On July 2, 2013, the United States Court of Appeals for the District of Columbia Circuit held that the Department of Labor’s (“DOL”) 2010 Administrative Interpretation (“Interpretation”) regarding the exempt status of mortgage loan officers (“MLO”) should be vacated.
The case, Mortgage Bankers Association v. Harris, No. 12-5246 (D.C Cir. Ct. Appeals 2013) was brought by the Mortgage Brokers Association challenging the Interpretation holding that MLOs were generally non-exempt employees and, thus, were owed overtime pay for all hours over 40 worked in a week. That Interpretation was a 180-degree change from the DOL’s earlier 2006 interpretation which stated that MLOs were exempt employees.
In its recent decision, the D.C. Circuit Court of Appeals held that DOL had not engaged in the proper notice and public comment process before reversing itself through its 2010 Interpretation. As a result, the Court ordered that the Interpretation be vacated. Because the Court found that DOL did not engage in the proper administrative steps prior to issuing the 2010 Interpretation, the Court did not discuss or analyze whether the 2010 Interpretation was correct in ruling that MLOs are non-exempt employees.
What does this decision mean for financial institutions in Virginia? The short answer is that the decision has interjected tremendous uncertainty into the situation. You should resist, however, the urge to immediately transition all of your MLOs to exempt. The decision by the Circuit Court of Appeals is not technically binding in Virginia. It is also important to remember that the Interpretation was vacated on procedural grounds not substantively. As a result, there is no reason to believe that DOL will change its view that MLOs are properly classified as non-exempt positions. If you are audited expect the DOL to enforce this position. Moreover, DOL may decide that it will jump through the proper administrative hoops and reissue the Interpretation in the near future. That could require reclassifying the employee yet again.
One thing that has not changed is that employers should closely examine each mortgage loan officer and consider the proper classification. Each situation is unique and it is possible that the employee can be properly classified as exempt if it meets the appropriate tests. A careful review of the job description and the employees actual duties must be performed before any decision is reached.
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