Keep paying overtime, for now. Image: Fotolia.
Keep paying overtime, for now. Image: Fotolia.

Mortgage companies could reverse their current policies and deny loan officers overtime in the wake of a U.S. appeals court ruling. But that may not be prudent, according to some attorneys.

The U.S. Court of Appeals for the District of Columbia Circuit has struck down a Department of Labor interpretation on overtime pay for mortgage loan officers and ruled in favor of the Mortgage Bankers Association.

However, circuit judges didn’t reverse the Department of Labor’s position on overtime. The judges simply ruled on a procedural issue and left the door open for DOL to reinstate its position that certain MLOs are entitled to overtime—even if they are paid a salary and commissions.

“If you are treating employees today as eligible for overtime, let the dust settle before you change any policies. We are not sure where this is going to go,” said Ballard Spahr attorney Richard Andreano.

The issue of overtime pay has been a long-running legal battle. It started in 2006 when the MBA asked DOL for guidance on overtime pay. The Department of Labor responded with an opinion letter that classified MLOs as mainly administrative personnel—who are not eligible for overtime pay under the Fair Labor Standards Act.

But in 2010, the Department of Labor suddenly reversed that position and determined that MLOs are eligible for overtime because they are mainly sales personnel.

The MBA sued DOL and lost at the U.S. District Court level. On July 2, the appeals court struck down DOL’s 2010 interpretation and directed DOL to reinstate its 2006 interpretation.

However, the judges did not take issue with the Department of Labor’s FLSA interpretation. They ruled that DOL failed to follow proper rulemaking procedures in reversing the 2006 opinion letter on overtime pay.

When an agency engages in such “flip-flops,” it must go through a regular rulemaking process and seek public comment, according to the appeals court’s decision in MBA v. DOL acting secretary Seth Harris.

The circuit judges said the Department of Labor is “free” to re-adopt its 2010 interpretation. “DOL must, however, conduct the required notice and comment rulemaking,” the court said.

The court gave DOL a “very clear” signal that they can go ahead with their 2010 interpretation, but they just have to “do it the right way,” said Ballard Spahr attorney Brian Pedrow. “I wouldn’t be all surprised if they do that,” he added.

But it takes time to go through the regulatory process and issue a final rule.

So it could be risky if mangers move too quickly and reclassify their MLOS as not eligible for overtime. They risk becoming a target of a FLSA collective action or lawsuit, which can carry some pretty significant penalties. “This is high-stakes poker,” Pedrow warned.

“The prudent thing to do is to wait and see what happens,” Andreano added.

To be conservative, many companies currently treat LOs as eligible for overtime. “However, they also impose other rules and requirements on whether they are allowed to work overtime,” Andreano said. And they must get approval from a manager to work overtime.

If they work overtime without permission, the company can fire the employee. But if they aren’t fired, “you have to pay them overtime,” Andreano said.

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