On November 20, 2009, the US Court of Appeals for the Second Circuit held that a loan underwriter employed at J.P. Morgan Chase & Co. (Chase) was not covered by the administrative exemption from the overtime requirements of the Fair Labor Standards Act and, thus, was eligible for overtime pay. Whalen v. J.P. Morgan Chase & Co., No. 08-4092 (2d Cir. November 20, 2009).
The opinion is significant for financial institutions and other financial services businesses that classify their underwriters as exempt from overtime under federal law, relying primarily on the “administrative” exemption from overtime. It is likely to receive significant attention, since there is relatively little appellate authority on the exempt status of loan underwriters.
In the case, the underwriter was classified as an “administrative” employee exempt from federal overtime. The Second Circuit described the employee’s duties as follows:
[He] evaluated whether to issue loans to individual loan applicants by referring to a detailed set of guidelines, known as the Credit Guide, provided to him by Chase. The Credit Guide specified how underwriters should determine loan applicant characteristics such as qualifying income and credit history, and instructed underwriters to compare such data with criteria, also set out in the Credit Guide, prescribing what qualified a loan applicant for a particular loan product. . . An underwriter was expected to evaluate each loan application under the Credit Guide and approve the loan if it met the Guide's standards. If a loan did not meet the Guide's standards, certain underwriters had some ability to make exceptions or variances to implement appropriate compensating factors.
The district court granted summary judgment in favor of the employer and the Second Circuit reversed, concluding that the underwriter did not meet the requirements of the administrative exemption. In particular, the court found that the underwriter’s work involved “the ‘production’ of loans — the fundamental service provided by the bank,” rather than exempt administrative work. Having found for the underwriter on this issue, the Second Circuit did not address the second part of the administrative exemption test — whether the employee customarily and regularly exercised discretion and independent judgment.
It is important to note that due to the dates of the underwriter’s employment, the Second Circuit analyzed this issue primarily under the administrative exemption as it existed before the US Department of Labor updated and clarified that exemption through regulations issued in 2004. But, the court did not suggest that it would reach a different result under the post-2004 version of the regulations. Further, the court did not address important administrative opinions issued by the Labor Department since 2004. Finally, the Second Circuit’s view of what generally constitutes “production” work is not shared by many other federal courts.
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