According to the Ninth Circuit, the mortgage underwriters in the matter of McKeen-Chaplin v. Provident Savings Bank do not qualify for the Fair Labor Standards Act’s (“FLSA”) administrative exemption because they are more appropriately characterized as “production” employees. The Court’s ruling serves as a reminder of the importance of an employee’s primary duties in determining the application of an exemption.
In McKeen-Chaplin, the mortgage underwriters were responsible for analyzing customer loan applications and determining borrower creditworthiness in order to ultimately decide whether Provident, the defendant, would accept a loan request. The decision to impose the conditions on a loan application was controlled by applicable guidelines; however, underwriters had the authority to impose additional conditions and refuse to approve a loan until the conditions were satisfied. An underwriter could also suggest a “counteroffer,” request that Provident make exceptions in certain cases, and/or approve a loan that does not satisfy the guidelines.
In reversing the lower court’s decision, the Ninth Circuit found that, although the underwriters met the minimum-salary qualification of the administrative exemption, the exemption was not satisfied because they did not “perform as [their] primary duty ‘office or non-manual work related to the management or general business operations of the employer or the employer’s customers.’” In reaching its conclusion, the Court focused on the fact that the mortgage underwriters in question had no authority to decide whether the Bank “should take on risk, but instead assessed [only] whether, given the guidelines provided to them. . . , the particular loans at issue fall within the range of risk Provident has determined it is willing to take.” According to the Court, under the circumstances, there was no meaningful distinction between the mortgage underwriters and mortgage loan officers, the latter of which the DOL had already analyzed and found did not qualify for the administrative exemption.
The Ninth Circuit’s ruling is not an indication that mortgage underwriters could never qualify for the administrative exemption, as an underwriter with more authority to set policy may very well meet the exemption. Instead, the ruling highlights the importance of an employee’s primary duties in determining whether the requirements of an exemption have been met. With respect to the administrative exemption specifically, the Court explains that “the question is not whether an employee is essential to the business, but rather whether her primary duty goes to the heart of internal administration—rather than marketplace offerings.”
Coverage: Employers who employ underwriters in the Ninth Circuit. The Ninth Circuit is comprised of Alaska, Arizona, California, and Hawaii.
Effective Date: This decision was issued last month.
Action Required: Please contact your Human Resources Business Partner if you have any questions.
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