Authored by Barry Miller

On Monday, the Supreme Court issued its ruling in Perez v. Mortgage Bankers Association, examining the validity of the Department of Labor’s 2010 Administrator’s Interpretation on the application of the FLSA’s administrative exemption to mortgage loan officers. As noted in our previous post, the D.C. Circuit struck down the Administrator’s Interpretation because the DOL had abruptly reversed its own position on the issue, finding in a series of opinion letters that mortgage loan officers were exempt administrative employees, then issuing a surprise reversal of that position in the Administrator’s Interpretation. The D.C. Circuit’s decision was based on a line of cases that required an agency to undertake full notice and comment rulemaking when reversing course in its established views. The Supreme Court not only unanimously reversed the D.C. Circuit’s ruling, but also struck down the entire line of authority on which the D.C. Circuit based its ruling.

Notably, the Supreme Court did not hold that the Administrator’s Interpretation was well reasoned or valid. The Court merely held that the D.C. Circuit’s specific grounds for invalidating the Administrator’s Interpretation—the so-called Paralyzed Veterans doctrine—was contrary to the Administrative Procedures Act. The majority noted that the APA expressly exempts agencies from notice and comment rulemaking in establishing “interpretive rules” (as opposed to more formal “legislative rules”). The statute also states that an agency need not engage in any greater formal process to modify or rescind an interpretative rule than is necessary to adopt the rule in the first place. From these points, the Court concluded that notice and comment rulemaking is not necessary to modify or reverse an interpretive rule, as the DOL did in issuing the Administrator’s Interpretation.

In reaching this conclusion, the Supreme Court did not give free rein to agencies to promulgate interpretive rules and expect that courts will defer to them. Nor did the Court extend agencies’ unfettered liberty to flip-flop in their interpretations of the law. Justice Sotomayor noted that where an agency issues an informal, interpretive rule that is arbitrary or capricious, courts will not give it effect. Quoting prior precedent, the Court observed that an agency will be required to provide a more “substantial justification” for its rules when they are based “upon factual findings that contradict those that underlay its prior policy; or when its prior policy has engendered serious reliance interests,” noting that it “would be arbitrary and capricious to ignore such matters.”

The question of whether the DOL’s Administrator’s Interpretation was arbitrary or capricious was not before the Supreme Court (or the D.C. Circuit). The parties challenging the Interpretation made the argument in their initial lawsuit, but it was not one of the arguments that they advanced on appeal. Given the abrupt nature of the DOL’s change in its views and the potential impact that it had on a large number of employees, an argument that the Administrator’s Interpretation was arbitrary and capricious may still be viable in future litigation regarding the exempt status of mortgage loan officers. Indeed, even the format of the Administrator’s Interpretation raises questions about its value as an interpretation of the underlying regulations. While the DOL’s legislative rules note that “job title alone is insufficient to establish the exempt status of an employee” and the “exempt or nonexempt status of any particular employee must be determined on the basis of … the employee’s salary and duties,” the Administrator’s Interpretation offers a sweeping generalization about the exempt status of a vast number of employees working for thousands of different employers across the country, based on nothing more than their common job title.

It is also notable that, even if the Administrator’s Interpretation were taken at face value, it would not mean that all mortgage loan officers are non-exempt and overtime eligible. Indeed, many mortgage loan officers spend a significant amount of their working time outside their employers’ places of business, and as such, courts have entered summary judgment and jury verdicts confirming those employees’ exempt status as outside sales personnel.

As we predicted based on the oral argument of this case, the Supreme Court’s ruling leaves open the ultimate questions of whether and under what circumstances mortgage loan officers can meet the FLSA’s administrative exemption. Those open questions will continue to produce substantial uncertainty and litigation in the wake of this decision.

Co-authored by Barry Miller and Taron Murakami

On Monday, the Supreme Court heard arguments in a pair of cases addressing the Department of Labor’s reversal in its position regarding the exempt status of mortgage loan officers.  The Justices’ questions reflected concern about the DOL flip-flopping on this issue, but they also expressed a reticence to issue a broad ruling that would hamper agencies’ ability to render informal interpretations that have sudden and significant impacts on employers and other regulated entities.  A transcript of the argument is available here.

