Co-authored by John Giovannone, Noah Finkel, and Kyle Petersen
Seyfarth Synopsis: As previously discussed in this space, the Ninth Circuit recently chose to side with the Second Circuit, and not the Sixth Circuit, and ruled that mortgage underwriters fail to meet the FLSA’s administrative exemption from overtime test. In doing so, the Court artificially promoted and expanded a court-created paradigm for assessing job duties—known as the “administrative/production” dichotomy—far beyond its utility, and thereby increased confusion in the mortgage banking industry. Fortunately, the Supreme Court now has the opportunity to remedy that confusion with the pending petition for writ of certiorari.
As our readers may recall, we took issue with the Ninth Circuit’s July decision in McKeen-Chaplin v. Provident Bank, which held that mortgage underwriters did not qualify for the administrative exemption from overtime under the FLSA, despite their critical role in assessing potential mortgage loans and making important decisions based on those assessments. As we discussed, the decision was the result of a concerted effort to narrowly construe the exemption through a strained application of the outdated “administrative-production dichotomy,” which is a judicially-created shorthand tool that some courts use to shove job duties into one of two artificial buckets. And, as we discussed, the decision demonstrates yet another example of oft-repeated but unsupported, illogical, and inconsistent dicta advocating that while the FLSA, in general, should be broadly construed, its provisions concerning exemptions should be construed narrowly.
Suffice it to say, we are not only concerned that McKeen-Chaplin v. Provident Bank decision is substantively wrong, but that it will lead to less certainty and a spike in misapplication of the administrative exemption test under the FLSA (a fact we discussed further, in the context of the strain the decision creates between the federal and state law).
Fortunately, Provident Bank shares our concerns and has petitioned the United States Supreme for review of the decision (and in fact, cited our blog in the process). The petition rightly and persuasively argues that the decision is important, was wrongly decided, and creates a Circuit split between the Ninth, Second, and Sixth Circuits: “The issue impacts thousands of banks, and tens of thousands of employees nationwide…. Underwriters assess the potential borrowers income, assets, and credit history and decide whether their respective institutions should risk their own financial capital by making the loan. [T]hey play a crucial role in managing their institution’s overall exposure to risk and promoting its overall financial success.” As the petition persuasively points out, when the Department of Labor “promulgated the relevant regulations [concerning the administrative exemption] in 2004, it [also] issued a regulatory impact notice making clear its view that ‘underwriters’ do generally qualify as exempt ‘administrative’ employees.”
Thus, decisions like McKeen-Chaplin v. Provident Bank constitute judicial legislation concerning the ever-shifting contours of the exemption, which has morphed out of the court-created administrative-production dichotomy and an overriding but unfounded desire to narrowly construe the exemption. But such judicial legislation does not align with the original expectations of the drafters for the scope and impact of the exemption regulations. Yet, by way of Provident Bank’s cert petition, the Supreme Court now has the opportunity to right that wrong and definitively bring mortgage underwriters back within the scope of the administrative exemption, as originally envisioned. Hopefully, the Supreme Court will accept Provident Bank’s invitation.