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Overtime Ruling Favors Employers

DOL rules on originators

October 4, 2006

WASHINGTON correspondent for MortgageDaily.com

The mortgage industry, which is still facing lawsuits and federal enforcement actions over originator overtime, has been handed a reprieve for the second time this year in the form of an opinion letter recently released by the U.S. Department of Labor. But employers must analyze whether the job duties of exempted employees match those laid out in the ruling.

Mortgage loan officers don't have to be paid minimum wage and overtime pay required by federal law if the loan officers' job duties conform to the administrative exemption to the Fair Labor Standards Act, the federal agency has ruled.

The latest ruling stems from a request by the Mortgage Bankers Association asking the government to consider application of the exemption to mortgage bankers. Ruling in MBA's favor, the department responded in the affirmative in a seven-page opinion.

It's the second time this year that labor department has ruled that, under certain circumstances, loan officers do not have to be paid minimum wage and overtime pay.

Earlier this spring, in response to a request from the National Association of Mortgage Brokers, the department ruled that loan officers can be exempt from minimum wage and overtime pay requirements if their job duties meet those job duties described in the FLSA's outside sales exemption.

As a result of the two rulings, industry employers can now take advantage of two exemptions from the FLSA's overtime and minimum wage pay requirements.

David Fortney, an attorney with the Washington, D.C., firm of Fortney & Scott, said he views the latest ruling as another part of the puzzle that is falling into line to help the industry clarify the boundary lines regarding which people have to be paid overtime and which do not.

Fortney said the latest ruling is not limited to mortgage bankers, but applies to anyone who performs the job duties described in MBA's letter. Neither job title nor type of company matter in applying the outside sales and administrative exemptions, he explained; rather, actual job duties performed is what matters.

Employers should look at the aggregate duties performed by their workers and, if the job duties match up with those expressed in the opinion letter, then the administrative exemption can be applied, he said.

Under the administrative exemption, an employee must be paid at least $455 a week; the employee's primary duty must be the performance of office or non-manual work directly related to the management or general business of the employer; and the employee's primary duty must include the exercise of discretion and independent judgment in significant matters.

But a major snag in successfully applying the administrative exemption could come from an overemphasis on sales and selling. The department said in its letter that some selling could occur without causing loss of the administrative exemption as long as selling is not the employee's primary duty. It would be assumed that less than 50 percent of the mortgage loan officer's working time is spent on "customer-specific sales activity."

Lesley Stout-Tabackman, an attorney with Fortney & Scott, said brokers need to understand that to make the outside sales exemption applicable, the primary focus is sales. Whereas, she continued, to apply the administrative exemption, the primary duty is advising and analyzing and helping customers to choose the right product. "You want to de-emphasize the selling," she said.

Fortney added that the law says there is a presumption that what workers spend more than half of their time doing is their primary duty. If workers spend less than 50 percent of their time doing sales and the balance advising customers, assessing products, etc., then an employer can make a strong argument that the exemption can apply, but, when workers spend more than 50 percent of their time involved in sales, then application of the exemption can become troublesome.

Fortney said employers need to read the department's two opinion letters on the exemptions and use them as yardsticks. If workers' job duties do not conform to those described in the opinion letters, now is the time to institute changes, he urged. Stout-Tabackman suggested that employers institute written job descriptions that conform to the job duties described in the letters.

And, Fortney said, employers need to make sure that workers actually perform the tasks described in their job description. If the labor department comes in and investigates an employer, the agency interviews the workers about the job duties. If workers are doing things that are different, then that is not helpful, Stout-Tabackman said.

Terms do not affect the application of the exemption. Mortgage loan representatives, mortgage loan consultants, mortgage loan originators, mortgage bankers or similar titles are interchangeable and do not have any bearing the application of the exemption.

The letter request from MBA specifically stated that it did not address those mortgage loan officers who are customarily and regularly engaged away from the employer's place of business or away from the employee's home office and who therefore may qualify for the outside sales exemption. The FLSA's outside sales exemption requires that the employee's primary duty must be making sales and that the employee must "customarily and regularly be engaged away from the employer's place of business."

The FLSA, acting in concert with state law, governs minimum wage and overtime payment to employees. However, the federal law provides exemptions to the payment requirements if certain conditions are met.

A ruling that the retail sales exemption applies to the industry probably won't be forthcoming. Fortney said that in order for that exemption to apply, a mortgage brokerage would have to qualify as a retail establishment, a defined term in federal regulations that excludes most financial service institutions. Fortney said such a change would require statutory amendment -- a difficult and drawn out process.

But the federal courts could see things differently.

Although a couple of federal courts have ruled that the retail services exemption is not applicable to the mortgage brokerage industry, there was a case -- Gatto v. Mortgage Specialists of Illinois, Inc. -- in which a federal court in Illinois ruled this spring that the retail services exemption to the FLSA's overtime pay requirement could apply to the mortgage broker involved in the lawsuit, Stout-Tabackman said. The department has looked at the case but has indicated that the ruling is merely one court's opinion.

The department is not, at this point, willing to issue something that says all mortgage brokers fit into this exemption, she explained. Stout-Tabackman added that if Gatto is appealed, then her firm will file a friend-of-the-court brief to support the industry-favorable lower court ruling.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: [email protected]

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