The consolidated case addresses the validity of the DOL’s 2010 Administrator’s Interpretation, in which the agency offered its sweeping conclusion that mortgage loan officers generally do not meet the FLSA’s administrative exemption, and in the process withdrew a 2006 Opinion Letter in which the DOL had reached the opposite conclusion.  Additional background is in our previous posts on the D.C. Circuit’s ruling that threw out the Administrator’s Interpretation as a capricious reversal that would require notice and comment rule making; on the D.C. Circuit’s refusal to reconsider that ruling; and on the Supreme Court’s decision to review the case.

While the government attempted to defend the DOL’s 2010 reversal as a result of the agency reaching the conclusion “that the 2006 interpretation was simply erroneous,” Justice Roberts noted “a change in the leadership at the agency” between 2006 and 2010, and Justice Scalia commented that the change in the Presidential administrations was “a more likely explanation.”  Their concern was not just that the agency had reversed its position with the political tides, but also that it had done so through informal guidance without formal rulemaking that would have provided employers notice of a potential change and an opportunity to comment.  Justice Kagan recognized that there was “a sense that agencies more and more are using interpretative rules and are using guidance documents to make law and . . . it’s essentially an end run around the notice and comment provisions.”

Several of the Justices also seemed inclined to tackle a more modest question than the one the parties had framed.  Justice Breyer, in particular, noted that the case raises very challenging points of administrative law and agencies’ power to change the law informally.  He later described another way for the Court to view the DOL’s reversal of its position and observed  “we can answer that pretty quickly, I think.”  Justice Breyer suggested that the Court doesn’t need to decide whether the Administrator’s Interpretation is entirely invalid, but can simply direct the lower courts to take the DOL’s reversal in position into consideration in deciding how much deference to extend the agency’s guidance.  Where, as with the exempt status of mortgage loan officers, the DOL’s position has flip-flopped, a court might ignore the agency’s views and decide the question based on case law and other devices used to interpret ambiguous statutes.

Questions asked at oral arguments are always in the nature of tea leaves, and it remains to be seen how the Supreme Court will resolve its apparent concerns about the inconsistency of the DOL’s position with its hesitance to wade into deeper questions of administrative law.  If the Court holds that the Administrator’s Interpretation is not entirely invalid but also may be worthy of little or no deference from the courts, employers could be thrown further into limbo regarding the exempt status of mortgage loan officers and other employees who may be subject to inconsistent guidance from the DOL.

It should also be noted that, regardless of the fate of the Administrator’s Interpretation and the DOL’s position on the application of the FLSA’s administrative interpretation to mortgage loan officers, employers have availed themselves of other defenses to the onslaught of overtime litigation in the mortgage industry.  We blogged on a successful alternative defense of the exempt status of loan officers as outside sales employees here.

Authored by Barry Miller

A Detroit jury has handed a major win to the defendant employer in an overtime case brought on behalf of mortgage loan officers, rejecting the plaintiffs’ argument that they were sales employees with limited decision-making authority.  As we recently reported, the Henry v. Quicken Loans case went to the jury on Monday, March 14, after more than four weeks of testimony and closing arguments.  The jury deliberated for about two and a half days and returned a defense verdict on Thursday afternoon, finding that the loan officers were properly subject to the FLSA’s administrative exemption and not entitled to overtime pay.

In entering a verdict for Quicken, the jury made two key findings.  First, the jury found that Quicken’s loan officers had a primary duty that was the “performance of office or non-manual work directly related to the management or general business operations of Quicken Loans or its customers.”  This finding is particularly significant, in that it is directly contrary to the Department of Labor’s Administrator’s Interpretation FLSA 2010-1, in which the agency opined that the primary job duty of mortgage loan officers working in the industry at large was sales and not any internal or administrative function.  Given that the Administrator’s Interpretation did not appear to be based on any particular factual investigation undertaken by DOL, employers may argue that jury’s verdict in the Quicken case reflects that the Department of Labor’s conclusions about mortgage loan officers’ job duties were simply wrong, or at least have a less than universal applicability.  This outcome may also affect the deference that courts are willing to extend to the Administrator’s Interpretation. 

