Source: https://consumerfsblog.com/2017/08/9th-cir-rules-mortgage-underwriters-not-exempt-flsa/
Timestamp: 2019-04-26 01:08:12+00:00

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The U.S. Court of Appeals for the Ninth Circuit recently held that mortgage underwriters were not exempt under the federal Fair Labor Standards Act (FLSA) and were therefore entitled to overtime compensation for hours worked in excess of 40 per week.
After analyzing the specific details of the underwriters’ responsibilities, the Ninth Circuit panel concluded that, because the underwriters’ primary job duty did not relate to their employer bank’s management or general business operations, the administrative employee exemption to the FLSA’s overtime requirements did not apply.
Recognizing that there was a split between the Second Circuit and Sixth Circuit as to whether the underwriters are exempt, the Ninth Circuit adopted the Second Circuit’s conclusion that “the job of underwriter falls under the category of production rather than administrative work,” and, thus, the administrative exemption under the FLSA does not apply.
A copy of the opinion in McKeen-Chaplin v. Provident Savings Bank is available at: Link to Opinion.
The plaintiff and the other members of the class were mortgage underwriters for the defendant bank. The bank sold mortgage loans to consumers seeking to purchase or refinance homes, and then the bank would resell the funded loans on the secondary market.
From there, the file went to a mortgage underwriter, who verified the information put into the automated system and compared the borrower’s information against the applicable guidelines, which are specific to each loan product. The underwriters were responsible for thoroughly analyzing complex customer loan applications and determining borrower creditworthiness in order to ultimately decide whether the bank will accept the requested loan. The underwriters could impose conditions on a loan application and refuse to approve the loan until the borrower satisfied those conditions.
The decision as to whether to impose conditions is ordinarily controlled by the applicable guidelines, but the underwriters could include additional conditions. They could also suggest a “counteroffer” — which would be communicated through the loan officer — in cases where a borrower did not qualify for the loan product selected, but might qualify for a different loan.
Initially, the trial court denied cross motions for summary judgment and set the case for trial. But later, on the parties’ joint motion for reconsideration, the trial court concluded that the underwriters qualified for the administrative exemption under the FLSA, based on the finding that their primary duty included “quality control” or similar activities directly related to the bank’s general business operations. Thus, the trial court granted summary judgment in favor of the bank. The plaintiff appealed.
As you may recall, the FLSA requires employers to compensate its employees time and a half of their regular pay for all hours worked over 40 in a week. Under the FLSA, certain employees “employed in a bona fide executive, administrative, or professional capacity” are exempt from the overtime requirements. See 29 U.S.C. § 213(a)(1).
In assessing whether the administrative exemption applied, the Court relied on the Department of Labor’s regulations interpreting the FLSA. In order for the administrative exemption to apply, the employee must (1) be compensated not less than $455 per week; (2) 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) have as her primary duty “the exercise of discretion and independent judgment with respect to matters of significance.” 29 C.F.R. § 541.200(a). An employee’s primary duty is “the principal, main, major or most important duty that the employee performs.” 29 C.F.R. § 541.700(a).
At issue in this case was the second requirement. In order to satisfy that requirement, an employee’s primary duty must involve office or “non-manual work directly related to the management policies or general business operations” of the bank or the bank’s customers. See 29 C.F.R. § 541.200. “An employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment.” 29 C.F.R. § 541.201(a).
The Court observed that the Second Circuit and Sixth Circuit had reached conflicting rulings on whether the administrative exemption applied to mortgage underwriters. According the Second Circuit, “the job of underwriter . . . falls under the category of production rather than of administrative work.” Davis v. J.P. Morgan Chase & Co., 587 F.3d 529, 535 (2d Cir. 2009).
On the other hand, the Sixth Circuit concluded that mortgage underwriters are exempt administrators, explaining that they “perform work that services the Bank’s business, something ancillary to [the bank’s] principal production activity.” Lutz v. Huntington Bancshares, Inc., 815 F.3d 988, 995 (6th Cir. 2016). The Sixth Court determined mortgage underwriters performed “administrative work because they assist in the running and servicing of the Bank’s business by making decisions about when [the bank] should take on certain kinds of credit risk, something that is ancillary to the Bank’s principal production activity of selling loans.” Id. at 993.
The trial court had granted the bank’s motion for summary judgment on the basis that the underwriters performed work related to “quality control.” The Ninth Circuit, however, concluded that the record evidence did not support such a conclusion.
The Court concluded that the underwriters’ primary duty did not go to the heart of the bank’s internal operations, but instead went to the marketplace offerings and were related to the production side of the bank’s business.
Accordingly, the Ninth Circuit reversed the trial court’s granting of summary judgment in favor of the bank and remanded with instructions to enter summary judgment in favor of the plaintiff class.

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