Supreme Court Upholds DOL Interpretation of Non-exempt Status of Mortgage Loan Officers from APA Procedural Objection

This morning, a unanimous Supreme Court upheld a 2010 administrative interpretation from the Department of Labor explaining that the white collar FLSA administrative exemption regulation excluded most mortgage loan officers and found that administrative interpretations – which are not binding on courts – do not need to satisfy the notice and comment provisions applicable to regulations, or rules, under the Administrative Procedures Act.  Perez v. Mortgage Bankers Ass’n., No.13-1041 (U.S. 3-9-15). Contradictory administrative interpretations had been issued by the DOL in 1999, 2001, 2006 and 2010.  When 2010 interpretative opinion was released, litigation ensued and the appellate court concluded that the interpretative rule could not be changed without prior notice and comment.  The Supreme Court reversed.  “Because an agency is not required to use notice-and-comment proce­dures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or re­peals that interpretive rule.”

According to the Court’s opinion, in 1999, 2011 and 2010, the DOL issued administrative opinion letters that mortgage loan officers did not satisfy the FLSA regulation for the administrative employee exemption.    In 2004, the administrative employee exemption regulation was updated and specifically noted that “an employee whose primary duty is selling financial products does not qualify for the administrative exemption.” However, in 2006, the DOL issued an administrative opinion letter that mortgage loan officers would generally satisfy the regulatory exemption.  That letter was withdrawn in 2010 in favor of a W&H Administrator’s Interpretation which concluded that mortgage loan officers were non-exempt. This litigation ensued.  Without analyzing the substance of the 2010 W&H interpretation, the D.C. Court of Appeals ultimately found that the DOL could not change its administrative interpretation of its own regulation without going through the APA’s notice and comment procedures.  The Supreme Court reversed on the grounds that the notice-and-comment procedures do not apply to administrative interpretations of its own regulations.

The APA define rules broadly to include “statement[s] of general or particular applicability and future effect” that are designed to “implement, interpret, or prescribe law or policy.” Certain rules must go through a notice and comment procedure before being adopted by a government agency.  “Section 4(b)(A) of the APA provides that, unless another statute states otherwise, the notice­ and-comment requirement “does not apply” to “interpreta­tive rules, general statements of policy, or rules of agency organization, procedure, or practice.”  Without defining precisely what constitutes an interpretative rule (vs. a legislative rule), the Court noted that the critical feature of interpretive rules is that they are “issued by an agency to advise the public of the agency’s construction of the statutes and rules which it adminis­ters.”  While “the absence of a notice-and-comment obligation makes the process of issuing interpretive rules comparatively easier for agencies than issuing legislative rules, . . . interpretive rules “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.”  Accordingly, the appellate court erred in not applying the exception in §4(b) of the APA to the W&H Administrator’s Interpretation of the FLSA administrative employee exemption issue.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Affirms FLSA Class Action Victory of Columbus Employer

On Wednesday, the Sixth Circuit Court of Appeals affirmed a partial summary judgment and bench trial judgment in favor of a local employer facing a class action for alleged misclassification of Special Investigators as administratively exempt under the Fair Labor Standards Act.  Foster v. Nationwide Mutual Ins. Co.,  No. 12-3106 (6^th Cir. 3/21/13).   In that case, the employees’ primary duty was to investigate and make recommendations concerning approximately 1% of insurance claims which are identified by claims adjusters as presenting certain indicators of fraud. Although the plaintiffs disputed the amount of supervision and authority they possessed (which required a trial of that issue), the Court ultimately found during the bench trial that they exercised independent judgment and discretion with respect to matters of significance.

According to the Court’s opinion, the plaintiffs were well compensated (at an average $75,000) and experienced in law enforcement or insurance claims and spend the majority of their time investigating suspicious claims.   The investigators, however, do not make final decisions about whether to pay or deny claims.  The plaintiffs conducted investigations relatively free from supervision, but subject to guidelines and auditing standards. They gathered evidence, interviewed witnesses, supervised recommended experts, resolved factual questions about fraud, and made recommendations about whether to refer the matters to local law enforcement.

Directly Related to Business Operations

The Court rejected the plaintiffs’ argument that they should not be administratively exempt when the FLSA regulations make clear that law enforcement personnel, public safety personnel and other first-responders performing similar tasks are not exempt under 29 C.F.R. § 541.3(b)(1).

