A group of mortgage underwriters received an early holiday present this year on November 27, 2017, as the United States Supreme Court declined to hear an appeal by their employer Provident Savings Bank FSB. The Bank had appealed a decision by the Ninth Circuit Court of Appeals ruling that the mortgage underwriters were improperly paid a fixed salary for all hours worked, without any overtime pay. Now the Ninth Circuit’s decision will stand, and the underwriters’ case will proceed to trial.
Salary Misclassification in the Mortgage Industry
Like many banks, Provident Savings claimed its classification of its mortgage underwriters as salaried employees was permitted under the “administrative exemption” to the Fair Labor Standards Act. The administrative exemption is intended to apply only to employees whose primary job duties relate to the management of the employer’s business and its general operations.
The Department of Labor and several Courts of Appeals, including most recently the Ninth Circuit in the Provident Savings case, recognize that mortgage underwriters’ core duty of reviewing loan applications using guidelines established by the bank and investors does not count as “administrative.” When mortgage underwriters review loan applications, they are not managing the bank’s internal business affairs. Rather, this service goes to the heart of the service the bank provides to its customers.
The Bank’s Appeal Falls Short
Provident Savings appealed to the Supreme Court, backed by the Chamber of Commerce and all of the other major titans of the banking industry. The banks claimed that mortgage underwriters qualify as “administrative” employees because they have the authority to commit the bank to loans. The lower court rejected this argument, finding that the underwriters’ authority was tightly regulated by the bank’s labyrinthine system of guidelines and checklists regarding the issuance of loans.
The Supreme Court has the discretion to decline to hear an appeal (or to decline certiorari in lawyer-talk). It did so in this case; and as a result, mortgage underwriters and other improperly salaried employees will have the chance to challenge their employers’ use of the “administrative” exemption.
Don’t be fooled by the name. The administrative exemption does not refer to employees whose work is routine or administrative. Quite the opposite. Only employees engaged in the employer’s general business operations can be salaried under the administrative exemption. On the other hand, employees who are directly involved in the core service their employer provides to customers, like the mortgage underwriters in the Provident Bank case, should receive 1.5 their regular rate of pay for all of their overtime hours.
If you have further questions, the Wage Authority Group is awaiting your call.
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