The jury also found that the plaintiff loan officers exercised discretion and judgment with respect to matters of significance.  This determination is also significant because plaintiffs’ attorneys suing for overtime on behalf of mortgage loan officers routinely argue that the job involves only the rote application of lending guidelines and does not include the sort of sophisticated financial analysis that warrants application of the administrative exemption.  Clearly, the jury in the Quicken case rejected that argument. 

At the most fundamental level, what the Quicken verdict reflects is that employers who are willing to litigate misclassification cases to conclusion can win.  The stakes in such cases are very high, and there is often tremendous pressure on the employer to settle in order to avoid the possibility of a catastrophic outcome at trial.  This verdict, however, is likely to have reverberations throughout the mortgage lending industry, decreasing pressure on defendants to settle and decreasing the settlement value of other pending cases.

Authored by Barry Miller

Overtime class actions are now at epidemic proportions in the mortgage lending industry.  Dozens of lenders and brokers have been sued since the Department of Labor issued an Administrator’s Interpretation in March 2010 reversing the Department’s prior guidance regarding the application of the FLSA’s administrative exemption to mortgage loan originators (MLOs).  However, a number of MLO overtime lawsuits were filed even before the Department of Labor’s reversal.  One of the first and most highly publicized of such cases is Henry v. Quicken Loans, which was filed in the U.S. District Court for the Eastern District of Michigan in May 2004. 

The trial of the Quicken Loans case began in Detroit on February 8, 2011.  Following four weeks of testimony, the case will be turned over to the jury to decide after closing arguments on Monday, March 14.  The stakes are high, and the jury faces a daunting task.  In addition to very technical questions of liability and complex questions regarding damages, the jury will decide whether the testimony presented at trial can serve as representative proof that will determine the exempt status of loan officers who did not testify in the case.

Though Quicken asserted other defenses during the pre-trial stage of the case, at trail the company has relied exclusively on the administrative exemption.  Interestingly, the proposed jury instructions filed in the case suggest that the jury will consider the case in a framework that does not account for the DOL Administrator’s Interpretation on MLOs.  This appears to result primarily from an amicus  brief that the DOL filed in the case in December 2010, in which the Department acknowledged that it would be unfair to apply its newly adopted position as described in the Interpretation to events that occurred before March 2010.   (See Seyfarth Shaw’s January 13, 2011 posting.)

Stakeholders will  view the verdict in the Quicken case–however the jury decides–as a potential bellwether for the application of the administrative exemption in the mortgage lending industry.  Based on the hard fought nature of the litigation, the high stakes, and the parties’ briefing of numerous significant legal issues leading up to and through the trial, an appeal also appears very likely, whichever side wins the trial.

Co-authored by Tim Watson and Barry Miller

In the ongoing battle between the Department of Labor and the financial industry over the exempt status of mortgage loan officers, the Mortgage Bankers’ Association (MBA) struck the latest blow by filing suit seeking to vacate the DOL’s recent Administrator’s Interpretation (AI) declaring that mortgage loan officers, in general, do not qualify for the administrative exemption to the FLSA’s overtime requirements.  The DOL’s AI issued in March 2010 reversed the DOL’s own prior opinion letter from September 2006 stating that the specific mortgage loan officers discussed in the letter–and whose job duties were spelled out in the letter–did qualify for the administrative exemption.

According to the MBA’s complaint filed on January 12 in federal court in Washington, the DOL’s March 2010 AI violates Section 702 of the Administrative Procedure Act (APA), 5 U.S.C. § 702 for two reasons.  First, the DOL’s abrupt reversal of its longstanding interpretation, issued with no prior warning, violates the APA because the DOL failed to go through the process of notice and comment rulemaking required by the statute.  Second, the MBA asserts that the AI is arbitrary and capricious.  That is, the MBA alleges, “[b]ecause the AI conflicts with existing DOL regulations, and because those regulations have been afforded the force of law by courts, DOL’s issuance of the AI is arbitrary, capricious, an abuse of discretion, and otherwise not in accordance with [the APA].”  Based on these grounds, the MBA asked the court to vacate and set aside the AI in its entirety.  The MBA also filed a motion for summary judgment along with its complaint, contending that there are no questions of fact that the court needs to resolve to determine whether the AI is valid. 

