Whalen’s primary duty was to sell loan products under the detailed direction of [Chase’s internal document called] the Credit Guide…Underwriters were given a loan application and followed procedures specified in the Credit Guide in order to produce a yes or no decision. Their work is not related either to setting ‘management policies’ nor [sic] to ‘general business operations’ such as human relations or advertising, 29 C.F.R. § 541.2, but rather concerns the ‘production’ of loans – the fundamental service provided by the bank.

The Second Circuit reversed the district court’s grant of summary judgment in favor of Chase, holding that Whalen was not a bona fide administrator because his work was unrelated to management policies or general business operations. Whalen’s work was production (i.e., non-exempt) as opposed to administrative (i.e., exempt). The court emphasized that production work need not lead to the creation of a tangible item. An employee producing an intangible, such as a loan, also may be engaged in non-exempt production work. The key is the “important distinction” between employees who produce the good or service that is the primary output of a business (i.e., non-exempt) and employees who perform general administrative work applicable to any business (i.e., exempt). Since Whalen’s job failed to satisfy the first prong of the administrative exemption test, the court did not address whether it satisfied the second prong of customarily and regularly exercising discretion and independent judgment.

Mortgage bankers take heed - every classification by employers of employees under the FLSA is fact-specific. Job title aside, the question always will boil down to the actual responsibilities of the loan underwriter. Underwriters like Whalen, whose work involves the production of loans as opposed to management policies and general business operations, are likely to be regarded as non-exempt employees. Combinations of those responsibilities will make classification more challenging.

If you would like to discuss how Whalen might affect your business, feel free to contact Doug Mishkin () at 202-457-6020 or Lindsey Weber () at 202-457-5686. Doug is co-chair of the employment practice at Patton Boggs LLP in Washington, D.C., and chair of Legalink, an international network of law firms. Lindsey is an associate also in the firm's Washington, D.C. office.

• Pursuant to the SAFE Act, California Real Estate Broker Licensees making, arranging or servicing loans secured by residential or commercial real property must complete an online Mortgage Loan Activity Notification at the Department of Real Estate’s website by January 31, 2010. The penalty for failing to submit the required notification is $50 per day for the first 30 days the report is not filed and $100 per day for every day thereafter, up to $10,000. The Department of Real Estate will also require future business activity reporting. 
• Effective January 1, 2010, California Real Estate Broker Licensees must provide both the Mortgage Loan Disclosure Statement (RE 882) and a GFE when originating federally-related mortgage loans. The Department of Real Estate has announced that it is working on a revised combined Mortgage Loan Disclosure Statement/Good Faith Estimate that will comply with California and federal law. 
• Effective December 23, 2009, the New York Banking Department (the “Department”) amended several regulations applicable to Mortgage Bankers and Mortgage Brokers. Among the amendments, the Department redefined the term “branch” to eliminate the distinction between full service branches and loan solicitation branches. The amended regulations further state that any employee, independent contractor or consultant who does not work from a licensed branch must be assigned to a licensed branch for managerial and regulatory oversight. The regulations also now define what constitutes an impermissible “net branch.” Finally, the Department has specified additional language that must be included in application disclosures.