Ninth Circuit Offers Insight into Proper Use of Administrative Exemption

A recent Ninth Circuit case highlights the importance of ensuring workers are properly classed as exempt from overtime using the FLSA’s administrative exemption.  In McKeen-Chaplin v. Provident Savings Bank, FSB, the Ninth Circuit held as improper a bank’s determination that the FLSA’s administrative exemption applied to exempt its mortgage underwriters from overtime.
 
To be exempt from overtime under the administrative exemption under the Fair Labor Standards Act, workers must be compensated at least $455 per week on a salary basis, perform as her primary duty “office or non-manual work related to the management or general business operations of the employer or the employer’s customers,” and exercise “discretion and independent judgment with respect to matters of significance.  29 C.F.R. § 541.200(a).  Regulations define a primary duty as “the principal, main, major or most important duty that the employee performs.”  29 C.F.R. § 541.700(a).
 
On review, the Ninth Circuit concluded that mortgage underwriters were not exempt from overtime under the administrative exemption.  To properly apply this exemption, the court noted that an employer should understand the “administrative-production dichotomy” that applies to it.  To properly classify a position as administratively exempt, employers must “distinguish ‘between work related to the goods and services which constitute the business’ marketplace offerings and work which contributes to ‘running the business itself.’”
 
Where, as here, a position’s primary duties relate to the business’ marketplace offerings, workers are entitled to overtime compensation for all hours worked over 40 in a workweek.
 
This is particularly the case where the bank’s mortgage underwriters were expected to assess the risk of specific loans under a given set of guidelines from senior management on the range of risk the bank was willing to take in issuing mortgages.  This kind of work does falls more on the “production” side of the “administrative-production dichotomy.”  Indeed, the court reasoned that “where a bank sells mortgage loans and resells the funded loans on the secondary market as a primary font of business, mortgage underwriters who implement guidelines designed by corporate management, and who must ask permission when deviating from protocol, are most accurately considered employees responsible for production, not administrators who manage, guide, and administer the business.”