Recent Ruling Contradicts DOL Guidance on Whether Mortgage Loan Officers Are Exempt from Overtime

A federal jury in Michigan recently reached a unanimous verdict that mortgage loan officers are exempt from overtime under the administrative exemption in the Fair Labor Standards Act (FLSA). The verdict does not conform to a 2010 Department of Labor (DOL) Wage and Hour Division (WHD) Administrator's Interpretation on this topic [Henry v. Quicken Loans, Inc., DC MI, Dkt. No. 04-CV-40346, 3/17/11].

Administrative exemption. In order for an employee to be exempt from overtime under the administrative exemption, all of the following conditions must be met:

The employee must be compensated on a salary or fee basis at a rate of not less than $455 per week.

The employee's primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employers' customers.

The employee's primary duty must include the exercise of discretion and independent judgment with respect to matters of significance [29 CFR 541.200].

Quicken's mortgage loan officers routinely worked in excess of 40 hours per week and were not paid overtime compensation for hours worked in excess of 40 hours per week. Quicken asserted that the loan officers were not entitled to overtime because their work met the requirements noted above for the administrative exemption. The loan officers argued that their job did not fall under the administrative exemption because: (a) their primary duty involved the sale of mortgages, and (b) their duties did not require the exercise of independent judgment and discretion.

The verdict. The jury found that the primary duty of the loan officers was to perform “office or non-manual work directly related to the management or general business operations of the employer or the employers's customers” (i.e., requirement (2) above). The jury also found that the loan officers exercised discretion and independent judgment with respect to matters of significance (i.e., requirement (3) above). There was no dispute between the parties that the loan officers were compensated at least $455 per week (i.e., requirement (1) above).

Prior rulings. The jury verdict conforms to a 2009 federal district court ruling on this issue (see Henry v. Quicken Loans, Inc., DC MI, Dkt. No. 2:04-cv-40346, 9/30/09). However, it directly contradicts the guidance by the Wage and Hour Division in WHD Administrator's Interpretation No. 2010-1, 3/24/10 that employees who perform the typical duties of a mortgage loan officer are not exempt from overtime under the administrative exemption in the FLSA. The WHD had determined that the primary duty of the loan officers was making sales, rather than performing office or non-manual work. The WHD also noted that many mortgage loan officers continue to be paid primarily by commissions, which is another indication that their primary duty is sales.

Based on the Administrator's Interpretation, Quicken Loans started paying overtime to its loan officers who worked in excess of 40 hours per week in May 2010.

Observation: It's quite likely that this issue will be litigated again due to the inconsistency of the above rulings.