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Sixth Circuit Says Residential Loan Underwriters Are Exempt From Overtime Requirements

    Client Alerts
  • March 22, 2016

Earlier this month, financial companies won a victory in the long-standing battle over whether employees involved in mortgage originations and approvals are exempt from the overtime requirements of the Fair Labor Standards Act. The industry contends that these employees fall under the administrative exemption, while a number of class action cases have challenged the applicability of that exemption to employees involved in various stages of the mortgage approval process.

In Lutz v. Huntington Bancshares, Inc., the plaintiffs sought collective action certification for a class of residential mortgage underwriters. These employees receive the completed mortgage applications, and make a determination whether or not the application meets the bank’s lending standards. The plaintiffs contended that they failed to meet the requirements of the administrative exemption because (1) the job involved production work, and not support functions; and (2) they followed underwriting guidelines provided by the bank, and therefore did not exercise sufficient discretion and independent judgment in the performance of their duties.

In a 2-1 decision, the Sixth Circuit rejected both of these contentions, affirming summary judgment for the employer. On the question of support vs. production work, the court concluded that the underwriting activities were ancillary to and in support of the selling of loan products. The Sixth Circuit analogized to several other support functions in various industries.

Next, the court agreed that the underwriters exercise sufficient discretion and independent judgment in approving or rejecting loan applications. While the employees follow detailed underwriting guidelines, the bank demonstrated numerous circumstances where their employees can, and are expected to go beyond the guidelines when making the underwriting decision. The court noted that in the absence of the need for exercise of such judgment, the underwriters could be replaced by a software program. This discretion affects matter of significance to the bank given the large loan amounts and accompanying risks involved with the approval decisions.

Employers that classify employees that use detailed procedures or guidelines as administrative exempt should take careful steps to support this classification decision. They should analyze and include in job descriptions the situations where employees can vary from the guidelines, and demonstrate the business impact of the appropriate exercise of such discretion and independent judgment.