Pub. 4 2013 Issue 4

www.wvbankers.org 10 West Virginia Banker T he proper classification of mortgage officers and lenders has spurred several class action law suits against banks, sometimes resulting in large sums being paid to mortgage officers and lenders.  For example, PNC Bank NA recently reached a $7 million settlement of a class action brought by mortgage loan officers accus- ing the bank of misclassifying them as overtime-exempt employees and making improper deductions from their pay.  The issue is of utmost importance, and banks should be analyzing whether or not their mortgage officers and lenders truly are exempt from the FLSA’s overtime re- quirements.  If not properly exempt, these employees should be paid overtime for all hours worked in excess of 40 in any given workweek. The FLSA provides that employees falling within the Act’s administrative exemption category are exempt from the minimum wage and overtime requirements of the Act.  To satisfy the administrative exemp- tion, an employee must be paid at least $455 per week, perform office or non-man- ual work directly related to the manage- ment or general business operations of the employer or the employer’s customers, and exercise independent judgment and discre- tion with regard to matters of significance. The FLSA regulations provide examples of the administrative exemption and, with respect to financial services employ- ees, state: “Employees in the financial services indus- try generally meet the duties requirements for the administrative 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 pro- moting the employer’s financial products. However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” For years, it was believed that mortgage officers and lenders satisfied this test and were properly exempted from the require- ments of the FLSA.  Thus, regardless of the amount of hours worked, employees holding these positions were not paid over- time for hours worked in excess of 40 in a workweek.  In 2010, however, the Wage and Hour Division of the Department of Labor issued an opinion letter stating that “typical” mortgage loan officers do not satisfy the administrative exemp- tion because they are primarily engaged in sales activities.  This letter expressly withdrew a 2006 opinion letter which held that mortgage loan officers were generally exempt from the FLSA.  The 2010 opinion letter states that most mortgage loan officers would not satisfy the requirement that they perform office work directly related to general business operations of the employer’s customers in the personal home mortgage arena, drawing a distinc- tion between these mortgage officers and those who service customers seeking loan advice for commercial business.  Also, the 2010 opinion letter likens screening activities (e.g., reviewing qualifications for a loan and selecting a product from a list) as a sales activity that would preclude the application of the exemption.  The opinion letter also emphasized the fact that many loan officers are paid, at least in part, on commission, another factor used to find that sales was the primary activity of these employees. The issuance of the 2010 opinion letter has spurred significant litigation regarding whether or not mortgage brokers and lend- ers satisfy the FLSA’s administrative ex- emption.  A recent case resulting in a win for banks out of the United States Court of Appeals for the Sixth Circuit held that mortgage bankers and mortgage lenders employed by Quicken Loans were exempt from the FLSA.  Henry v. Quicken Loans, Classification of Mortgage Officers and Lenders: Is Your Bank at Risk? By Jill E. Hall Whether or not jobs in the financial services industry are exempt from the requirements of the Fair Labor Standards Act (FLSA) has been the subject of much debate over the past three years or so.