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Wednesday, March 24, 2010

Department of Labor Wage and Hour Division Issues First Administrator Interpretation, Finds That Loan Officers Are Not Exempt under Federal Law

On March 24, 2010, the United States Department of Labor (DOL) Wage and Hour Division (WHD) announced that it would begin issuing "Administrator Interpretations" to address important issues. The WHD web site states:
In order to provide meaningful and comprehensive guidance and outreach to the broadest number of employers and employees, the Wage and Hour Administrator will issue Administrator Interpretations when determined, in the Administrator’s discretion, that further clarity regarding the proper interpretation of a statutory or regulatory issue is appropriate. Administrator Interpretations will set forth a general interpretation of the law and regulations, applicable across-the-board to all those affected by the provision in issue. Guidance in this form will be useful in clarifying the law as it relates to an entire industry, a category of employees, or to all employees. The Wage and Hour Division believes that this will be a much more efficient and productive use of resources than attempting to provide definitive opinion letters in response to fact-specific requests submitted by individuals and organizations, where a slight difference in the assumed facts may result in a different outcome. Requests for opinion letters generally will be responded to by providing references to statutes, regulations, interpretations and cases that are relevant to the specific request but without an analysis of the specific facts presented. In addition, requests for opinion letters will be retained for purposes of the Administrator’s ongoing assessment of what issues might need further interpretive guidance.
WHD also issued its first Administrative Interpretation (No. 2010-1), finding that mortgage loan officers typically do not qualify as bona fide administrative employees under the Federal Fair Labor Standards Act (FLSA) and should not be treated as exempt from the FLSA's minimum wage and overtime compensation requirements.

WHD begins by noting that the employee's job duties and compensation determine exempt status, rather than the job title. WHD then reviews the job duties typically performed by mortgage loan officers. WHD notes that minimum wage and overtime exemptions “are to be narrowly construed" against the employer and reviewed the requirements for the exemption:
  1. The employee must be compensated on a salary or fee basis as defined in the regulations at a rate not less than $455 per week;
  2. 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 employer’s customers; and
  3. The employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.200.
WHD focuses on the second of these requirements. Using the "production vs. administrative dichotomy, WHD concludes that mortgage loan officers typically "have a primary duty of making sales," which is a production function, rather than administrative. In addition, WHD notes that loan officers typically are paid commissions based on sales, are trained in sales techniques, and that "many employers defending against FLSA lawsuits brought by mortgage loan officers argue that the employees are exempt under section 13(a)(1) as outside sales employees."

WHD goes on to conclude that "because homeowners [who interact with loan officers] do not have management or general business operations, a typical mortgage loan officer’s primary duty is not related to the management or general business operations of the employer's customers."

Finally, WHD clarifies a 2006 opinion letter, FLSA2006-31 (Sept. 8, 2006), which "appears to assume that the example provided in 29 C.F.R. § 541.203(b) creates an alternative standard for the administrative exemption for employees in the financial services industry." WHD clarifies that "the administrative exemption is only applicable to employees that meet the requirements set forth in 29 C.F.R. § 541.200. The regulation at 29 C.F.R. § 541.203(b) merely provides an example to help distinguish between those employees in the financial services industry whose primary duty is related to the management or general operations of the employer’s customers and those whose primary duty is selling the employer’s financial products."

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