In a unanimous decision on March 9, 2015, the U.S. Supreme Court brought a measure of clarity to an uncertain issue that banks and other mortgage lenders have faced for a number of years. With their decision in the case of  Perez v. Mortgage Bankers Association , the Justices ruled that the Department of Labor has the authority to consider mortgage loan officers non-exempt from the overtime requirements of the Fair Labor Standards Act (FLSA) without asking for public input. What that means is, mortgage loan officers do qualify for overtime pay, with very few, very limited exceptions.

This has been a hotly contested issue since 2006. Because the home mortgage industry tends to pay its employees by commission, especially those in sales positions, the Department of Labor issued an opinion that year saying that mortgage loan officers and similar employees were exempt from the FLSA overtime pay requirements. Then, in 2010, they did an about-face and issued an “Administrator’s Interpretation,” which said that, in fact, those same workers should be entitled to overtime pay whenever it is earned.

Predictably, the 2010 interpretation prompted the Mortgage Bankers Association to sue, claiming that the Department of Labor had overstepped its authority by failing to provide notice and allow time for public comment on what was essentially an administrative rule change. The Washington, D.C. Court of Appeals agreed with that assessment in 2013 and essentially invalidated the 2010 interpretation. That is, until the Supreme Court weighed in and reversed that ruling March 9.

This ruling does not mean there will be a flood of lawsuits on the part of mortgage loan officers demanding overtime pay. In its opinion, the Court also recognized that the FLSA protects employers who relied on the 2006 opinion and chose not to pay their loan officers overtime.

What all of this means is, all mortgage loan officers and similar employees should be immediately re-classified as non-exempt and employers should make provisions to pay them for overtime.

Another thing to keep in mind: employees in the financial services industry do not qualify for the retail or service establishment commission sales exemption. Not only did the Supreme Court hold in 1959 that financial services companies don’t qualify, Congress has made clear numerous times that the exemption did not, and the Department of Labor has also repeatedly interpreted this exemption as not applying to financial services firms.

If employees of a financial services company only earn commissions, and there is no guaranteed salary, in order to calculate overtime, the employer will have to keep track of their hours, and figure their “regular rate,” by looking at the amount of commission they earned for the week and dividing by the total hours worked. That means, if one of them made $1000 and recorded 50 hours for the week, their “regular rate” is $20 per hour. That means the employer will have to add in an extra $10, or half the regular rate for the 10 hours of overtime.

Once again, if you are a mortgage lender and did not pay overtime to your loan officers before, the Supreme Court says you’re fine, but you’d better start paying overtime now. If you don’t, your employee can obtain a court order requiring you to pay it back. They can go back up to three years, and in many cases, courts have been known to double the amount as “liquidated damages” if you can present no good faith basis for not paying overtime, or if they determine your failure to pay was “willful.”

References:

U.S. Supreme Court Reinstates Rule that Mortgage Loan Officers Are Not Exempt From Overtime Laws

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