Saturday, July 13, 2013

Mortgage Originator Employers still required to track hours worked and pay overtime


Historically Mortgage Loan Officers, Mortgage Processors, Closers, and Sales Assistants positions were classified as exempt under Part 541.200 Administrative exemption. These positions were reclassified as non-exempt by the U.S. Department of Labor, DOL. 

Under the current regulations as interpreted by the DOL, all Mortgage Loan Officer job classifications are non-exempt and are required to track hours worked and report hours on a weekly basis. 

Recent Developments:

Mortgage Bankers Association v. Harris - :  A federal Court of Appeals vacated an Administrator’s Interpretation issued in 2010 by the DOL Wage and Hour Division, DOL, regarding the non-exempt status of mortgage loan officers.  Not tracking Mortgage Loan Originator, MLO, hours creates a significant liability for employers in the mortgage industry during this debate. 

With a two year look back on hours worked and Plaintiff attorney fees paid by Employer, the liability can be staggering.  All Employers of MLOs are required and the burden of proof is on them to track MLO hours worked including overtime.  There are many lawyers that dedicate their practice to this area of law and seek out MLOs who are not required to track hours worked.  In addition to attorney fees paid by the employer, MLO's can be awarded back wages based on stated hours.  Employers rarely prevail in this type of case. 

This court decision reinstates a prior Opinion Letter issued by the DOL in 2006 that had concluded loan officers in the mortgage banking industry generally may qualify as exempt from overtime under the administrative exemption of the federal Fair Labor Standards Act.  MBA had challenged the contrary 2010 Interpretation because it had been issued by the DOL without first conducting the “notice and comment” rule making process required under the Administrative Procedure Act.

The Appeals Court agreed with the MBA, but took no position on the merits of whether mortgage loan officers may in fact qualify under the administrative exemption to be exempt from the payment of overtime wages. Thus, the DOL may subsequently readopt the 2010 Interpretation after conducting the proper rule making procedures. 
In the interim, mortgage industry employers may choose to rely on the 2006 Opinion Letter to potentially escape overtime liability regarding their loan officers at their own peril. 

Southeast Mortgage’s General Counsel opinion on the recent court decision:

After review of the 2006 DOL Administrator's Interpretation and the 2010 Administrator's Interpretation, and the summary of the Court of Appeals ruling, SEM believes there is a very high likelihood that the DOL will reissue the Administrator's Interpretation and follow the proper rule making procedures and then formally adopt the 2010 Interpretation as the prevailing rule on the treatment of MLO's as non-exempt.

The rationale of the 2010 Interpretation is consistent with the views of a Democratic Party appointee, and the rule making process can be completed relatively quickly. SEM does not see a high probability that a different interpretation will be adopted, and there would be an unacceptable risk to revisit treating MLO's as exempt employees. 
The rationale used in the 2010 Interpretation has valid reasoning and cites relevant court cases that support the interpretation and the Court of Appeals does not criticize the rationale of the 2010 Interpretation, just the procedure followed in implementing a new rule that overturns a prior, contrary interpretation.

DOL Determination: Mortgage Loan Officer Job Classification

Historically Mortgage Loan Officers, Mortgage Processors, Closers, Specialists and Sales Assistants positions were classified as exempt under Part 541.200 Administrative exemption. These positions were reclassified as non-exempt. 

Mortgage Loan Officer, MLO, sales positions have historically been classified as exempt under the Outside Sales Exemption US Wage & Hour Part 541.500, 541.501 and 541.502.

The outside sales exemption requires that the majority of the employee’s time be spent developing business and meeting face to face with clients and referral partners outside and away from the employer’s place of business. A place of business is an office or an MLOs home office. Due to the convenience of technology today, the majority of the business conducted by MLOs is done via internet, email, phone, and fax. In the past, this activity has been more incidental to an outside sale (face to face appointment with a client) and thus did not present a problem relative to meeting the outside sales exemption under Part 541.  In the present, sales activity conducted via internet, email, phone, and fax is no longer incidental to, but is the primary way business is conducted. As a result, all MLO positions are non-exempt.  To satisfy the exempt test, MLOs have to meet with clients at their client’s home at least 80% of their work time.  MLOs will still be able to work both in and out of offices on an at will basis, but will be required to record hours worked on a weekly basis.

Although the U.S. Department of Labor (DOL) has not issued an official opinion letter specifically regarding the MLO position and the “outside sales exemption,” it did previously issue an opinion in 2006 which concluded that typical loan officers were exempt from Fair Labor Standards Act (FLSA) requirements for overtime payments under the “administrative exemption”. More recently in March of 2010, the DOL reversed the 2006 opinion and stated that the typical loan officer position no longer met the “administrative exemption.”

As of January 12, 2011, The Mortgage Bankers Association (MBA) filed suit against the U.S. Department of Labor (DOL) in the United States District Court for the District of Columbia under the Administrative Procedure Act (APA). The suit seeks to set aside DOL’s Wage and Hour Division Administrator’s Interpretation No. 2010-1 (March 24, 2010) that reversed and withdrew a 2006 opinion letter from DOL to MBA.

Employees who fall under non-exempt classifications are entitled to a guaranteed minimum wage of $7.25 per hour for every hour worked between 1 and 40 in a work week and are entitled to overtime pay at a rate not less than one and one-half times their regular rates of pay after 40 hours of work in a workweek.  Regular rates of pay are calculated based upon weekly earnings including commissions.  All compensation must be paid on a W2 basis.

Under the current regulations as interpreted by the DOL, all Mortgage Loan Officer job classifications are non-exempt and are required to use time tracking systems to report hours worked on a weekly basis.
Cal Haupt, President and CEO, Southeast Mortgage

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