Tuesday, April 27, 2010

Not Just Financial Regulatory Change, Big Changes in Employment Law - Be Ready

We’re entering a new age of regulation on labor, with increased enforcement, and credit unions must prepare and protect themselves.

Mortgage Loan Officers and Originators are No Longer Exempt under the Administrative Exemption

The United States Department of Labor (DOL) recently released a new Administrator Interpretation declaring that mortgage loan officers do not qualify as administrative employees under the administrative exemption of the Fair Labor Standards Act (FLSA) and are therefore nonexempt. This new interpretation reverses two previous opinions and represents a significant policy shift.

As noted in the Department of Labor Administrator’s Interpretation No. 2010-1:
The financial services industry assigns a variety of job titles to employees who perform the typical job duties of a mortgage loan officer. Those job titles include mortgage loan representative, mortgage loan consultant, and mortgage loan originator. For purposes of this interpretation the job title of mortgage loan officer will be used. However, as the regulations make clear, a job title does not determine whether an employee is exempt. The employee’s actual job duties and compensation determine whether the employee is exempt or nonexempt. 29 C.F.R. § 541.2.1

Thus, a careful examination of the law as applied to the mortgage loan officers' duties demonstrate that their primary duty is making sales and, therefore, mortgage loan officers perform the production work of their employers. Work such as collecting financial information from customers, entering it into the computer program to determine what particular loan products might be available to that customer, and explaining the terms of the available options and the pros and cons of each option, so that a sale can be made, constitutes the production work of an employer engaged in selling or brokering mortgage loan products. Such duties do not relate to the internal management or general business operations of the company; they do not involve servicing the business itself by providing advice regarding internal operations, unlike the duties of employees working in, for example, a firm’s human resources department, accounting department, or research department. The typical job duties of a mortgage loan officer comprise a financial services business’ marketplace offerings, the selling of loan products. Their duties involve the day-to-day carrying out of the employer’s business and, thus, fall squarely on the production side of the business.

Many employers defend against FLSA lawsuits brought by mortgage loan officers by arguing that they are exempt as outside sales employees, thus conceding that their primary duty is sales; and Courts have repeatedly held that mortgage loan officers who work inside their employer’s place of business have a primary duty of sales.
This Interpretation does not address whether the sales duties of any particular loan officer fall within the outside sales exemption or are limited to inside sales.

We believe it is very important that your credit union review each currently “exempt” position to determine if it falls in a similar category as the Mortgage Loan Officer.

Keep in mind that one of the fastest growing types of class action lawsuits are those where a class of employees (like Mortgage Loan Officers) claim they were misclassified as exempt employees, when they should have been classified as nonexempt and paid overtime. The exposure is enormous. If you believe this may apply to your credit union, it is important to reclassify the position as non-exempt and comply with applicable overtime requirements. And of course, it is always a good idea to consult with an HR attorney.

The National Labor Relations Board (NLRB) and Employee Free Choice Act

Fred Becker, previously the associate general counsel for the Service Employees International Union (SEIU), was a recess appointment to the National Labor Relations Board (NLRB). This appointment drew fire from business groups who have alleged that he is unduly pro-labor and intends to use his post to administratively implement the Employee Free Choice Act (”EFCA”), which has floundered in Congress.

A recent Seyfarth & Shaw LLP communiqué states:
The NLRB has invited experts from other agencies to train its staff in rulemaking procedures. By addressing issues through the rulemaking process rather than its traditional case-by-case adjudicatory approach, the newly constituted Board, with a majority composed of former union attorneys, will be able to:
  • Solicit for issues to address, even though no case is presently before the Board which raises such issues;
  • Address issues on a much broader basis than the facts in a particular case would allow; and
  • Achieve a desired result by avoiding unfavorable factual context which may be present in a particular case.

Also, and perhaps most importantly, the courts generally are much more differential to agency rulemaking initiatives as opposed to the more severe judicial scrutiny often given to individually adjudicated cases. Thus, initiatives of the new Board may be better positioned to withstand judicial challenge.

Mr. Becker’s appointment is just one more step in the Obama Administration’s plan to make it much easier for unions to assume control of the work place, including credit unions. Look for a late year push to pass some version of EFCA. Be prepared, this undoubtedly will present big changes in employment law.