March 2015 Newsletters

Supreme Court Rules on Perez v. Mortgage Bankers Association

Facts of the case:             

The case concerns an administrative exemption to minimum wage and overtime payments for employees whose primary duty is selling financial products.

In 2010, the Labor Department issued a rule that reversed its prior interpretation. The new rule said mortgage bankers no longer qualify for the exemption.

On March 9, 2015, the U.S. Supreme Court overturned the U.S. Court of Appeals – District of Columbia’s 2013 ruling that the Department of Labor (DOL) had violated the Administrative Procedure Act (APA) via the DOL’s interpretation letters regarding Mortgage Loan Officer Compensation. The DOL issued an opinion letter in 2010 stating that Mortgage Loan Officers (MLOs) do not qualify for the administrative exemption to FLSA in regards to overtime compensation. That interpretation was counter to the Department’s previous interpretation in 2006 that Mortgage Loan Officers did qualify under the administrative exemption to the Fair Labor Standards Act (FLSA). The Mortgage Bankers Association brought suit alleging that the change in interpretation was done in violation of the APA because there was no public notice-and-comment process. The Supreme Court has subsequently disagreed with that interpretation and has found the action to be in line with the Department’s ability to interpret the FLSA. (You can find the SCOTUS opinion here and the DOL letter here).

What does all of this mean for bankers?

This means that the DOL letter in 2010 was not outside the authority of the Department of Labor and therefore, that letter was not an invalid change in interpretation. This could mean that the DOL intends to stay with the interpretation that Mortgage Loan Officers do not qualify for an administrative exemption from FLSA. To qualify for the exemption an employee: 1) must be compensated at rate of at least $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 federal business operation of the employer or the employer’s customer; and 3) the employee’s primary duty includes the exercise of discretion and independent judgment with respect to matters of significance (see: DOL definition here). Even though many bankers would argue their MLOs fall under this definition, the DOL has interpreted that they do not. Therefore, your mortgage loan officers may not be exempt from the requirement to receive overtime compensation for working more than 40 hours a week. If your bank is subject to FLSA, it would be prudent to consider the hours regularly worked by your bank’s MLOs and how their compensation accounts for any instances where they work overtime.

The Supreme Court ruled 9-0 that federal agencies did not have to follow procedures for notifying the public and collecting comment when changing the interpretations of rules, which in effect removes important steps from the process of changing interpretations that can take months and sometimes years to complete.