As a result of the AI, the financial services industry “now faces substantial exposure from private-party litigation alleging that well-compensated mortgage loan officers are misclassified and are entitled to collect both back overtime wages and penalties.”  Indeed, based on the AI’s reasoning that mortgage loan officers are not administratively exempt in part because they engage in sales activity, the AI has been used by plaintiffs’ lawyers to support misclassification claims on behalf of other employees in the financial services industry such as underwriters, personal bankers, brokers, loan originators, and consultants.

Authored by Barry Miller

A recent onslaught of victories for Prospect Mortgage, LLC in Virginia provides valuable insight into the application of the FLSA’s outside sales exemption to workers who also perform significant portions of their jobs inside the office.  The company obtained a defense verdict in what appears to be the first trial in the nation on these issues.  Prospect also secured several rulings that cement a pragmatic standard for application of the outside sales exemption, requiring only that a sales employee leave the office for “one or two hours a day, one or two times a week” in order to qualify.  This ruling has significant ramifications for the mortgage lending industry and for all employers that maintain an exempt outside sales workforce.  (Note: In the spirit of full disclosure, Seyfarth represented Prospect Mortgage in these victories).

Facing the Jury

Prospect’s string of victories was punctuated by a jury trial verdict in its favor rendered on February 5.  An eight-member jury unanimously answered “Yes” to the question of whether Prospect had properly classified plaintiff Alison Cougill as an exempt outside sales person.

Cougill had survived summary judgment on the question of her exempt status, with Judge James C. Cacheris finding that her equivocal deposition testimony regarding the extent of her outside activities required a jury to decide the factual issues in the case.

The legal deck was stacked against Prospect at trial.  While the employer always bears the burden of proof regarding the FLSA’s exemptions, that burden is heavier in the Virginia federal courts, which are bound by law handed down from the Fourth Circuit Court of Appeals.  Instead of merely proving that Cougill was exempt by a preponderance of the evidence (i.e., more likely exempt than non-exempt), Prospect was required to prove that Cougill was an outside salesperson by “clear and convincing evidence.” 

The trial, however, was not close.  Plaintiff testified first, and her counsel then called Prospect’s chief human resources officer, a former regional manager for the company, and two Branch Managers who had supervised Cougill during her employment with the company.  Prospect limited its case to a pointed cross-examination of Cougill and a series of follow-up questions to the executives and managers whom Cougill’s counsel had subpoenaed.  The Company rested without calling any witnesses of its own.  After closing statements, the jury deliberated for about forty minutes before returning a verdict for Prospect that marked a complete victory.

The outside sales exemption is among the most straightforward of the FLSA’s exemptions.  It requires only that an employee is (1) primarily engaged in sales; and (2) customarily and regularly engaged in sales or promotional work outside of the employer’s places of business.  Because there was no dispute that loan officers like Cougill are engaged in sales, the only question for the jury was whether how often she was outside. 

Prospect focused on helping the jury understand its unique business model.  The witnesses explained that the Company’s sales strategy is founded in the recognition that the origination of mortgage loans is fundamentally a relationship business, and for that reason loan officers must develop a level of personal trust in order to successfully drive sales.  The best way to do that, the witnesses explained, was through ongoing, in-person contact with referral sources like local real estate agents.  With that framework established, Prospect leveraged Cougill’s positive performance record to show that she spent several hours each week on outside sales and promotional activities, including attending open houses, meetings sponsored by a local business networking group, one-on-one meetings with real estate agents, mortgage closings, and a host of other activities in the field. 

Prospect also relied on its communications to its loan officers emphasizing the Company’s expectation that they focus on outside activities in pursuing mortgage loan sales.  Prospect had memorialized these instructions in numerous sales initiatives and communications, as well as an Employee Agreement Regarding Outside Sales Activities, which each loan officer signed at the beginning of his or her employment with the company.

With this factual record in place, it took the jury longer to listen through Judge Cacheris’ final instructions than it did to reach a verdict that Prospect had proven by clear and convincing evidence that Cougill was properly exempt and not entitled to a minimum hourly wage or overtime pay. 

