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In a wage and hour class-action lawsuit filed by residential loan underwriters against Huntington Bancshares, the 6th U.S. Circuit Court of Appeals affirmed the dismissal of the employees’ claims against the bank. The court held that the underwriters were exempt administrative employees because their job duties related to the general business operation of Huntington and because they exercised discretion and independent judgment.
Under the Fair Labor Standards Act (FLSA), exempt employees are not entitled to overtime pay. Huntington had classified its underwriters as exempt under the act’s administrative exemption. This exemption is one of the more amorphous exemptions and is often difficult for employers to apply in practice with certainty. Many employers incorrectly classify desk-job employees as administrative, only to have the classification challenged in court or administrative investigations. Mistakes are costly. Here, Huntington succeeded in convincing the court that it properly classified its residential loan operators as administrative.
The court carefully examined the mortgage loan process and analyzed the underwriters’ precise duties, responsibilities and levels of authority in that process. The bank offers loan products such as 30-year fixed-rate mortgages and adjustable rate mortgages. Underwriters are tasked with approving or denying residential mortgage loans based on information in customers’ application files. According to the court, the underwriters perform two functions: 1) confirm that the information in the application is accurate, such as verifying income and checking credit reports; and 2) decide whether the customer qualifies for the loan.
To approve or deny a loan, the underwriters apply Huntington guidelines, lending criteria and pertinent regulations. They calculate a customer’s loan-to-value and debt-to-income ratios and then determine whether those ratios fall under the maximum values prescribed for approval by the guidelines.
Importantly, the court noted that an underwriter has the authority to exercise his or her own discretion to “take actions beyond the guidelines.” For instance, sometimes the guidelines provide the underwriter a choice among several options. Also, when the guidelines are silent, “the underwriter must rely on personal experience or judgment to make a decision.” That is, underwriters are authorized to make exceptions and adjustments. Also, underwriters are authorized to make a “counteroffer” to alter the terms of the original loan offering.
The employees argued that they do not exercise discretion and independent judgment because they “do not bear any responsibility for financial loss and do not determine the financial risk.” The court held, however, that even though underwriters do not determine overall risk guidelines, they “still make decisions that significantly impact the business and do determine the risk Huntington will accept for any particular loan.” The court also noted that underwriters have up to $1 million in loan-underwriting authority.
Lutz v. Huntington Bancshares, Inc., 6th Cir., No. 14-3727 (March 2, 2016).
Professional Pointer: Employers should review job descriptions for administrative employees to ensure that those descriptions effectively and clearly articulate how the employee exercises independent judgment and discretion. Then, the employer should ensure that the job descriptions accurately reflect the duties employees are actually doing. The best way to accomplish this is through a carefully planned compliance audit.
Rebecca Bennett is a shareholder in the Cleveland office of Ogletree Deakins, a labor and employment law firm representing management.
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