Overtime Lawsuits Remain Threat: In Spite of Revisions to Fair Labor Standards Act Rules in Recent Years and a New Opinion Letter from the Labor Department, Lenders Still Face Lawsuits for Overtime Claims by Loan Officers

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On Aug. 23, 2004, new and revised regulations regarding the Fair Labor Standards Act (FLSA) went into effect. Lending institutions, banks, mortgage banks and mortgage brokers (collectively, "banks") hoped that these new revised regulations would make clear that mortgage loan officers were exempt employees, and not entitled to overtime. [??] Yet, these revised regulations did not stop plaintiffs' counsel from continuing to sue banks, alleging that loan officers are non-exempt employees, entitled to minimum wage and overtime. They solicited loan officers through Web sites, promising compensation for overtime wages. The cases result in significant exposure; generally they are filed as collective actions, with one or a few plaintiffs attempting to represent all other loan officers employed nationwide by the defendant over several years. [??] In March 2006, the industry obtained a favorable opinion letter from the U.S. Department of Labor (DOL), providing that certain loan officers who work primarily "outside" their employer's offices can be exempt. While this letter is helpful to the industry, whether it will halt the filing of nationwide collective action remains to be seen, and the industry seems to remain a target for such claims. [??] To avoid any liability for overtime, banks could reclassify loan officers as non-exempt and pay them on an hourly basis, including overtime. This has not been the response of some. Rather, either banks are hoping their practices are not challenged or are hoping for some clarification through the courts.


In the meantime, banks should take steps to protect themselves and limit their liability. (For further discussion of this issue, see article in the November 2004 issue of Mortgage Banking by Robert P. Davis, entitled "Overtime Tune-Up.") These protections include rewriting job descriptions and postings in light of the guidance provided in the revised regulations and the DOL opinion letter, ensuring that loan officers meet the duties set forth in the FLSA and tracking all hours the loan officers work.


Employees are entitled to minimum wage and overtime pay under the FLSA unless they fall within certain exemptions, in which case they are exempt from overtime. Some state laws provide additional limitations on exemptions, but these are not discussed in this article.

Whether employees are exempt depends on whether their actual duties and pay fit within the requirements of one of the various exemptions. If challenged, an employer must prove that the employee's duties and pay fit within the terms of an exemption.

If the employee was misclassified as exempt and should have been receiving overtime, then the employer also has the obligation of keeping time records. If the employer has no time records, the employee often can recover overtime for as many hours as the employee claimed to have worked. These claims are difficult for employers to rebut, especially if the employee worked outside the office.

Loan officers often have been treated as exempt, receiving only commissions or a draw against commissions, and they generally do not keep time records. Lawyers representing plaintiffs have seized on such facts, and have brought lawsuits challenging the practice of treating loan officers as exempt. If successful, these lawyers are able to recover under the FLSA not only the overtime, at time and one-half for every hour worked over 40 per week, but sometimes double damages as liquidated damages, penalties for violations and attorney's fees.

These counsel often file on behalf of a class or group of mortgage loan officers, challenging the exemption for the class. Courts have permitted this, and a claim that starts with a few disgruntled employees can turn into a claim by hundreds or thousands, often requiring notice of the lawsuit to all loan officers employed over a number of years.

Since 2004, at least 28 lawsuits have been filed on behalf of loan officers for alleged overtime violations across the country, including California, Colorado, Florida, Georgia, Illinois, Kansas, Maryland, Michigan, Minnesota, Missouri, New Jersey, New York, Ohio and Pennsylvania. …


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