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Are Mortgage Mortgage Underwriters Exempt ‘Administrative’ Workers?


Among the many numerous “exemptions” from the extra time compensation necessities of the Honest Labor Requirements Act (FLSA) are “administrative” staff. The query introduced in a current choice by the ninth Circuit—which covers Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington—was whether or not mortgage loan underwriters who work for lending banks match the executive exemption.

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Within the final 8 years, two different federal courts of attraction have disagreed over the reply to this query. The 2nd Circuit discovered that they do not, and the sixth Circuit discovered that they do. How did the ninth Circuit rule?

Administrative Exemption Necessities

There are three necessities an worker should meet to qualify for the executive exemption:

  1. The worker have to be paid a wage of at the least $455 per week;
  2. The worker’s main responsibility have to be “workplace or non-manual work associated to the administration or common enterprise operations” of the employer or its clients; and
  3. The worker’s main responsibility should contain the “train of discretion and unbiased judgment with respect to issues of significance.” As with different extra time exemptions, the executive exemption is narrowly construed, with the employer having the burden of proving that the exemption applies. Additionally, all three necessities have to be met; failing to fulfill certainly one of them means the worker is not exempt. Of the three necessities, solely the primary is comparatively simple, nonetheless. The second and third are notoriously tough to use.
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Work of Mortgage Mortgage Underwriters

The employer of the underwriters was Provident Financial savings Financial institution. The financial institution offers loans to clients who buy properties or refinance present house loans. It then sells these loans on the secondary market. The function of the mortgage underwriters is to determine whether or not the client’s software, documentation, and creditworthiness fulfill the financial institution’s standards—the “pointers”—for the actual kind of loan being sought.

The underwriters can add different situations to be happy earlier than the loan is authorized, they usually can recommend a “counteroffer” when the client would not qualify for the specified loan however might qualify for a special loan. They’ll additionally request that the financial institution make an exception in a person case by approving a loan that does not fulfill the rules. Nonetheless, they do not deal immediately with the client, they do not deal with the gross sales on the secondary market, they usually don’t have any function in setting the financial institution’s loan pointers.

Does Their Work Fulfill Second Requirement?

Based on the laws underneath the FLSA, “work associated to the administration or common enterprise operations” of the employer—the second of the three necessities of the executive exemption—implies that “an worker should carry out work immediately associated to aiding with the operating or servicing of the enterprise, as distinguished, for instance, from engaged on a producing manufacturing line or promoting a product in a retail or service institution.”

That distinction is often known as the “administrative manufacturing dichotomy.” Its goal, in accordance with the U.S. Division of Labor (DOL), is to differentiate between “work associated to the products and companies which represent the enterprise’ market choices and work which contributes to ‘operating the enterprise itself.'” If the workers interact in operating the enterprise itself or figuring out its general course or insurance policies, they might meet this requirement, however these whose work is the day-to-day finishing up of the enterprise’ affairs do not.

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Making use of this distinction, the courtroom concluded that the mortgage underwriters fell clearly on the “manufacturing” aspect of the road and had been thus nonexempt. The courtroom relied on the truth that the underwriters did not determine whether or not the financial institution ought to tackle a threat; their function was restricted to assessing whether or not a specific loan happy the rules established by the financial institution.

Their function in assessing a loan’s riskiness was fairly totally different from assessing or figuring out the loan pointers themselves or the financial institution’s different enterprise insurance policies. As a result of the underwriters did not meet the second requirement, it wasn’t crucial for the courtroom to think about their argument that in addition they failed to satisfy the third requirement.

The courtroom despatched the case again to the trial courtroom to enter judgment in favor of the underwriters. McKeen-Chaplin v. Provident Financial savings Financial institution, FSB, Case No. 15-16758 (ninth Cir., July 5, 2017).

A Observe of Warning

As a result of the underwriters weren’t exempt, the financial institution might be accountable for extra time compensation that ought to have been paid to them for all hours they labored in extra of 40 in per week, retroactively to 2 or 3 years earlier than the lawsuit was initially filed, plus prejudgment curiosity and attorneys’ charges. Figuring out the precise quantity of extra time compensation owed might show to be tough as a result of the financial institution, believing that its underwriters had been exempt, most likely did not maintain correct data of the hours they labored.

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This case demonstrates the uncertainties employers face when making an attempt to use the executive exemption. It’s by far probably the most difficult of the FLSA’s exemptions. Care additionally have to be taken to adjust to any relevant state-law necessities as a result of they might be much more difficult than the federal necessities.

For extra info on wage and hour dangers be a part of Chris Scanlan of Arnold & Porter Kaye Scholer as he presents the breakout session—“Wage and Hour Alert: New Compliance Dangers Below Equal Pay Laws, 2-Tier Minimal Wage System, Court docket Rulings on Breaks and On-Name Time, and Extra”—on the twelfth annual California Employment Regulation Replace (CELU), being held on the Westin South Coast Plaza in Costa Mesa, California, October 11-13. Click on right here to study extra, or to register at present.

This text initially appeared in California Employment Regulation Letter.

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