The status of employees in the financial services industry has been the subject of numerous lawsuits and controversies.  The “new” FLSA regulations (from 2004) even postulate that a financial services employee can fit the administrative exemption, if their main job duty is not the selling of financial products.  Then, in March 2010, the US Department of Labor issued a “white paper” in which it went into great detail, explaining the (frankly) limited circumstances under which financial services employees (e.g. Loan Officers) could be exempt.

The Mortgage Bankers Association (MBA) has now taken this initiative to task, claiming that a lower court decision affirming the white paper should be overturned.  The case is entitled Mortgage Bankers Association v. Solis and is before the Court of Appeals for the District of Columbia Circuit. The Association argues that the agency violated the Administrative Procedure Act and a long line of cases holding that the DOL (as well as any other agencies) must go through the usual process of notice-and-comment rulemaking when the agency intends to “clarify” or “interpret” a regulation.

The MBA claims that the 2010 interpretation conflicts with the holding (by the DC Circuit) in Paralyzed Veterans of America v. D.C. Arena LP.  In that case, the Court ruled that “once an agency gives its regulation an interpretation, it can only change that interpretation as it would formally modify the regulation itself: through the process of notice and comment rulemaking.”  The organization contends that the “DOL issued the March 2010 [Administrator’s interpretation] without any prior public notice of its intent to reverse its definitive interpretation of the FLSA without providing any prior opportunity for MBA or other interested parties to comment on the new interpretation; without conducting, or offering to conduct, any prior public hearings; and without providing MBA’s members any time to alter its established pay systems.”

The new interpretation triggered a number of class action lawsuits alleging misclassification and claiming overtime.  The MBA suit, filed in January 2011, contended that the 2010 interpretation illegally reversed the DOL’s earlier interpretation, but it deprived interested parties the right/ability to comment.  That violated the Administrative Procedure Act.  The district court judge, however, granted summary judgment to the DOL, finding that the 2010 interpretation was not inconsistent with 2004 regulations and was not arbitrary, capricious or an abuse of discretion.

I was not a big fan of the 2010 Interpretation.  I have always believed that many finance employees, including Loan Officers, are in fact exempt under the administrative exemption because they analyze and evaluate their clients’ financial needs and goals, which then (inevitably) leads to the recommendation and sale of certain financial products.  I don’t believe the “mere” fact that a sale ultimately results negates all of the administratively exempt analysis that has preceded it.  I also agree that the DOL overreached on this endeavor and exceeded its authority.

Let’s start the New Year off right!