There have been dozens of lawsuits filed against mortgage lenders in recent years asserting FLSA claims on behalf of loan originators, and the position has also been the subject of scrutiny by the U.S. Department of Labor.  Notwithstanding this groundswell of litigation, the Cougill case represents one of very few – and perhaps the only – case to go to trial on the application of the outside sales exemption to mortgage loan officers in recent years.   

Twin Victories

Only hours after the jury rendered its verdict in the Cougill case, Prospect won another victory in Virginia, when Judge Cacheris entered summary judgment against loan officer Ronald Hantz.  Prospect based its motion on two arguments:  First, Hantz’s deposition testimony established that he was regularly engaged in outside sales.  Second, even if Hantz had not satisfied the exemption, he had failed to show that any violation of the FLSA was willful, which subjected him to a shorter statute of limitations that served to bar his claims.  

Hantz had attempted to invoke the FLSA’s extended, three-year statute of limitations for willful violations based on an argument that Prospect had not kept records of his working hours or individually examined the duties of each of its hundreds of mortgage loan officers to determine whether each one was exempt.  Judge Cacheris rejected both arguments, noting that Prospect’s belief that its loan officers were exempt was “perfectly reasonable.”  He noted that it was “only natural” that an employer operating under the belief that its employees were exempt would “decline to keep records that would only represent a pointless administrative burden.”  He also concluded that it was “unrealistic to suggest that an employer is obligated to conduct a review of the activities of each individual employee in order to rely on an exemption.”

Though he found that it was not strictly necessary to do so, Judge Cacheris went on to find that Hantz was, in fact, properly classified as an outside sales person.  The Court noted that Hantz’s supervisor expected him to be “out there knocking on doors” to sell loans, and that even though Hantz “also worked considerable hours inside the office,” the time that he spent outside “meeting with realtors and distributing fliers, attending open houses to network with potential customers, and giving seminars” reflected that those outside activities were critical to his sales efforts.

Hantz was the third loan officer to have his FLSA claims against Prospect extinguished by summary judgment in Virginia.  In the weeks leading up to the Cougill trial, the Company also secured summary judgment rulings against former loan officers Lora Hartman and Alice Dixon based on their own deposition testimony regarding their outside sales efforts.  In reaching these conclusions, the court rejected two legal arguments that the plaintiffs offered in an attempt to narrowly constrain the scope of the outside sales exemption.  First, Judge Cacheris rejected the plaintiffs’ contention that only interactions with customers that occurred at the customers’ homes or places of business were properly considered “outside”; he recognized that an interaction at a coffee shop or at an open house is also “outside” of the employer’s place of business for purposes of the exemption.  Second, the court rejected the notion that sales efforts resulting in transactions formally consummated inside of Prospect’s offices could not considered “outside.”  The court acknowledged that the sale of a mortgage loan is a multi-step process that may include a combination of inside and outside interactions, but those activities that a loan officer undertakes in the field are “outside” activities, irrespective of where the papers are eventually signed. 

An Obtainable Threshold for Exempt Status

In each of the cases noted above, the Virginia court applied a legal standard that includes a quantitative component that allows an employer to apply and defend with confidence.  In each of his summary judgment decisions, and in his instructions to the jury in Cougill, Judge Cacheris applied a standard that required that Prospect show only that a loan officer spends “one or two hours a day, one or two times a week” engaged in outside sales activity.  This standard naturally comes with recognition that an outside sales person may, in fact, spend a significant portion of his or her workweek in the office. 

The Virginia court also repeatedly observed that the standard that it applied for outside sales activity is consistent with the purposes underlying the exemption.  Citing to precedents from the early days of the FLSA, Judge Cacheris recognized that the purpose of the outside sales exemption is to accommodate a sales person who “to a great extent, works individually,” and who because he earns commissions on his sales “can earn as much or as little, within the range of his ability, as his ambition dictates.”  This pragmatic approach to the exemption has enabled Prospect to defend an employment practice that plays a key role in the Company’s business strategy. 

After an eventful tour on Virginia’s “rocket docket,” Prospect emerges from a series of FLSA cases in Virginia with a perfect scorecard.  The Company will doubtlessly benefit from the legal principles crystalized in Virginia in its continuing application of the outside sales exemption to its mortgage loan originators.  Other lenders around the country, and any other employer with a significant outside salesforce, will likewise reap the benefits of these rulings for years to come.

