Source: https://www.littler.com/publication-press/publication/department-labor-issues-opinion-letter-recognizing-mortgage-loan
Timestamp: 2019-10-18 05:54:26
Document Index: 413341965

Matched Legal Cases: ['§ 207', '§ 213', '§ 207', '§ 541', '§ 541', '§ 541', 'art, 361', '§ 541', '§ 541', '§ 541', '§ 541', '§ 541', '§ 541']

Department of Labor Issues Opinion Letter Recognizing Mortgage Loan Officers as Exempt Administrative Employees | Littler Mendelson P.C.
In its September 2006 opinion letter, the Department repeated its position that loan officers can qualify for the administrative exemption even if they engage in sales.13 The Department cautioned, however, that "if, based on all the facts in a particular case, a mortgage loan officer's primary duty is selling mortgage loans, the mortgage loan officer will not qualify for the administrative exemption."14 We anticipate that plaintiffs' lawyers will seize on this qualification and argue that since loan officers are motivated to sell the loan packages that they design, "selling financial products" must be their "primary duty" – regardless of how much time they spend gathering and analyzing information, designing loan packages, and advising borrowers with respect to the advantages and disadvantages of various loan options. Such an argument, if accepted by the courts, would cast doubt on the viability of the opinion letter, as it is properly assumed that the loan officers in the opinion letter were also motivated to sell the benefits of the loan packages they designed.
1 29 U.S.C. § 207(a).
2 29 U.S.C. § 213(a)(1). Two other exemptions have received considerable attention in the mortgage industry in recent years. In Opinion Letter FLSA2006-11 (March 31, 2006), the Department of Labor concluded that loan officers who are customarily and regularly engaged away from their employer's place of business may be considered exempt under the outside sales exemption. Employers in the mortgage industry have also asserted the "retail establishment" exemption on behalf of commissioned loan officers. 29 U.S.C. § 207(i). In two unreported decisions, however, district courts in California and Minnesota rejected the application of the Section 7(i) exemption to loan officers. Barnett v. Washington Mutual Bank, FA, No. C03-00753, 2004 WL 1753400 (N.D. Cal. Aug. 5, 2004); Casas v. Conseco Fin. Corp., No. Civ. 00-1512, 2002 WL 507059 (D. Minn. March 31, 2002). More recently, a district court in Illinois held that the exemption could be asserted on behalf of a loan officer at a mortgage broker. Gatto v. Mortgage Specialists of Illinois, Inc., No. 04C5216, 2006 WL 681063 (N.D. Ill. March 13, 2006). We expect litigation on the applicability of this exemption in the mortgage industry to continue.
3 29 C.F.R. § 541.200(a).
4 29 C.F.R. §§ 541.600, 602.
5 29 C.F.R. § 541.604; see, e.g., U.S. DoL, W&H Div., Op. Letter No. 1382, March 2, 1995 ("genuine guarantees must be obtained clearly demonstrating that the salary is not simply part of the bonus or commission, and that no circumstances exist which would reduce it or divide it"); U.S. DoL, W&H Div., Op. Letter No. WH-129, May 4, 1971 (employee must be paid no less than minimum salary "free and clear"; employer may adopt compensation plan under which employee is guaranteed payment of salary and/or draw, plus extra commissions earned in accordance with formula that provides for payment in addition to the guarantee).
