An appeals court has ruled against JPMorgan Chase & Co. in a lawsuit brought by a mortgage underwriter, finding that its mortgage underwriters must be paid overtime.
A loan underwriter at JPMorgan does not qualify for the administrative exemption under the federal Fair Labor Standards Act, and thus is eligible for overtime pay, according to a recent decision of the U.S. Court of Appeals for the Second Circuit.
Chase treated loan underwriters as covered by the administrative exemption from the FLSA’s overtime requirements.
To qualify for the FLSA exemption, an employee must: 1) “perform work ‘directly related to management policies or general business operations’ and 2) ‘customarily and regularly exercises discretion and independent judgment.'” 29 C.F.R. § 541.2(a).
The Second Circuit described underwriter Andrew Whalen’s duties as follows:
- Whalen’s primary duty was to sell loan products under the detailed direction of [Chase’s internal document called] the Credit Guide…Underwriters were given a loan application and followed procedures specified in the Credit Guide in order to produce a yes or no decision. Their work is not related either to setting ‘management policies’ nor [sic] to ‘general business operations’ such as human relations or advertising, 29 C.F.R. § 541.2, but rather concerns the ‘production’ of loans – the fundamental service provided by the bank.
The Second Circuit reversed the district court’s grant of summary judgment in favor of Chase, holding that Whalen was not a bona fide administrator because his work was unrelated to management policies or general business operations.
Whalen’s work was production (i.e., non-exempt) as opposed to administrative (i.e., exempt). The court emphasized that production work need not lead to the creation of a tangible item. An employee producing an intangible, such as a loan, also may be engaged in non-exempt production work. The key is the “important distinction” between employees who produce the good or service that is the primary output of a business (i.e., non-exempt) and employees who perform general administrative work applicable to any business (i.e., exempt).
Since Whalen’s job failed to satisfy the first prong of the administrative exemption test, the court did not address whether it satisfied the second prong of customarily and regularly exercising discretion and independent judgment.
Mortgage bankers take heed — every classification by employers of employees under the FLSA is fact-specific.
Job title aside, the question always will boil down to the actual responsibilities of the loan underwriter. Underwriters like Whalen, whose work involves the production of loans as opposed to management policies and general business operations, are likely to be regarded as non-exempt employees. Combinations of those responsibilities will make classification more challenging.
Whalen v. J.P. Morgan Chase & Co.
Case No. 08-4092, Nov. 20, 2009 (U.S. Court of Appeals for the Second Circuit)
