More than 30 lawsuits have been filed recently against mortgage lenders throughout the country for classifying their loan officers as exempt from receiving overtime wages. Last Wednesday, national home loan lender American Equity Mortgage Inc. became the latest target. Three former American Equity Mortgage loan officers filed a collective action against the company in the U.S. District Court for the District of Minnesota, claiming that American Equity Mortgage violated the Fair Labor Standards Act (FLSA) and state wage and hour laws by classifying loan officers as exempt.

This growing trend of overtime claims should cause not only mortgage lenders but also other companies in the financial services industry to review their classification of exempt jobs to reduce the risk of claims. It is particularly important to focus on employees whose duties include sales.

The FLSA generally requires employers to pay employees overtime for all hours worked in excess of 40 in a week, unless the employee falls within the executive, administrative, professional, outside sales or computer employees exemption. In many of the cases facing the mortgage industry, employers have utilized the "administrative" exemption to treat their loan officers as not entitled to overtime, and the loan officers are challenging that classification.

Under the U.S. Department of Labor's (DOL) regulations (issued August 23, 2004), to qualify for the administrative exemption, employees must be paid a guaranteed amount of not less than $455 a week, their primary duty must be office or non-manual work directly related to the management or general business operations of the employer or the employer's customers, and they must exercise discretion and independent judgment with respect to matters of significance. DOL regulations provide that employees in the financial services industry will generally satisfy the duties test of the administrative exemption if they perform work such as: (1) collecting and analyzing information regarding the customer's income, assets, investments or debts; (2) determining which financial products best meet the customer's needs and financial circumstances; (3) advising the customer regarding the advantages and disadvantages of different financial products; and (4) marketing, servicing or promoting the employer's financial products. If the primary duty of the employee is selling financial products, however, the employee does not qualify for the administrative exemption.

In an Opinion Letter released at the end of September 2006, DOL applied this language about the financial services industry generally to mortgage loan officers in particular. In the letter, DOL opined that salaried mortgage loan officers may be characterized as exempt administrative employees when "they have a primary duty other than sales, as their work includes collecting and analyzing a customer's financial information, advising the customer about the risks and benefits of various mortgage loan alternatives in light of their individual financial circumstances, and advising the customer about avenues to obtain a more advantageous loan program." DOL also concluded that the use of technology does not automatically exclude a loan officer from the administrative exemption as long as the technology does not select the loan product for the client and the officer is still responsible for assessing the alternatives and making recommendations for the client. The full text of the DOL Opinion Letter, FLSA2006-31 (September 8, 2006) can be found here.

Although the DOL Opinion Letter is favorable to the industry, it serves only as a guide to avoiding liability. Mortgage lenders should carefully examine the actual duties of their loan officers to ensure there is a legitimate basis to classify such employees as exempt. Financial services companies should review their job descriptions and operations manuals to ensure that the exempt, administrative job duties are described accurately so that employees (or disgruntled former employees) do not later claim that their duties were primarily sales.

The lawyers of the Ballard Spahr Labor, Employment and Immigration Group have extensive experience in conducting FLSA/state wage and hour audits for employers. If you would like to discuss our services in this area, please contact one of our attorneys in the Group directly.


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