Jeffrey S. Siegel
The landscape for employers navigating whether and how to pay overtime is challenging. The Supreme Court and the United States Department of Labor (DOL) have added to that complication in the mortgage and banking sector. On March 9, 2015, in Perez v. Mortgage Bankers Association, the Supreme Court upheld the right of the DOL to reverse its prior interpretation of the law. Under Perez, mortgage loan officers are more likely than ever to be entitled to overtime under the Fair Labor Standards Act (FLSA).
The FLSA – which was originally Depression-era legislation – presumes that all employees are entitled to overtime pay, unless the employer can demonstrate that the employees qualify for one or more detailed regulatory exemptions. To qualify for the administrative overtime exemption, employees must be paid on a salary or fee basis of at least $455 per week, and have as his or her primary duty the performance of office or non-manual work directly related to the management or general business operations of the employer or employer’s customers. These primary duties include the exercise of discretion and independent judgment with respect to matters of significance. The “exempt” status of an employee has far reaching impact: where non-exempt employees are concerned, employers must track work hours and pay overtime pay for hours worked in excess of 40 in a workweek at a rate not less than time and one-half the employee’s regular rate of pay.
In 2001 and 2006, the DOL expressed its opinion that mortgage loan officers could qualify for the administrative exemption; however, in March 2010, the DOL unilaterally changed its interpretation. The Mortgage Bankers Association challenged the authority of the DOL to change its position without following certain procedural steps. The Supreme Court in Perez disagreed.
Perez addresses the authority of a governmental agency to issue opinions and guidance. That portion of the decision will have an impact on how agencies issue opinions on the meaning of the laws each agency is charged with enforcing. As a practical matter to mortgage professionals, Perez confirms that the administrative exemption is not applicable to mortgage loan officers.
More Changes Coming
Unless the mortgage loan officer qualifies under another exemption under the FLSA, employers must track the hours and pay overtime to mortgage loan officers. This will be new for many employers who may have permitted mortgage loan officers to work with limited daily oversight, provided they produce and otherwise comply with regulatory obligations. The challenge will be ensuring that employers are able to capture the hours worked by a mortgage loan officer, and properly calculate the rate of overtime pay. Employers must be mindful that the overtime rate is not only based on the salary, but may also include a percentage of past commissions.
The analysis under the FLSA does not stop with the elimination of the administrative exemption. Under the FLSA, it is possible for a mortgage loan officer to qualify under the outside sales exemption, the executive exemption or the highly compensated exemption (if he/she makes more than $100,000 annually). Historically, however, it has not been easy to meet these tests and courts often rule against employers making these arguments.
The Perez decision was carefully watched by industry professionals. Given the publicity with the decision, employers will seek to review and correct non-compliant practices. Meanwhile, plaintiff-side attorneys are undoubtedly poised to take further advantage of the ruling expanding overtime rights to workers in the mortgage industry. Employers are cautioned to carefully analyze, with the help of legal counsel, whether their mortgage loan officers qualify as exempt under any test.
The clarification in Perez is just one of the issues that employers should be following. The DOL intends to update its rules on which employees are entitled to overtime pay. These developments will further complicate the industry. Employers should continually review their pay practices. It is better for an employer to make any change proactively based on a careful review of the facts than to be forced to make any change based on a lawsuit brought by employees or in connection with an investigation by the DOL.
