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Mortgage Banking Employment Issues — 2006. David Otsuka Wells Fargo San Francisco, CA Tel: 415-222-4951 Email: otsukady@wellsfargo.com Bob Davis Mayer, Brown, Rowe & Maw LLP Washington, DC Tel: 202-263-3207 Email: rdavis@mayerbrownrowe.com. Focus issue: wage and hour compliance
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Mortgage Banking Employment Issues — 2006 David Otsuka Wells Fargo San Francisco, CA Tel: 415-222-4951 Email: otsukady@wellsfargo.com Bob Davis Mayer, Brown, Rowe & Maw LLP Washington, DC Tel: 202-263-3207 Email: rdavis@mayerbrownrowe.com
Focus issue: wage and hour compliance Fair Labor Standards Act State law Focus positions: Mortgage loan officers (“LO’s”) Underwriters Processors Focus
Outside Sales Exemption: Customarily and regularly engaged outside the office in sales/promotion activities No salary basis test requirement Administrative Exemption: Primary duty is gathering information from customers, evaluating that information, and making product recommendations v. “sales” Salary basis test requirement Retail Sales Exemption: legal issue as to whether this applies to financial services Brief Intro to FLSA Exemptions
Wage and Hour Op. 2148 (5/17/1999): “inside” LO’s did not qualify for administrative exemption – production work, and no exercise of discretion and independent judgment Wage and Hour Op. 2251 (2/16/2001): inside LO’s did not do production work and thus may qualify for administrative exemption, but applying specific standards (e.g., LTV ratio) “to choose an already established loan package” did not constitute exercise of discretion and independent judgment Historical Perspective – Prior to the 2004 Amendments to Part 541
Casas v. Conseco Finan. Corp., 2002 US Dist Lexis 5775 (D. Minn. 2002): summary judgment for plaintiffs on non-exempt status of LO’s Administrative exemption did not apply because primary duty of LO’s was production/sales work. Outside sales exemption did not apply because corporate witness testified that LO’s spent 80%-90% of their time in the office. Retail or service establishment exemption did not apply to mortgage banking company as a matter of law. Historical Perspective – Prior to the 2004 Amendments to Part 541
Substantial increase in collective actions under the FLSA Allegation: LO’s do not qualify for outside sales exemption because most of their sales activity is conducted “inside” Allegation: LO’s do not qualify for administrative exemption because their primary duty is “sales”or they are not paid on a salary basis Substantial increase in class actions with state law claims Often combined with FLSA claims Allegation: impermissible charges against salary Allegation: impermissible deductions from overall compensation Increased Litigation
Outside Sales Allegation: LO’s do not qualify for outside sales exemption because most of their sales activity is conducted “inside” the employer’s place of business and any home office maintained by the LO. Branch Managers Allegation: branch managers, who also originate mortgages, do not qualify for the executive exemption because they are not paid on a salary basis Minimum Wage Claims Allegation: LO’s, paid commission-only, do not earn at least minimum wage in each workweek or pay period Increased DOL Enforcement
Fact Patterns: LO who regularly and customarily meets with potential customers, customers, and referral sources “outside” and returns to the office for preliminary underwriting and application reviewv. LO who goes “outside” rarely and spends most of the time in the office on calls to potential customers and taking applications by telephonev. LO who never goes “outside” and spends most of time in the office on loans that are the result of marketing by others Outside Sales
Selected legal authority: Olivo v. GMAC Mortgage Corp., 374 F. Supp. 2d 545 (E.D. Mich. 2004): commission-only LO’s who devoted a “substantial percentage of [their] time . . . to generating sales outside of the office” satisfied the outside sales exemption. Belton v. Premium Mortgage, Inc., 2006 WL 561489 (W.D. Mo., filed March 6, 2006): LO’s “rarely spent more than 3 to 4 hours per week on outside sales calls” and were directed by their manager “to be in the office during regular business hours where they made sales calls from a designated work area.” Summary judgment denied for employer. Outside Sales
DOL Opinion on Outside Sales (March 31, 2006): DOL has now stated for the first time that mortgage loan officers can qualify under the outside sales exemption. DOL indicated that this exemption applies provided that a loan officer is "customarily and regularly" -- meaning normally and recurrently in every workweek -- engaged away from the employer's place of business (or a home office used by the loan officer) in sales activity. (continued) Outside Sales
DOL Opinion on Outside Sales (March 31, 2006): The exempt status of the outside sales mortgage loan officer is maintained if he or she also does some amount of "inside" work incidental to the loan officers' own outside sales or solicitation activity, such as making telephone calls, sending emails, or meeting with clients in the office. DOL has made it clear, as expected, that this incidental activity must relate to the loan officer's own outside sales activities. This distinction is significant, and it should be observed carefully in applying the new opinion. Outside Sales
Combining or “Tacking” Exemptions Example: Condren v. Sovereign Chemical Co., 142 F.3d 432 (Table)(6th Cir. 1998) Employee’s duties included both outside sales and customer-related administrative exemption work. Administrative work could be combined with outside sales work, since employee was paid on a salary basis Potential uses: LO does some outside sales, but spends substantial amounts of time “inside” on administratively exempt work Outside Sales
Duties Tests for “Employees in the Financial Services Industry” Section 541.203 (b) provides an example for “employees in the financial services industry” Note: exercise of discretion and independent judgment must be demonstrated in addition to the duties in the example These employees “generally meet the duties requirements for the administrativeexemption” if -- Administrative Exemption
Duties include work such as: “collecting and analyzing information regarding the customer’s income, assets, investment or debts; “determining which financial products best meet the customer’s needs and financial circumstances; “advising the customer regarding the advantages and disadvantages of different financial products; “and marketing, servicing or promoting the employer’s financial products.” Administrative Exemption
Is “selling” the primary duty? Regulation: “However, an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” Preamble: “the final rule rejects the view that selling financial products directly to a consumer automatically precludes a finding of exempt administrative status.” Administrative Exemption
Is “selling” the primary duty? Analysis: Is the LO’s primary duty customer-specific persuasive sales activity (“do business with us because we are better/cheaper/faster than the competition”)?v. Or, is the LO’s primary duty the analysis / evaluation / recommendation activities described in the regulation? Administrative Exemption
Exempt administrative employees must be “compensated on a salary or fee basis at a rate of not less than $455 per week” ($23,660 annual equivalent) Salary can be true guaranteed non-refundable draw Employee also can receive commissions above minimum salary level Note: some states have higher minimum salary requirements Administrative Exemption -- Salary Basis Test
Underwriters and processors may qualify for the executive exemption: Supervision of two or more FTE employees Paid on a salary basis of at least $455 week (federal minimum) Use of analogy to insurance adjusters to qualify for administrative exemption: Salary basis test applies Work must involve the exercise of “discretion and independent judgment” Underwriters and Processors
March 31, 2006 opinion letter on outside sales exemption Olivo v. GMAC Mortgage Corp., 374 F. Supp. 2d 545 (E.D. Mich. 2004). Belton v. Premium Mortgage, Inc., 2006 WL 561489 (W.D. Mo., filed March 6, 2006). Attachments in Program Materials