Wednesday, April 1, 2015

U.S. Supreme Court Approves DOL Interpretive Rules Finding that Mortgage Loan Officers are Entitled to Overtime

April 2015
By: Nancy E. Joerg, Esq.

Banks and financial institutions are certainly not happy about it, but some mortgage loan officers are now legally entitled to overtime. The U.S. Supreme Court unanimously ruled on March 9, 2015  in Perez v. Mortgage Bankers Association, No. 13-1041, that the U.S. Department of Labor (“U.S. DOL”) was within its rights when it chose to reclassify mortgage loan officers as non-exempt employees (who are therefore eligible for overtime).

The question of whether mortgage loan officers are properly classified as exempt or not exempt from the Fair Labor Standards Act (FLSA) overtime requirements dates back many years, and there has been a lot of confusion ever since. The Perez decision finally settles the controversial classification issue.

PRIOR COURT RULING HELD THAT DOL WAS REQUIRED TO GO THROUGH FORMAL RULEMAKING PROCESS: The U.S. Supreme Court’s decision reverses the 2013 ruling of the U.S. Court of Appeals for the District of Columbia Circuit (D.C. Circuit) which held that the U.S. DOL was required to go through a formal rulemaking process before changing its mind on the mortgage loan officer issue.

In a unanimous decision, the U.S. Supreme Court held in the Perez case that the U.S. DOL could change its mind about whether mortgage loan officers are entitled to overtime pay [under the administrative exemption of the federal Fair Labor Standards Act (FLSA)].

Now the U.S. DOL will enjoy greatly expanded rule-making power! 

PEREZ DECISION APPLIES TO ALL FEDERAL AGENCIES—NOT JUST THE U.S. DOL!: The U.S. Supreme Court’s decision in Perez goes beyond the U.S. DOL and actually expands this increased legal power to all federal administrative agencies.

The U.S. Supreme Court decided in Perez that all federal agencies (including the NLRB and the EEOC) do not need to undergo formal rulemaking before making changes—even substantial changes—to rules interpreting regulations. Interpretive rules by agencies do not officially have the force of law, but they clearly reflect the agency’s position on a particular issue such as whether or not a certain kind of worker would have an overtime exemption.

Federal agencies can now abruptly change course on regulatory interpretations. The Perez decision will have wide ranging impact. All federal administrative agencies can now make quick and unanticipated changes to existing interpretive rules. In the Perez decision, the U.S. Supreme Court has shown great judicial deference to the regulatory interpretations of federal agencies.

Advice to employers: If your company currently employs mortgage loan officers and classifies those employees as exempt from overtime pay, your company should take quick action to reclassify those mortgage loan officers as non-exempt and entitled to both overtime and minimum wage (or determine if other FLSA exemptions apply). Failure to do so puts your company at risk of possible liability.

Based on the substance of the underlying DOL interpretive letter, a similar finding (requiring overtime to be paid) may apply to other employees of financial institutions, including business development officers and commercial loan officers.

Employers should note that the Perez decision does not affect mortgage loan officers who qualify as exempt from overtime pay under FLSA exemptions other than the administrative exemption (e.g., the executive exemption).

Questions?:
Contact Nancy Joerg at Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email her at najoerg@wesselssherman.com.