On March 9, 2015, the U.S. Supreme Court ruled in favor of the U.S. Department of Labor (DOL), holding that the Department validly rescinded its own rules regarding mortgage loan officers. This ruling is significant for businesses in the financial services industry: the DOL does not consider mortgage loan officers to be exempt under the administrative exemption.
The issue arises out of a 2010 DOL Administrator's Interpretation that reversed 2006 DOL guidance advising businesses that mortgage loan officers were exempt from overtime requirements in the Fair Labor Standards Act (FLSA) under the "administrative exemption." Without notice or an opportunity for comment, the DOL withdrew the 2006 Opinion Letter and issued the 2010 decision concluding that mortgage loan officers do not qualify for the administrative employee exemption.
The Mortgage Bankers Association (MBA) sued the DOL, arguing that its reversal of the 2006 Opinion Letter violated the Administrative Procedure Act (APA) by failing to follow required rulemaking procedures, including not providing notice and time for public comment on the rule change. The MBA won in the Court of Appeals for the D.C. Circuit in 2013, but the suit was appealed all the way to the Supreme Court.
On March 9, in Perez v. Mortgage Bankers Association, the Supreme Court struck down the 2013 appeals court decision, stating that the DOL did not violate the APA when it made the change to the loan officer rule. Accordingly, the DOL's 2010 Administrative Interpretation is controlling, and mortgage loan officers should not be considered exempt pursuant to the administrative exemption. Thus, lenders should not utilize the DOL's 2006 opinion letter stating that mortgage loan officers fall under the FLSA's administrative exemption. As the DOL interpretation of the application of the administrative exemption to mortgage loan officers dates back to 2010, the ruling would be retroactive, not just effective immediately. As a result, financial sector employers should re-evaluate employee classification and take action to convert mortgage loan officers to hourly or salaried non-exempt immediately.
This decision also raises questions about the legality of federal agencies interpreting their own regulations, as well as the current administration's aggressive rulemaking history, which may be re-examined by the Supreme Court in the future.