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Second Circuit Says Bank Loan Underwriters Not Exempt from Overtime Requirements

    Client Alerts
  • December 11, 2009

In recent years, the financial services industry has faced numerous collective action lawsuits alleging that various white collar job positions were misclassified as exempt from overtime requirements of the Fair Labor Standards Act.  Last month, the Second Circuit Court of Appeals concluded that bank loan underwriters do not meet the requirements for the Administrative overtime exemption.

In Davis v. J.P. Morgan Chase & Co., the plaintiff underwriters evaluated whether to issue loans through reference to a detailed set of guidelines provided by Chase.  The underwriters had limited discretion to make exceptions to the guidelines.  In reversing a grant of summary judgment for the defendant, the Second Circuit concluded that the underwriting job involved production rather than administrative support work.  In order to meet the Administrative exemption, the employee must be engaged in work directly related to management policies, but the work cannot involve the direct business function of the company.

The Second Circuit found that 2004 regulations issued by the Department of Labor with respect to loan officers did not apply to the underwriters.  Rather than advising clients about loan products and loan options, the employees here performed routine day-to-day activities.  These duties failed to meet the Administrative exemption test because they (1) were production work directly tied to the bank's business - making loans; and (2) would not have involved the requisite degree of discretion and independent judgment necessary to meet the exemption test regardless.

Employers commonly misclassify employees as Administrative exempt.  The true exemption is limited to a narrow range of support employees with important, discretionary job duties such as higher level human resource, accounting, purchasing and marketing jobs.  Employees lacking the requisite discretion, and those who generate revenue for the company through their production efforts will not meet this test.