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.

 

Co-authored by Kyle Petersen and  Natascha Riesco

As you may recall, the DOL threw the mortgage industry into a tizzy when it issued a sweeping Administrator Interpretation in 2010 that reversed its prior opinion letters and announced its view that mortgage loan officers were not exempt from the minimum wage and overtime requirements of the FLSA (at least under the administrative exemption).  Since then, there’s been much uncertainty and costly litigation concerning the proper classification of loan officers.

First, a recap.  The mortgage industry has traditionally classified loan officers as exempt employees — a decision that was supported by various opinion letters from the DOL dating back to 2006, which, subject to specific facts, concluded that loan officers were administratively exempt employees.  The DOL’s 2010 and first-ever Administrator Interpretation marked a sharp 180 degree change.  In it, the DOL explicitly rejected its prior opinions and after summarizing the “typical” duties of mortgage loan officers, concluded that loan officers do not qualify for the administrative exemption.  In sum, the DOL found that loan officer were primarily focused on sales, and therefore did not perform administrative work. The Mortgage Bankers Association (MBA) sued the DOL in 2010 on account of its flip flop, contending that the DOL failed to follow proper procedure for rulemaking.

Initially, the District Court sided with the DOL, holding that the agency had not run afoul of the Administrative Procedures Act when it flip flopped its position about whether loan officer were overtime eligible.  However, as we reported here, the D.C. Circuit reversed the District Court’s ruling and vacated the Administrator Interpretation.  Although the Court of Appeals did not opine on the proper classification of MLOs, it cited to prior Circuit Court decisions to find that the DOL could not so drastically revise its interpretation unless it abided by the notice and comment rulemaking standards of the Administrative Procedures Act.  This means that before changing its interpretation, the DOL must first propose regulatory revisions, elicit public comments, review and analyze those public comments and only after multiple layers of approval, issue final regulations.

Clearly unhappy with this outcome, three former loan officers who had intervened in the MBA’s case asked the DC Circuit to take another look, requesting en banc review of the panel decision.  The loan officers argued that the case law the panel relied upon was actually contrary to the APA and therefore worthy of reconsideration by the full court.  Late last week, the D.C. Circuit Court of Appeals rejected the loan officers’ petition for en banc review, noting simply that no member of the Court had requested a vote.  

In short, the DC Circuit has now told the DOL- twice- that it may not circumvent the APA’s regulatory process and that changing the classification of mortgage loan officers from exempt to non-exempt  won’t be so easy as issuing a letter.  The DC Circuit’s rulings have left the DOL’s Administrator Interpretation without effect while simultaneously reviving the DOL’s prior opinions. Even so, the dust on the proper classification of loan officer has not yet settled.  It is unclear at this point whether the DOL will seek to take the case to the Supreme Court or whether it will abide by the DC Circuit’s finding and perhaps begin the process of issuing proper regulations that could resuscitate it 2010 Administrator Interpretation.

sixth cicuit.jpgAuthored by Kyle Petersen

Last year, we reported on the defense verdict in the Henry v. Quicken Loans case, in which a Detroit jury found that mortgage loan officers were not sales employees with limited decision-making authority.  Instead, the jury found that the mortgage loan officers were subject to the FLSA’s administrative exemption and therefore not entitled to overtime.  Last week, the Sixth Circuit Court of Appeals affirmed the jury’s verdict.

After hearing 40 witnesses testify during the five-week trial, the jury made two key findings in Quicken’s favor.  First, the jury found that the plaintiff loan officers’ primary duty involved “work directly related to the management or general business operations” of Quicken or its customers.  Second, the jury found that the plaintiff loan officers exercised discretion and independent judgment with respect to matters of significance. 

On appeal, plaintiffs argued not only that the evidence did not support the verdict, but also that the question of whether the mortgage loan officers were eligible for the administrative exemption was not one of fact to be resolved by the jury; rather, plaintiffs advocated that the determination of whether the administrative exemption applies is a question of law for the court to decide (and thus was subject to de novo and not clear-error review). 

Not surprisingly, the Sixth Circuit declined to disturb the jury’s verdict, holding that there was “ample evidence” to support a finding in Quicken’s favor.  As is often the case, the Sixth Circuit deferred to the credibility determinations the jury made after hearing conflicting testimony from multiple witnesses about the loan officers’ day-to-day job duties. 

