The grayest of the white collar exemptions (as I often have said) is the administrative.  In a 2-1 decision, the Sixth Circuit has again proven the truth of this maxim.  The Court upheld a district court dismissal of a FLSA class action in which underwriters working for a bank alleged that they were misclassified as exempt administrative employees.  The case is entitled Lutz v. Huntington Bancshares Inc., and was issued by the Sixth Circuit Court of Appeals.

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The Court found that the duties of the residential loan underwriters directly related to the business operations of the Company.  The Court stated that “the job duties performed by underwriters resemble those duties performed by positions deemed administrative by the DOL regulations, including claims adjusters and employees in the financial services industry.”  Thus, the Court found that the employees performed “work directly related to assisting with the running or servicing of the business,” as opposed, for example, to those working on a manufacturing production line or selling a product in a store.”

The plaintiffs argued that they were merely pushing the “product” through the pipeline, in the “process,” but the court disagreed and held that the work was connected to the Company’s operations because of the analyses they undertook in order to determine/recommend whether the Company should make a loan.  Although the loan originators sold loans to customers, the underwriters’ work was akin to that of insurance claims adjusters because their work was essential for the Company to conduct its business.  In other words, the underwriters did not sell loans, but rather serviced the bank by advising whether it should accept the credit risk posed by the particular customer.

The Court also found that the underwriters exercise discretion and independent judgment.  This is where these cases usually go south for the employer/defendant.  Although the underwriters did utilize guidelines and manuals to judge the loans, the Court concluded that they had the authority and ability to sometimes waive or deviate from the guidelines.  As the Court aptly put it, “an employee who is directed by guidelines and manuals can still exercise discretion and independent judgment.  Huntington’s guidelines do not prevent its underwriters from acting outside its parameters.”  The discretion used herein assisted the underwriters to determine the risk the Company would or could accept for a particular loan and thus these decisions had significant impact on the business.

The Takeaway

There is a much nuanced line between skill and discretion.  This is especially so where the employees at issue work in a heavily regulated industry or where they always use guidelines to assist them in their work.  The key is to demonstrate that they are not bound by the guidelines and that they have discretion to deviate from them, using their subjective judgment.

Then, the ability to prove discretion is being used is greatly enhanced.  This is where these battles are joined.  Usually, the defendant is able to “get over” on the first prong, i.e. employee performs work connected to management or business operations.  It is that second one that is the tough one, but it can be overcome as well through careful and proactive planning.