A California appeals court has ruled in favor of Wells Fargo & Co.’s mortgage subsidiary in an overtime case filed by a home mortgage consultant. The case offers insight into what is needed to determine whether an employee is exempt.
Home mortgage consultants of Wells Fargo Home Mortgage, whose initial motion for class certification of their claims under California law for overtime pay was granted by the trial court but later reversed on appeal, have failed in their renewed motion for class certification because “a substantial quantity of individual inquiries will be necessary” to address Wells Fargo’s defenses that these consultants are exempt from such overtime requirements. In re: Wells Fargo Home Mortgage Overtime Pay Litigation, No. C 06-01770 MHP, U.S. District Court for the Northern District of California, filed 1/3/10.
Although ordinarily the technicalities of class certification are of interest only to lawyers, this ruling hinges largely on a principle that is essential to Fair Labor Standards Act compliance: whether a particular employee qualifies for an exemption will depend upon the particular facts of that employee’s job responsibilities and how s/he fulfills them.
The district court found that the consultants primarily market and sell residential mortgages. They receive a commission based on sales, with a minimum non-recoverable draw against commissions. According to Wells Fargo, home mortgage consultants are entrepreneur-type employees with great autonomy in shaping their own business practices. Perhaps as a result of this autonomy, Wells Fargo keeps no reliable time records of the hours worked by the consultants.
The home mortgage consultants vary by specialization with prime consultants working with borrowers qualifying for the best interest rates, subprime consultants assisting borrowers with impaired credit and reverse-mortgage consultants focusing on senior citizens. Renovation consultants specialize in home improvement loans, while builder consultants focus on housing developments and “emerging market HMCs develop relationships with historically underserved communities.”
Wells Fargo trains but does not supervise the home mortgage consultants.
The district court initially granted class certification, explaining that:
| Wells Fargo’s uniform policies regarding HMCs [that all of them are exempt] weigh heavily in favor of class certification. As numerous courts have recognized, it is manifestly disingenuous for a company to treat a class of employees as a homogenous group for the purposes of internal policies and compensation, and then assert that the same group is too diverse for class treatment in overtime litigation. This is particularly true in a situation such as this, where the difficulty of proving hours worked and compensation received is exacerbated by defendant’s complete failure to maintain pertinent records. |
Relying on these uniform policies, the district court found that common factual and legal issues predominated among class members, warranting class certification pursuant to Federal Rule of Civil Procedure 23(b)(3).
On appeal, the U.S. Court of Appeals for the Ninth Circuit reversed, finding that the district court had abused its discretion by relying on Wells Fargo’s uniform internal exemption policy “to the near exclusion of other factors relevant to the predominance inquiry.” In re Wells Fargo, 571 F.3d at 59. On remand, the district court, applying Wells Fargo and its companion case Vinole v. Countrywide Home Loans, Inc., 571 F.3d 935 (9th Cir. 2009), denied re-certification of the class.
The court explained that Wells Fargo’s uniform exemption policy was only one factor in determining whether common issues of law and fact predominate among putative class members. In addition, if the employer’s exemption defense requires a fact-intensive inquiry into the qualifications of individual employees as class members, the complexity of that inquiry is relevant to the predominance analysis. Finally, where an exemption defense requires a finding of how individual employees spend their time at work, predominance is unlikely unless the plaintiff proposes some method of common proof.
The district court specifically found that plaintiff had not produced “some form of common proof that would absolve this court from inquiring into how each consultant spent their working day.”
She has not produced (or even alleged the existence of) any policy that requires home mortgage consultants to spend a specified amount of time in or out of the office. At the very least, to determine if each consultant qualified for the outside sales exemption the court would need to conduct “inquiries into how much time each individual [home mortgage consultant] spent in or out of the office and how the [home mortgage consultant] performed his or her job; all of this where the [home mortgage consultant] was granted almost unfettered autonomy to do his or her job.” [citation omitted]. Those inquiries would inevitably consume the majority of a trial, and overwhelm the adjudication of common issues.
The fact that each consultant filled out the Uniform Residential Loan Application did not supply the requisite degree of commonality of issues.
Employers of mortgage bankers, and employers generally, can take heart from this ruling — but they should also take note.
The very requirement that stacks the deck against class certification — proof, individual by individual, of “how much time each individual [loan officer] spent in or out of the office and how the [loan officer] performed his or her job” [citation omitted] — is the burden an employer bears in proving that each individual is exempt.
Mere job titles and administrative groupings of employees do not suffice.
In re: Wells Fargo Home Mortgage Overtime Pay Litigation.
No. C 06-01770 MHP, Jan. 3, 2010 (U.S. District Court for the Northern District of California)
In re Wells Fargo, 571 F.3d at 59.
