Applying the Administrative Exemption under the FLSA
the situation
One of the requirements of the administrative exemption of the FLSA is that an employee must have as his or her primary duty “office or non-manual work related to the management or general business operations of the employer or the employer’s customers.” So what exactly does this mean? Do mortgage underwriters meet this requirement?
the ruling
According to the Ninth Circuit Court of Appeals, mortgage underwriters do not meet the requirements of the administrative exemption and thus are entitled to overtime compensation under the FLSA. McKeen-Chaplin v. Provident Savings Bank, No. 15-16758 (July 5, 2017).
The mortgage underwriters for Provident Savings Bank are responsible for reviewing mortgage loan applications using guidelines established by both Provident and investors like Fannie Mae, Freddie Mac, and the Fair Housing Administration. Basically, after a loan officer has gathered necessary information and run a loan through an automated underwriting system and a preliminary decision has been issued, the mortgage underwriters working for Provident verify the information entered into the automated system and compare it against applicable guidelines. It is also up to the mortgage underwriters to analyze complex customer loan applications and customer creditworthiness so they can decide if Provident will accept the loan, usually in keeping with the guidelines (although the mortgage underwriters can ask Provident to make an exception by approving a loan that does not satisfy the guidelines). After a loan is approved, other Provident employees are responsible for funding the loan.
A group of mortgage underwriters filed a lawsuit against Provident, seeking unpaid overtime under the FLSA. The district court granted summary judgment to Provident on the grounds that the underwriters qualify for the administrative exemption under the FLSA. But the Ninth Circuit disagreed.
There are three requirements of the administrative exemption: (1) the employee must be compensated not less than $455 per week; (2) the employee must perform as her primary duty “office or non-manual work related to the management or general business operations of the employer or the employer’s customers; and (3) the employee must have as her primary duty “the exercise of discretion and independent judgment with respect to matters of significance.” As the Ninth Circuit explained, the second requirement is meant to distinguish between work that is just related to the day to day affairs of the company versus actually running the business itself or determining its overall policies.
Other courts of appeals have come out on different sides of this question-the Second Circuit determined that mortgage underwriters are exempt, while the Sixth Circuit found that they are not. The Ninth Circuit ended up agreeing with the Sixth Circuit, explaining that the mortgage underwriters working for Provident do not decide if Provident should take on risk, but rather, look at guidelines issued to them and decide if, in the framework already dictated, the loan falls with in the range of risk that Provident is willing to take. Essentially, concluded the Ninth Circuit, these mortgage employees were really employees responsible for production and not the administration of the business.
the point
Assessing whether a certain position meets the requirements of the white collar exemptions can be tricky, especially figuring out whether an employee’s work is related to the management or general business operations of the company. Employers should be careful to not focus on the importance of the job being completed by the employee, but rather closely consider whether the job is related to simply providing the goods and services of the business or actually related to the overall running of the business itself.
