I have followed this protracted saga for years, since I wrote an article for the Banking Law Journal in 2001 on the issue of exempt status of mortgage brokers.  Then, in 2010, the US Department of Labor issued a “white paper” on the exempt status of such employees, finding most of them non-exempt under the administrative exemption (the only “white collar” exemption possibly applicable).  The Mortgage Bankers Association successfully challenged that rulemaking in federal district court and the DC Circuit sustained the district court’s striking down of that new interpretation.

Well, the story (or the war) is over!  The US Supreme Court has now held that agencies do not have to go through formal rule-making to effect major changes to their rules interpreting regulations. This is a major victory for the agency and a blow to employers.  The cases are entitled Perez et al. v. Mortgage Bankers Association and Nickols et al. v. Mortgage Bankers Association.

The Supreme Court reversed the July 2013 appellate court decision that vacated the 2010 “administrator interpretation” that threw out the DOL’s position on the exempt status of mortgage loan officers and other employees in this far flung industry.  In that decision, the DC Circuit ruled that the DOL had to conduct notice-and-comment rule-making. The Supreme Court disagreed.

The Court stated that the “Paralyzed Veterans doctrine is contrary to the clear text of the Administrative Procedure Act’s (“APA”)  rule-making provisions, and it improperly imposes on agencies an obligation beyond the ‘maximum procedural requirements’ specified in the  APA.”  The DC Circuit utilized the Paralyzed Veterans to hold that any new DOL interpretation could only occur after the rule-making process, with notice-and-comment, had been engaged in.  The DOL contended that the DC Circuit decision impinged upon the flexibility that Congress wanted government agencies to possess.

The Supreme Court concluded that the text of the APA “clearly” stated that only if notice/hearing was required by statute did an agency have to abide by the notice/comment requirement, but other than that, it could issue “unilateral” interpretations.  Imposing such rules, the justices said, would violate “the very basic tenet of administrative law that agencies should be free to fashion their own rules of procedure.”

The Takeaway

Employers in the banking and mortgage industries must take special heed when classifying employees as exempt or not.  Many of the employees at issue work long hours (far in excess of the threshold forty for overtime) and many of them make “good money.”  As such, the potential for successful overtime lawsuits (e.g. class actions) is frightening.  Now that the Supreme Court has issued this ruling and upheld the DOL position, I urge such employers to seriously consider classifying all such employees as non-exempt and either pay them the overtime or limit them to forty hours per week (if this is, indeed, operationally or economically possible).