Sixth Circuit Holds Mortgage Underwriters Are Exempt Administrative Employees Under the FLSA | Practical Law

Sixth Circuit Holds Mortgage Underwriters Are Exempt Administrative Employees Under the FLSA | Practical Law

In Lutz v. Huntington Bancshares, Inc., the US Court of Appeals for the Sixth Circuit held that residential loan underwriters were administrative employees exempt from Fair Labor Standards Act (FLSA) overtime pay provisions. The Sixth Circuit held, in contrast to the US Court of Appeals for the Second Circuit in Davis. v. J.P. Morgan Chase & Co., that the underwriters performed office or non-manual work directly related to the management or general business operations of the bank employer and therefore were not production employees.

Sixth Circuit Holds Mortgage Underwriters Are Exempt Administrative Employees Under the FLSA

by Practical Law Labor & Employment
Published on 09 Mar 2016 • USA (National/Federal)
In Lutz v. Huntington Bancshares, Inc., the US Court of Appeals for the Sixth Circuit held that residential loan underwriters were administrative employees exempt from Fair Labor Standards Act (FLSA) overtime pay provisions. The Sixth Circuit held, in contrast to the US Court of Appeals for the Second Circuit in Davis. v. J.P. Morgan Chase & Co., that the underwriters performed office or non-manual work directly related to the management or general business operations of the bank employer and therefore were not production employees.
On March 2, 2016, in Lutz v. Huntington Bancshares, Inc., the US Court of Appeals for the Sixth Circuit affirmed, in a 2-1 decision, the district court's decision that residential loan underwriters were administrative employees under the FLSA and therefore exempt from the overtime pay provisions because:
  • Their job duties related to the general business operations of Huntington.
  • They exercised discretion and independent judgment when performing those duties.
( (6th Cir. Mar. 2, 2016).)

Background

Gregory Lutz and Dorothy Becker filed a class action suit against their former employer, Huntington Bancshares, Inc. and Huntington National Bank (Huntington), alleging failure to pay overtime under the FLSA (29 U.S.C. §§ 201–219). Huntington's bank underwriters' duties included providing credit products to customers after reviewing and evaluating loan applications against Huntington's credit standards and guidelines. The district court:
  • Certified a class of residential-loan underwriters.
  • Held that the class of residential loan underwriters were administrative employees exempt from FLSA overtime.
(Lutz v. Huntington Bancshares Inc., (S.D. Ohio June 25, 2014).)
The plaintiffs appealed to the Sixth Circuit.

Outcome

The Sixth Circuit, in a 2-1 decision, affirmed the district court's decision, holding that the residential-loan underwriters were administrative employees under the FLSA and therefore exempt from the overtime-pay provisions because:
The Sixth Circuit noted that:
  • An employee working in a bona fide administrative capacity is exempt from the overtime provisions of the FLSA if the employee:
    • is compensated on a salary or fee basis at a rate of not less than $455 per week (although this threshold is expected to increase to $970 per week this summer if the DOL's proposed regulations are finalized);
    • performs, as its primary duty, office or non-manual work directly related to the management or general business operations of the employer or the employer's customers; and
    • exercises discretion and independent judgment with respect to matters of significance.
    (29 U.S.C. § 213(a)(1); 29 C.F.R. § 541.200(a); Foster v. Nationwide Mut. Ins. Co., 710 F.3d 640, 642 (6th Cir. 2013).)
  • An employer must:
  • Administrative employees must "perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing production line or selling a product in a retail or service establishment." (29 C.F.R. § 541.201(a)).
  • The work of an administrative employee is therefore considered "ancillary to an employer's principal production activity." (Renfro v. Ind. Mich. Power Co., 370 F.3d 512, 517 (6th Cir. 2004) (Renfro I)).
The Sixth Circuit found that:
  • Huntington's underwriters perform administrative work because they assist in the running and servicing of the Bank's business by making decisions about when Huntington should take on certain kinds of credit risk. This function is ancillary to the Bank's principal production activity of selling loans.
  • The work of Huntington's residential loan underwriters is similar to that of special investigators (held in Foster as administratively exempt) and insurance claims adjusters (identified in the DOL regulations as administratively exempt (29 C.F.R. § 541.203(a))). For example underwriters, special investigators, and claims adjusters:
    • do not generate business for their employers by directly selling a product; and
    • broadly perform an investigative function.
  • The duties of Huntington's underwriters also resemble those of other administratively exempt financial services industry employees. For example, a financial services industry employee is administratively exempt if his duties include collecting and analyzing information regarding the customer's income, assets, investments, or debts and determining which financial products best meet the customers' needs and financial circumstances (29 C.F.R. § 541.203(b)). Similarly, Huntington's underwriters:
    • collect and analyze customer financial information;
    • determine which financial products best meet the customers' needs and financial circumstances; and
    • exercise discretion that allows them to deviate from and make exceptions to Huntington's guidelines.
  • This case was distinguishable from Davis v. J.P. Morgan Chase & Co., in which the Second Circuit held that loan underwriters were production employees eligible for overtime because their work was "not related either to setting 'management policies' nor to 'general business operations' such as human relations or advertising, but rather concerns the 'production' of loans—the fundamental service provided by the bank." The Second Circuit emphasized that the Chase underwriters:
    • had no involvement in determining the future strategy or direction of the business;
    • did not perform any other function related to overall efficiency or mode of operation; and
    • were trained only to apply the credit policy as they found it, as it was articulated to them through the detailed Credit Guide.
    (587 F.3d 529 (2d Cir. 2009).)
  • Davis is inconsistent with Sixth Circuit precedent because:
    • in the Sixth Circuit, the focus is on whether an employee helps run or service a business, not whether that employee's duties merely touch on a production activity;
    • like the plaintiffs in Renfro I and Foster, underwriters perform work ancillary to Huntington's principal production activity;
    • job duties performed by underwriters resemble those performed by administratively exempt claims adjusters and financial services industry employees; and
    • the underwriters in Davis were trained only to apply Chase's credit policy "as they found it" whereas Huntington's underwriters exercise considerable discretion in applying Huntington's guidelines.
  • Contrary to the plaintiffs' contention, Huntington's underwriters exercised discretion and independent judgment even though they were required to adhere to guidelines and manuals because:
    • as in Renfro II, an employee who is directed by guidelines and manuals can still exercise discretion and independent judgment; and
    • Huntington's guidelines allowed its underwriters to depart from a straight approval or denial of a loan application.
  • Although underwriters do not determine Huntington's overall risk guidelines, they still:
    • made decisions that significantly impact the business; and
    • determined the risk Huntington will accept for any particular loan.

Practical Implications

This decision is a positive outcome for many financial services employers. However, employers should be aware of the current circuit split between the Second and Sixth Circuits on this issue. Whether underwriters are exempt may therefore vary based on location and further developments in the federal appellate courts.
Employers also should be aware that the minimum weekly salary threshold for an administratively exempt employee (though not at issue in this case) is expected to go up significantly, from $455 to $970 per week, if the DOL issues final regulations consistent with its proposed regulations. Final regulations are expected this summer.