Perhaps more importantly for employers, the Sixth Circuit also rejected the notion that application of the administrative exemption is necessarily a matter of law subject to de novo review.  Rather, the Court explained, where there are material fact disputes about which duty is primary, the determination is factual and thus falls squarely within the province of the jury.  To be sure, the Court acknowledged, the exemption determination can be made as a matter of law in those cases where there are not material factual disputes as to what duties are primary. 

In its decision, the Sixth Circuit joins the Tenth Circuit in concluding that the primary duty determination is factual.  While these decisions may be relied upon by plaintiffs to defeat defense motions for summary judgment, there is a significant upshot for employers seeking to defeat collective or class certification in misclassification cases.  Indeed, fact-intensive inquiries ill-suited for summary judgment may be similarly inappropriate for determination on a class-wide basis.  The Court’s decision therefore provides another avenue for employers to defeat certification when there is conflicting evidence about the workers’ primary job duty.

In addition, demonstrating that there are disputed issues of fact regarding primary duties may also work to an employer’s advantage on the merits in FLSA cases that rely on a hyper-technical reading of the FLSA or its regulations.  In that situation, avoiding entry of summary judgment in favor of plaintiffs and proceeding to trial very well may tip the scales of justice in favor of the defense.  Indeed, at trial in such cases, an employer often has the more sympathetic position, particularly where the plaintiffs are highly paid.  

Co-authored by Richard Alfred and Rebecca Bromet

On December 9, 2010, the Department of Labor filed an amicus brief  in the longstanding case of Henry v. Quicken Loans, Inc., Case No. 2:04-cv-40346-SJM-MJH (E.D. Mich.), which addressed, among other things, whether Administrative Interpretation (“AI”) 2010-1 applies retroactively. 

Since May 2004, the parties in Henry have been litigating the exempt status of Quicken’s mortgage loan officers (“MLOs”).  This case highlights the issues faced by parties and courts in the prevalent MLO exempt status litigation, especially in dealing with the changing winds at the DOL. 

On September 8, 2006, the DOL issued Opinion Letter FLSA 2006-31, which concluded that under the revised 2004 FLSA regulations, MLOs qualified for the administrative exemption.  Subsequently, the Henry Court granted summary judgment to Defendant Quicken, ruling Quicken was entitled to assert the “good faith defense” under 29 U.S.C. § 259 because of its reliance on FLSA 2006-31.  This ruling meant that even if Quicken misclassified its MLOs, it faced no liability for that misclassification for the period on or after September 8, 2006. 

Then, on March 24, 2010, the DOL reversed its opinion on the exempt status of MLOs in AI 2010-1 and withdrew Opinion Letter 2006-31.  In response to AI 2010-1, the Henry Court asked the parties to submit briefs discussing what impact, if any, the AI had on the case.  In September 2010, the Court asked the DOL to intervene and file an amicus brief. 

In its brief and at oral argument, the DOL explained its position that AI 2010-1 applied only prospectively and that FLSA 2006-31 controlled during the period between September 8, 2006 and March 23, 2010.  Because AI 2010-1 “unambiguously represents a substantive change in the [DOL’s] interpretation of its administrative exemption regulations,” according to the DOL amicus brief, it applies only prospectively. 

At oral argument, the Court explained to the DOL that it had already granted summary judgment to the Defendant on the issue of its good faith reliance on FLSA 2006-31.  The DOL recognized that an employer might have misclassified its MLOs under the interpretation of the administrative exemption explained in AI 2010-1, but nonetheless escape liability for the period before it issued AI 2010-1 by establishing it relied in good faith on withdrawn Opinion Letter FLSA 2006-31. 

After the DOL amicus brief and oral argument, on December 30, 2010, the Plaintiffs moved for reconsideration of the Court’s previous rulings on summary judgment on several issues, including the issue of Quicken’s good faith reliance on Henry v. Quicken Loans, Inc.  The Defendants brief is due on January 18, 2011, and the Plaintiff’s reply is due on January 25, 2011.  The case is on Judge Stephen K. Murphy, III’s, trial calendar for February 2011.