s Wage and Hour Division (WHD) declared that employees who perform the typical duties of a mortgage loan officer do not qualify as bona fide administrative employees exempt from the federal Fair Labor Standards Act (FLSA). The ruling is significant as it expressly overrules an opinion issued by the WHD under the Bush administration that reached the opposite conclusion.
In order to satisfy the administrative exemption, an employee must have a primary duty of performing “office or nonmanual work directly related to the management or general business operations of the employer or the employer’s customers.” In its Administrator’s Interpretation (No. 2010-1), the WHD relied on the “production versus administrative” dichotomy, reasoning that “typical” mortgage loan officers focus on selling company products, and are thuds more akin to employees who produce company products (non-exempt) than to employees who perform administrative functions (exempt).
To support its position, the WHD noted that a “typical” mortgage loan officer collects financial information from customers, runs credit reports, enters collected financial information into a computer program that identifies which loan products may be offered to customers based on the financial information provided, and works with the customer to match the customer’s needs with one of the employer’s loan products. Emphasizing the “sales” nature of this work, the WHD noted that many mortgage loan officers are compensated on a commission basis, trained in sales techniques, and evaluated on sales volume. The WHD also pointed out that many employers, defending against FLSA lawsuits, have argued that mortgage loan officers satisfy the “outside sales” employee exemption.
The Administrator’s Interpretation withdrew a 2006 WHD opinion letter (2006-31), which found mortgage loan officers satisfied the administrative exemption, and a 2001 WHD opinion letter (WL 1558764), which found mortgage loan officers to be non-exempt, but on grounds inconsistent with the current WHD analysis. The WHD also departed from its prior practice of issuing fact-specific opinion letters and embarked upon a new practice of issuing general interpretations of law and regulations that apply not only to the specific entity that requested the opinion, but to all those similarly affected.
Pointers For Employers
- This recent Administrator’s Interpretation represents a significant change of course by the Obama administration, and employers in the financial industry must pay careful attention to the new standards.
- Employers should watch for more interpretations of law to be issued by the WHD. The Obama administration has identified the misclassification of workers as one of its enforcement priorities.
- The WHD Interpretation letter serves as a reminder that employers cannot rely on job titles alone when classifying workers as exempt or non-exempt, but must perform fact-specific analyses of job duties. In this case, the Administrator’s Interpretation suggests that if the customer is not an individual, but a business seeking advice of a commercial nature, the employee performing such work may satisfy the administrative exemption. The Administrator’s Interpretation also noted that employees who focus on broad marketing initiatives may also satisfy the exemption.
- Employers should be careful to analyze jobs under the full range of possible exemptions. In this case, mortgage loan officers may no longer be exempt administrative employees but they may fall under another exemption. Mortgage loan officers who are “customarily and regularly engaged away from their employer’s place of business” may satisfy the outside sales exemption. Also, those who earn more than $100,000 per year may satisfy the highly compensated employee exemption if they perform one or more of the exempt duties of an executive, professional, or administrative employee.
For more information about correctly classifying all workers, please contact the author of this alert.