The Court also rejected the argument that the plaintiffs’ work was more akin to non-exempt production/retail sales work than work directly related to the company’s general business operations. The Court found the case of an investigations company to be dissimilar because conducting investigations was that employer’s core business, unlike this case. The plaintiffs argued that the defendant employer’s primary business was asset protection, but the Court concluded that it was creating and marketing insurance policies to the public.   Because the plaintiffs did not write or sell insurance policies, their work could not be production work.

The Court also found the plaintiffs’ job to be more similar to the functions which are identified in the regulation as examples of administratively exempt jobs:  human resources, insurance, auditing, insurance, legal compliance, etc. under 29 C.F.R. § 541.201(b) and insurance claims adjusters which are generally exempt under 29 C.F.R. § 541.203(a).

Independent Judgment and Discretion

The plaintiffs argued that they lacked independent judgment and discretion because they were required to comply with certain investigation guidelines and were audited.  The Court found that the plaintiffs retained significant discretion about how to conduct their investigations and resolve factual questions.   Resolving questions about indications of fraud necessarily involved exercising judgment and independent discretion because they were so fact specific.  Virtually all of the plaintiffs testified that their jobs required them to “search for the truth” and to determine whether certain claims were legitimate or fraudulent.  Although some of the claims were fairly simple to resolve, because “truth” is not an objective concept, there was nothing mechanical about their duties.  

The Court rejected a comparison to a 2005 DOL opinion letter which found that background investigators hired by the Department of Defense to assist with security clearances did not exercise independent judgment because they were not resolving significant factual questions, but were mostly gathering information from pre-listed sources.  The Court also rejected comparisons to two other federal court decisions where those investigators merely gathered information which a claims adjuster or supervisor then reviewed, analyzed and resolved.

The plaintiffs’ duties were also necessarily significant because their conclusions were relied upon to resolve insurance claims.
The Court also found in favor of the employer on similar wage claims brought under New York and California law.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Ohio Appeals Court Holds Community Support Specialist Is Not Exempt from Overtime as An Administrator or Professional

Last week, the Court of Appeals for Cuyahoga County reversed summary judgment in favor of a non-profit community mental health center employer on a claim for unpaid overtime brought by a Community Support Specialist (CSS) formerly employed by the center. White v. Murtis M. Taylor Multi-Serv. Ctr., 2010-Ohio-2602. The trial court had found that the plaintiff was exempt from overtime under both the Fair Labor Standards Act and Ohio Revised Code § 4111.03 law as an administrative and/or learned professional employee. Both courts agreed that Ohio law follows the same standards as the FLSA in evaluating an employee's exempt status and that the burden was on the employer to justify by clear and affirmative evidence that the employee was exempt from overtime pay when working more than 40 hours in a week. However, the appellate court concluded that his job duties did not fit within the administrative exemption; he did not exercise enough independent judgment or discretion to fit within either exemption; and his job did not require a specialized academic degree as required to fit within the learned professional exemption.

According to the Court's opinion, the plaintiff filed suit in January 2008 -- just over three years after he left the non-profit employer -- seeking compensatory and punitive damages. While the employer contended that the plaintiff's job required him to perform managerial duties, the Court found that the employer failed to present any evidence to support its argument. The plaintiff denied that he possessed any authority over other employees. The Court then examined the regulatory examples of duties at 29 CFR §541.201(b) which typically would be performed by an administratively exempt employee and concluded that they indicated policy-making responsibilities which were not reflected in the plaintiff's job. Moreover, the employer failed to present evidence showing that the plaintiff's job required the exercise of judgment and independent discretion over matters of significance.

The exercise of independent judgment requires "the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. . . .[The plaintiff] simply assisted his clients in learning and completing everyday tasks, such as grocery shopping and locating community resources. Clearly, these are not matters of significance as contemplated by the FLSA. [The plaintiff] did not exercise independent judgment in the general business operations of [the non-profit employer]. He did not supervise anyone, nor did he perform any administrative functions such as human resources procurement or management decisions.

The Court rejected evidence that he was not required to routinely seek his supervisor's approval and that he sometimes worked unsupervised because " he was still required to submit all of his notes and case plans to [his supervisor] for approval." While most of his case plans were approved, his supervisor still impliedly rejected "some" of them.

Similarly, the Court concluded that the plaintiff did not fit within the learned professional exemption:

The first element [the employer] must satisfy to establish that [the plaintiff] is a learned professional, is that [the plaintiff] performs work that requires advanced knowledge. The work must either require advanced knowledge, or be of an artistic or creative nature. Specifically, the work is as follows:

"[P]redominately intellectual in character, and which includes work requiring the consistent exercise of discretion and judgment, as distinguished from performance of routine mental, manual, mechanical, or physical work. An employee who performs work requiring advanced knowledge generally uses the advanced knowledge to analyze, interpret, or make deductions from varying facts or circumstances. Advanced knowledge cannot be attained at the high school level." . . .

