California Appeals Court Ruling Adds More Uncertainty for the Financial Services Industry

Category: @work, In the Courts, Wage and Hour

California Appeals Court Ruling Adds More Uncertainty for the Financial Services Industry


An appeals court in California recently found that mortgage underwriters are entitled to overtime pay when they work more than 40 hours in a work week. The case, McKeen-Chaplin v. Provident Savings Bankinserts more uncertainty into an already foggy issue.

In McKeen, the mortgage underwriters were not paid overtime because the Bank believed they were exempt from the overtime requirements of the Fair Labor Standards Act. The employees, like most mortgage underwriters, sold loans to consumers. Those loans were then resold by the bank in the secondary market. The Bank believed that they did not have to pay mortgage underwriters overtime because they were subject to the administrative exemption to the Fair Labor Standards Act.

The U.S. Court of Appeals for the Ninth Circuit ruled that the employees did not qualify for the administrative exemption because “the job underwriter falls within the category of production rather than administration in the line of work.” This decision was consistent with a similar case from the Second Circuit in New York.

By contrast, the United States Court of Appeals for the Sixth Circuit – which covers Tennessee, Kentucky, Ohio, and Michigan – have ruled that mortgage underwriters are not entitled to overtime. In Lutz v. Huntington Bank Shares, Inc., 815 F.3d 988 (6th Cir. 2016), the Court said that mortgage underwriters performed “administrative work because they assist in the running and servicing of the Bank’s business by making decisions about when [the lender] should take on certain kinds of credit risk, something is ancillary to the Bank’s principal production activity of selling loans.”

This leaves the financial services industry with a significant level of uncertainty. In Tennessee, for example, mortgage underwriters who perform those tasks typical of the position are not entitled to overtime. In a number of other states – New York and California, for example – mortgage underwriters must be paid overtime when they work over 40 hours in a work week. As a result, companies in the financial services industry that have multi-jurisdictional interests are in a precarious situation. And if that wasn’t enough uncertainty for financial services companies, it must be noted that a number of Courts of Appeals throughout the country have still not ruled on this issue.

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