The Department of Labor Issues Its Very First "Administrator's Interpretation" -- Mortgage Loan Officers Are Entitled To Overtime

On March 24, the DOL issued Administrator's Interpretation No. 2010-1, which is a significant document for a number of reasons.

First, this is the very first in a new breed of interpretative guidance which is apparently intended to replace the DOL's prior practice of issuing "opinion letters" responding to the specific facts and questions submitted by interested parties.  The new "Administrator's Interpretation" is more like an advisory opinion based on hypothetical or generalized facts.

Furthermore, the substance of the letter reinforces a recent judicial trend we have blogged about last year -- i.e., that salaried financial service workers may be glorified production workers entitled to overtime pay.    

In particular, the Administrator's letter addresses overtime for positions in the mortgage industry which may carry titles such as "loan representative," "loan consultant," or "loan originator."  Whatever the title, the duties of these positions are generally defined as follows:

Mortgage loan officers enter the collected financial information into a computer program that identifies which loan products may be offered to customers based on the financial information provided.  They then assess the loan products identified and discuss with the customers the terms and conditions of particular loans, trying to match the customers' needs with one of the company's loan products.  Mortgage loan officers also compile customer documents for forwarding to an underwriter or loan processor, and may finalize documents for closings.

According to the Administrator, "a careful examination of the law as applied to the mortgage loan officers' duties demonstrate that their primary duty is making sales and, therefore, mortgage loan officers perform the production work of their employers."  As a result, mortgage loan officers fall squarely on the non-exempt side of the so-called production/administrative dichotomy and they are therefore entitled to overtime pay. 

This interpretation is entitled to "deference" by federal courts applying the FLSA and will no doubt also carry persuasive weight in interpreting the California Labor Code exemption as well.  Employers are thus well advised to review the exempt of status of any financial service workers who have duties comparable to those described in this first Administrator's Interpretation.    


Commuting in Company Vehicle May Be Compensable Under California Labor Code -- Rutti v. LoJack

The Ninth Circuit decision in Rutti v. LoJack highlights the sharp distinction between the federal definition of compensable "hours worked" and the more generous standard under the California Labor Code. 

Rutti was a technician who installed LoJack anti-theft units in customers' cars.   He was dispatched directly from his home to the homes of customers, where he installed the anti-theft units.  During these trips he was required to use a company vehicle and was prohibited from making any personal stops or detours.  His employer only paid hourly wages, however, from the time he arrived at the first customer's house until he finished the last installation job of the day. 

The Ninth Circuit found that time Rutti spent "commuting" is specifically excluded from compensable time under the federal Fair Labor Standards Act ("FLSA").  Rutti was therefore not entitled to FLSA pay for the time he spent traveling to and from his first and last jobs of the day.  

By contrast, California law requires compensation for all time "during which an employee is subject to the control of an employer."   Under this standard, the requirement to use a company van and to refrain from any personal business was sufficient "control" to trigger the employer's duty to pay compensation under the Labor Code.

California Court Finds Sales Employees Cannot Meet Administrative Exemption -- Pellegrino v. Robert Half Int'l

Previously we blogged about the Second Circuit decision in which a class of loan officers were found to be entitled to federal overtime pay under the Fair Labor Standards Act because their duties fell on the "production" side of the so-called "administrative/production dichotomy."   (See Financial Service Workers May Be Glorified "Production Workers" Who Are Entitled to Overtime -- Davis v. J.P. Morgan Chase & Co. )

In Pellegrino v. Robert Half International, Inc. the Fourth District Court of Appeal has clarified that this same "dichotomy" litmus test also applies to any employer attempt to avoid California overtime by claiming the administrative exemption under the California Wage Orders.

Robert Half is the world's largest staffing firm (a/k/a "headhunter" firm).  The Plaintiffs in Pellegrino were "account executives" who were responsible for recruiting and placing candidates with Robert Half's customers.  The plaintiffs received salary and commissions but were classified as exempt from overtime.  Based on its analysis the position's job duties, however, the Court upheld a verdict that the account executives were essentially glorified salesman rather than exempt administrators.  

The Court reached this conclusion by noting that the first element of the administrative exemption is that an exempt position must be "directly related to management policies or general business operations."  This element, in turn, triggers the so-called "dichotomy" test, which the Court described as follows:

The phrase ‘directly related to management policies or general business operations of his employer or his employer's customers' describes those types of activities relating to the administrative operations of a business as distinguished from ‘production’ or, in a retail or service establishment, ‘sales' work. In addition to describing the types of activities, the phrase limits the exemption to persons who perform work of substantial importance to the management or operation of the business of his employer or his employer's customers.

By contrast, the evidence showed that the account executives had little or nothing to do with setting the internal policies of their employer were instead trained and evaluated for the purpose of achieving quantitative success in "selling the services of RHI's temporary employees to clients."  

The Court thus concluded that the duties of an account executive "were not directly related to management policies because they instead constituted sales work."  As a result, it determined that the six plaintiffs were properly found to have been misclassified and were collectively entitled to unpaid overtime and penalties of $615,000.