29 CFR § 301(b). "While a degree is not always required, a degree is the best prima facie evidence that an employee is a learned professional." However, the plaintiff's job description did not require any advanced knowledge or education. Rather, it only required:

some course work in social work, counseling, psychology,or related disciplines beyond high school. Bachelor's degree in Social Work, Counseling, Psychology, or related field preferred. At least one year of experience in a mental health organization with a background in substance abuse[,] abuse treatment and/or prevention essential.

"Thus, the evidence showed that the employer did not require a specialized academic degree or experience. " Indeed, the job did not require the applicant to possess any degree.

The Court found that the trial court had erred by placing "significant weight on the actual education [a bachelors degree in research biology and theology] and training [that the plaintiff] has obtained, when the proper inquiry is the education that is actually required of the position." Although the plaintiff possessed experience and training "in chemical dependency and addiction counseling, he was instructed not to provide clients with counseling; therefore, such training was similarly irrelevant to his position as a CSS 1. Courts have concluded that highly trained individuals [ like pilots] who do not possess an academic degree are not learned professionals."

Moreover, the plaintiff testified that "his work included accompanying clients to appointments and referring them to community resources" and "he did not provide treatment to his clients." His duties also

consisted of teaching daily living skills to his clients. He accompanied them on legal and medical appointments, and assisted them in completing everyday tasks such as managing their finances and grocery shopping. Such duties clearly do not fall into the category of science and learning, as these duties do not require any specialized knowledge.

His employment offer letter also "clearly indicated that [his] position as a CSS 1 was a level 1, primary support position." The Court concluded that "[s]uch a vague description does not merit the type of specialized knowledge required of a learned professional."

Finally, the Court examined an opinion letter from the Department of Labor which indicated that social worker positions which require a master's degree in social work are exempt while case workers who were not required to have a specific degree were not. "The Ohio Supreme Court has previously recognized that opinion letters are persuasive authority in interpreting federal statutes and regulations."

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Obama DOL Eliminates FLSA Opinion Letters

As some of you may recall from my 3/9/09 post -- DOL Releases New FLSA Opinions from Bush Era Including Letters Addressing Mandatory Use of Vacation or PTO During Temporary Shutdowns -- on the last day of the Bush Administration, the Department of Labor attempted to issue 36 FLSA Administrator Opinion Letters, but only about half them were properly post-marked before the change in administrations. As a result, the Obama Administration published all of the letters on the DOL website, but indicated that it was withdrawing and was reserving the right to review, clarify and even reverse the 18 letters which had not been mailed before the Obama inauguration. (These letters were marked on the website with an asterix). However, the Obama Administration has not issued any FLSA Opinion Letters since that time and last week announced that it would not be issuing any more FLSA Opinion Letters for the foreseeable future (or revising any of the 19 Opinion Letters it previously withdrew pending review). Rather, it will instead be issuing Administrator Interpretations -- general statements of policy applicable to particular industries or involving particular rules:

In order to provide meaningful and comprehensive guidance and compliance assistance to the broadest number of employers and employees, the Wage and Hour Administrator will issue Administrator Interpretations when determined, in the Administrator's discretion, that further clarity regarding the proper interpretation of a statutory or regulatory issue is appropriate. Administrator Interpretations will set forth a general interpretation of the law and regulations, applicable across-the-board to all those affected by the provision in issue. Guidance in this form will be useful in clarifying the law as it relates to an entire industry, a category of employees, or to all employees. The Administrator believes that this will be a much more efficient and productive use of resources than attempting to provide definitive opinion letters in response to fact-specific requests submitted by individuals and organizations, where a slight difference in the assumed facts may result in a different outcome. Requests for opinion letters generally will be responded to by providing references to statutes, regulations, interpretations and cases that are relevant to the specific request but without an analysis of the specific facts presented. In addition, requests for opinion letters will be retained for purposes of the Administrator's ongoing assessment of what issues might need further interpretive guidance.

In the past, FLSA Opinion letters involved the FLSA Administrator's detailed legal analysis of real questions by real employers and these letters could be relied upon as a reasoned legal position of the DOL in an employer was later investigated by the DOL or sued in court. General statements of policy are typically entitled to less judicial deference.

All that being said, the first Administrative Interpretation concerns the exempt status of Mortgage Loan Officers. In doing so, the Obama DOL has withdrawn prior Opinion Letters finding mortgage loan officers to be exempt from overtime wages.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.