9th Circuit Holds Mortgage Underwriters Do Not Qualify for Overtime Exemption

On July 5, 2017, the Ninth Circuit held that mortgage underwriters were entitled to overtime compensation because they did not qualify for the Fair Labor Standards Act’s (“FLSA”) overtime exemption for administrative employees.  The Court applied the analysis used by the Second Circuit, rather than the Sixth Circuit, and found that mortgage underwriters who implement guidelines designed by corporate management and who must ask permission to deviate from company guidelines, are considered non-exempt employees rather than administrators who manage, guide, and administer the business.

In this case, the Court found that the mortgage underwriters at a bank did not perform as their primary duty “office or non-manual work related to the management or general business operations” of the bank, which is required to qualify as exempt administrative employees.  The Court agreed with the Second Circuit in applying this requirement, finding that underwriters had no involvement in determining the future strategy or direction of the business and played no role in the establishment of a bank’s credit policy.  Therefore, the underwriters were not involved in the bank’s general business operations.

The district court below had concluded that the underwriters were exempt because, among other reasons, the underwriters performed work that related to “quality control,” which it classified as “work directly related to management or general business operations.”  The appeals court disagreed, noting that the bank hired an outside company to perform quality control functions after the underwriters performed their duties, and the outside company pulled approximately five percent of loans for further underwriting.  Furthermore, the bank’s loan servicing department also performed post-closing quality control and that department pulled approximately ten percent of loans for further underwriting.

The Ninth Circuit concluded that, although the underwriters were essential to the bank’s business, that did not mean they were exempt under the FLSA’s administrative exemption, and thus the bank should have paid the underwriters overtime.  The question, the court of appeals held, is not whether the employee is essential, but rather whether the primary duty of the employee goes to the heart of internal administration.