Court Ruling Reignites Underwriter Compensation Fight

Whether certain loan officers are exempt from minimum wage and overtime compensation is an argument that is officially entering into its sixth year, with little hope of an agreement emerging any time soon. The 6th Circuit U.S. Court of Appeals concluded on March 2 that underwriters are engaged in the general management or operations of a business, and are thus exempt from minimum wage and overtime pay, in accordance with Fair Labor Standards Act guidance issued in 2006. This disagrees with a 2nd Circuit decision from 2013, ruling that the production of loans is an integral part of underwriters’ jobs, and creates a “circuit split.” In a careful and deliberate analysis explaining the role of underwriters in making credit decisions on behalf of a lender, the 6th Circuit court found that the role of underwriters was ancillary to the production of loans and more closely related to the servicing of a bank’s business. As such, the underwriters were exempt from the FLSA, meaning they were not entitled to minimum wage or overtime. The decision of the 6th Circuit is welcome news to lenders. However, this does not mean lenders should assume underwriters are exempt and disregard the 2nd Circuit’s decision. The circuit split creates a great deal of uncertainty outside the jurisdictions of the applicable decisions. Within the 2nd and 6th Circuits, lenders should follow the decision of the applicable appeals court. Outside these jurisdictions, lenders will be best served by taking a more conservative approach, given the unsettled legal landscape. Moreover, lenders located in multiple jurisdictions, including both the 2nd and 6th Circuits, should realize that the laws applicable where an employee is located have precedence. The exception to this is if lenders and underwriters have signed a contract with a forum selection clause. For employers with a legitimate basis to contractually select a forum in the 6th Circuit, they would be well-advised to at least consider entering into such an agreement with underwriters if they are, or have been, treated as exempt. As with any legal strategy, conferring with legal counsel is essential before taking any actions. The original 2nd Circuit decision was challenged, and the case made its way to the U.S. Supreme Court, with the high court ruling that the Department of Labor guidance in 2006, and its change in 2010, did not follow proper rulemaking procedures and should have been made available for public comment. As other Circuits, and possibly the Supreme Court again, rule on the issue, the landscape may become clearer. However, for the moment, optimism coupled with conservatism is probably the best course.