Mortgage loan officers and their employers are dangling in the wind after a federal appellate court upended a prior Department of Labor ruling that classified mortgage loan officers as non-exempt employees entitled to overtime pay.
Until more clarity surfaces, mortgage firms are most likely to follow the Department of Labor’s 2010 interpretation of a rule governing loan officer compensation. The 2010 rule re-classified loan officers as non-exempt employees who are eligible for overtime.
So what is causing all of the rapid changes and confusion?
The controversy started three years ago, but has been with the industry for some time.
Back in 2006, mortgage loan officers were considered exempt employees, which meant employers were not required to pay these workers overtime to comply with federal labor standards.
The Department of Labor upended that decision in 2010 with a ruling that held loan officers do not qualify for the exemption under the Fair Labor Standards Act.
The ruling opened the floodgates, allowing loan officers to suddenly become eligible for overtime pay.
The change prompted the Mortgage Bankers Association to file suit (MBA v. Harris). In that lawsuit, the trade group claimed the 2010 interpretation of the rule violated the Administrative Procedures Act by failing to follow procedures already laid out for changing significant rules.
The U.S. Court of Appeals for the District of Columbia Circuit agreed with the MBA’s argument and recently vacated the Department of Labor’s 2010 interpretation of the loan officer compensation rule.
But it’s far from over. In fact, attorneys with Ballard Spahr say the decision has left the entire industry in limbo.
"It leaves them (employers) in the middle of a great big void," said Brian Pedrow, a partner with the law firm of Ballard Spahr.
"One view of the situation is the 2006 interpretation comes back to life." However, he said, "The more prudent action would be to treat your loan officers as non-exempt and wait to see what is going to develop at the Department of Labor."
Jumping the gun could mean companies refusing to pay overtime under the 2006 rule only to face additional expenses or back-pay if the 2010 ruling eventually sticks.
And it could take some time to reach a clear decision, which makes all the uncertainty more difficult.
"I think the Department of Labor is taking a hard look at the decision," Pedrow explained. "I think they are weighing whether it makes sense to appeal this case."
If they do appeal, they could get a ruling they don’t like, the attorney suggested, so an appeal is not a sure thing.
The overall takeaway from the recent D.C. Circuit Court decision is either way, the Labor Department is required to follow the appropriate procedures under the Administrative Procedures Act when trying to change a rule of this nature.
Richard Andreano, a partner with Ballard Spahr, says the mortgage industry is likely to hold back and see what the Department of Labor does first.
"If they move into a rulemaking phase, the industry might decide the best thing to do is to go to Congress and say this is an issue."
The idea would be to get Congress to stop the Labor Department from changing the law by having lawmakers use their Congressional power to tell the agency 'you cannot adopt a rule in this area because we are thinking about it.'
Such a move would then delay the process, allowing Congress to analyze the issue and consider other options.
Still, relying on Congress is a tough proposition.
Andreano sees all of the current confusion as a reflection of how old labor laws and legal constructs are no longer relevant when evaluating today’s workforce.
"We are left with older concepts of who is entitled to overtime," he explained. "It reflects that the existing federal construct of laws does not fit well with modern terms of business."
The good news is the appellate court agreed with the MBA, the attorneys suggested.
The bad news is nothing has truly been resolved for now.
"From an employer’s perspective while financial institutions will be happy that the 2010 decision was vacated, they will be equally unhappy with the fact that there is so much uncertainty surrounding the classification of loan officers," Pedrow added.