Written By: Abe G. Salen
The United States Supreme Court reached a decision on March 9, 2015, that effectively provides that mortgage loan officers are considered non-exempt workers subject to overtime pay if they work longer than 40 hours/week. The case, Perez v. Mortgage Bankers Assn. 575 US ____ (2015), focuses on the applicability of the Administrative Procedure Act (“APA”), which establishes procedures that federal administrative agencies use for “rule making”. There are two types of rules: “legislative rules” and “interpretive rules”.
Under the Fair Labor Standards Act of 1938 (“FLSA”), as amended, an employee may be treated either as non-exempt (paid hourly and entitled to overtime pay) or exempt (salaried and not entitled to overtime pay). The difference is often determined arbitrarily by a particular employer. However, the FLSA actually has a two-prong test that the federal government utilizes when it considers whether an employee should be classified as non-exempt or exempt. The applicable test set forth in the FLSA is as follows:
(1) Is the employee earning a weekly salary of at least $455 or $23,600 annually; and,
(2) Is the employee performing specific duties outlined by the FLSA, including,
– Is employee’s work directly related to the management of the employer’s business?
– Is work directly related to the general business operations of his or her employer or the employer’s clients?
– Is work based upon a specialized academic training for entry into a professional field?
– Is work in the computer field?
– Is work making sales away from employer’s place of business?
– Is work in a recognized field of artistic or creative endeavor?
In 1999 and 2001, the Department of Labor’s Wage and Hour Division issued legal opinion letters affirming that mortgage-loan officers did not qualify for the administrative exemption (prong #2) to overtime pay requirements, and thus should be considered non-exempt employees under the FLSA. In 2006, the Division changed course, and held that mortgage-loan officers were exempt. In 2010, the Division changed course, again, and issued a new opinion that that they were not exempt.
The 2010 opinion letter was issued without notice and without hearings to consider possible opposition to the matter. The MBA filed suit, arguing that the Wage & Hour Division’s 2010 letter was issued in violation of APA guidelines requiring notice and comment prior to the issuance of the letter. The trial court determined such notice and comment was not required, and granted summary judgment to the Department. The D.C. Circuit Court of Appeals reversed, contending that a recent case, Paralyzed Veterans of Am v. D.C. Arena L.P., 117 F.3d 579, 586 (DC Circ. 1997) held that an agency must use the APA’s notice-and-comment procedures when it intends to issue a new interpretation of a regulation that deviates significantly from a previously adopted interpretation.
The US Supreme Court unanimously reversed, rejecting the holding in Paralyzed Veterans, instead holding that the Division’s letters were simply interpretive rather than legislative, and do not require notice-and-comment. See the following Link: www.supremecourt.gov/opinions/14pdf/13-1041_0861.pdf
This ruling could result in severe consequences to MBA members and affiliates as their human resource policies must immediately be reviewed and carefully scrutinized. In addition, there is even more at stake due to the President’s recent executive order which may raise the bar even more.
In March 2014, President Obama ordered that the Fair Labor Standards Board (“FLSB”) carefully review and revise the determination of whether an employee is exempt or non-exempt by “modernizing” the two prong test. It is believed that the FLSB will revise the test as follows:
(1) Increasing the threshold salary substantially – the current assumption is that the FLSB will increase the ceiling for non-exempt to not more than $42,000+ per year (an increase that nearly doubles the current ceiling); and,
(2) The duties will be revised to allow for more “administrative” duties within the professional fields to be included as non-exempt rather than exempt.
This action has been delayed as the FLSB continues to analyze possible scenarios.
Again, in light of the US Supreme Court’s recent decision upholding the Wage and Hour Division’s 2010 legal opinion classifying mortgage-loan officers as non-exempt, and in light of the anticipated increase in the yearly salary prong, mortgage banking employers must carefully weigh how they treat their loan officer employees and be wary that penalties for misclassification may be severe.
Finally, employers must carefully weigh the applicability of state requirements as well, which are not preempted by the FLSA, but may supplement the Act with more “employee-generous” regulations. California, while patterned after the FLSA, has its own regulations that must be considered as well, as many create greater protections to employees. The Industrial Wage Commission (“IWC”) is the state agency in California empowered to formulate regulations governing wages, hours, and overtime pay. Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 561. The Division of Labor Standards Enforcement (“DLSE”) enforces its policies.