6Compare Hogan v. Allstate Ins. Co., 210 F. Supp. 2d 1312, 1316-17 (M.D. Fl. 2002) (where guaranteed minimum amount was paid "free and clear" in addition to commissions, fact that negative premiums caused by policy cancellations were recovered from future commission amounts in excess of guaranteed monthly minimum compensation did not undermine salary basis), aff'd in pertinent part, 361 F.3d 621 (11th Cir. 2004), with Takacs v. A.G. Edwards & Sons, Inc., Case 3:04-cv-01852, 2006 WL 2297616, at *6-7 (S.D. Cal. Aug. 2, 2006) (construing employer's compensation plan as allowing "draw" deduction to act "as an offset from the guaranteed salary, and not as a variable in the calculation of commissions paid," court determined that plan "significantly differs" from one that would permissibly "ensure that a fixed weekly amount is paid to the employee [and the] commission is paid in addition to the guaranteed weekly salary"). We expect to see an increase in the number of legal challenges to various compensation plans, and Hogan and Takacs should not be considered the final word on the subject. With specific regard to Takacs, we anticipate further litigation on the question of whether the method used to reconcile commissions above and beyond the guarantee is ever material to the salary basis test when the guaranteed compensation is never, in fact, reduced. Yet to be resolved are the exact limits within which a regularly paid amount cannot be considered a salary because separately calculated incentives are paid on a cumulative basis. See U.S. DoL, W&H Div., Op. Letter No. WH-129, May 4, 1971 (commissions may be reconciled with salary every several weeks and the "incidental fact that the period used for the computation includes workweeks with low as well as those with high sales volume does not mean that there is a recoupment by way of offset").
7 U.S. DoL, W&H Div., Op. Letter, Feb. 16, 2001.
8 29 C.F.R. § 541.203(b).
9 U.S. DoL, W&H Div., Op. Letter FLSA2006-31, Sept. 8, 2006, at 2, 4-5.
10 29 C.F.R. § 541.203(b), emphasis added.
11 69 Fed. Reg. 22146 (Apr. 23, 2004).
12 69 Fed. Reg. 22146 (Apr. 23, 2004). Plaintiffs' lawyers often rely upon this argument, citing to Casas v. Conseco, the unreported decision issued by a federal court in Minnesota that concluded that "loan originators" were non-exempt because they had a "primary duty to sell [the company's] lending products on a day-to-day basis" directly to consumers. 2002 WL 507059, at *9 (D. Minn. March 31, 2002) (discussed at 69 Fed. Reg. 22145). The Casas court considered the "administrative/production dichotomy" and concluded that loan originators were "production" employees, and therefore, non-exempt, due to their responsibilities associated with the design, creation, and sale of consumer loans. In the comments to the revised regulations in 2004, however, the Department emphasized that the "production versus staff" dichotomy should not be used as a "dispositive test" for the administrative exemption. 69 Fed. Reg. 22141. Other courts have criticized the Casas court's "determinative" use of the dichotomy in its analysis of the loan originators' exempt status. See Carlson v. C.H. Robinson Worldwide, Inc., Civ. No. 02-3780, 2005 U.S. Dist. LEXIS 5677 (D. Minn., March 30, 2005) (quoting the DOL comments at *15, n.10.)
13 U.S. DoL, W&H Div., Op. Letter FLSA2006-31, Sept. 8, 2006, at 2, 4 & n.2, 5.
14 U.S. DoL, W&H Div., Op. Letter FLSA2006-31, Sept. 8, 2006, at 5 n.3. The term "primary duty" means the "principal, main, major or most important duty that the employee performs. Determination of an employee's primary duty must be based on all the facts in a particular case, with the major emphasis on the character of the employee's job as a whole." 29 C.F.R. § 541.700(a).
15 U.S. DoL, W&H Div., Op. Letter FLSA2006-31, Sept. 8, 2006, at 1. The Department also excluded mortgage loan officers who are customarily and regularly engaged away from their employer's place(s) of business (who may be considered exempt under the outside sales exemption pursuant to the Department's March 31, 2006 Opinion Letter FLSA2006-11) and loan processors.
16 29 C.F.R. § 541.202(a).
17 69 Fed. Reg. 22146 (Apr. 23, 2004).
19 29 C.F.R. § 541.704.
20 U.S. DoL, W&H Div., Op. Letter FLSA2006-31, Sept. 8, 2006, at 7.
21 29 C.F.R. § 541.704.
Robert W. Pritchard is a Shareholder in Littler's Pittsburgh office, R. Brian Dixon is a Shareholder in Littler Mendelson's San Francisco office and Andrew J. Voss is a Shareholder in Littler's Minneapolis office. If you would like further information, please contact your Littler attorney at 1.888.Littler, info@littler.com, Mr. Pritchard at rpritchard@littler.com, Mr. Dixon at bdixon@littler.com, or Mr. Voss at avoss@littler.com.