Court holds mortgage workers not exempt from OT pay

Employers are frequently sued for violating state and federal overtime pay laws resulting from classifying their workers as exempt when they should not do so.  A recent case decided by a federal judge in Kansas highlights the fact that sometimes workers are not truly “salaried” and thus are not exempt under the “white collar” exemptions.  Defendant Mortgage Lenders of America, L.L.C. (“MLOA”) is a mortgage-lending company that employs over 300 lending professionals at its sole office in Overland Park, Kansas. MLOA’s lending professionals sell mortgage loans over the phone and internet. MLOA’s lending professionals include Loan Officers, Team Leads, and Directors. MLOA assigned its Loan Officers to different “teams,” and each team had a Team Lead who reported to one of three “Directors,” each of whom oversaw one of three respective MLOA divisions.  Several “Team Leads” sued the company, claiming they were wrongfully denied overtime pay.  The Court summarized the pay structure of the Team Leads as follows:

MLOA’s Team Lead compensation structure was set forth in the terms of written, signed compensation schedules. Team Leads were compensated consistent with this agreement. MLOA paid its Team Leads twice a month: once on or about the fifteenth day of the month, and once at the end of the month.
There were four components to MLOA’s Team Lead monthly compensation: (1) commissions on loans Team Leads personally produced; (2) a “Team Lead Override” payment consisting of a percentage of the Gross Commission Income (“GCI”) on loans produced by Loan Officers on the Team Lead’s team; (3) a monthly “Headcount Override” payment in the amount of $175 for each Loan Officer assigned to the Team Lead’s team for the entirety of the prior month; and (4) a $1,000 monthly advance.
First, Team Leads’ commissions were paid on a monthly basis for personally-produced loans that funded during the previous month. The “Time of Calculation and Payment of Commissions” Section to the Loan Originator Manager Compensation Schedule provides:
Commissions (to the extent earned pursuant to the calculations set forth below and subject to applicable adjustments) shall be payable monthly on the fifteenth (15th) of the month for loans that fund during the previous month. Loans shall be considered funded when loan proceeds are disbursed at a loan closing and all applicable loan documents are in the possession of MLOA and have been duly executed. See also the Commission Conditions set forth below concerning the time that commissions are earned.
Second, “Team Lead Override” payments were additional commission payments based on the total loan sales generated during the previous month by the Loan Officers assigned to the Team Leads’ respective teams. These payments were also made to Team Leads on a monthly basis. As set forth in the Team Leads’ compensation schedule, “Manager will be paid monthly an amount each month equal to four percent (4%) of GCI for all loans funded in the immediately preceding month by Manager’s Team.” Thus, Team Leads were paid in August for loans that were sold in July.
Third, MLOA based the “Head Count Override” payment on the number of Loan Officers that were assigned to the Team Lead for the entirety of the immediately preceding month. Specifically, the Team Leads’ compensation schedule provides that “[e]ach month, Manager will be paid an amount equal to $175 for each Loan Officer who is a member of Manager’s Team for the entirety of the immediately preceding month.” If a Loan Officer was assigned to a Team Lead’s team for less than an entire month—for example, when Loan Officers were terminated, resigned, died, or were moved by MLOA to a different team—MLOA prorated (i.e. reduced) the $175 headcount payment accordingly. MLOA determined how many Loan Officers were assigned to each Team Leads’ respective team, but MLOA did not guarantee Team Leads a minimum number of Loan Officers on their respective teams, nor did MLOA guarantee that any Loan Officer would be assigned to any given team for a set or specific time. The number of Loan officers assigned to each team varied and was not equal. Some Team Leads had months or periods of time with no Loan Officers assigned to their teams.
Fourth, Team Leads were paid an advance of $1,000 of their total Head Count Override payment on the last check of each month. MLOA would then recapture the Team Leads’ monthly $1,000 advance from the Head Count Override. The Head Count Override payment is thus calculated by multiplying the number of Loan Officers assigned to the team for the entire preceding month by $175 (or the prorated monetary amount) and then subtracting the $1,000 advance. Accordingly, when less than six (6) Loan Officers were assigned to a respective team, the Team Lead’s headcount payment from MLOA was actually a negative number; for example, if a Team Lead had five (5) Loan Officers assigned to his team for an entire month, the headcount payment from MLOA in the following month equaled negative one hundred and twenty-five dollars (- $125), and when a Team Lead had no Loan Officers on his team for an entire month the headcount payment equaled negative one thousand dollars (-$1,000).
The following hypothetical is provided to better explain how the Headcount Override payment and monthly advance operate in practice. If a Team Lead had 16 Loan Officers assigned to his team for the entire month of July, he would be entitled to a Head Count Override payment of $2,800. The Team Lead would automatically receive an initial advance of $1,000 from that total amount on his July 31 paycheck. The $1,800 remainder would then be received on his August 15 paycheck. Thus, the Team Lead was paid in August for work he performed in July.
However, MLOA’s Head Count Override payment to Team Leads resulted in a positive number only when the Team Lead had six (6) or more Loan Officers assigned to his/her team for the entirety of the preceding month. Thus, if a Team Lead had only 5 Loan Officers assigned to his team for the entire month of July, he would be entitled to a Head Count Override payment of $875 for the month of August. The Team Lead would still receive the $1,000 advance on his July 31 paycheck. The $125 deficiency would then be recaptured from (or offset against) the Head Count Override payment in his August 15 paycheck. Several Team Leads received negative Head Count Override payments because they had no Loan Officers assigned to their teams for the entirety of the immediately preceding month.

MLOA asserted as affirmative defenses that the Team Leads were exempt from the FLSA’s overtime requirements under the executive, administrative, highly compensated, and/or combination exemptions. Plaintiffs sought summary judgment on these purported exemption defenses.

The FLSA mandates that an employer must pay its employees “one and one-half times the regular rate at which he is employed” for any time worked in excess of forty hours per workweek. 29 U.S.C. § 207(a)(2). There are exemptions to this overtime requirement, and relevant to this case are the exemptions for employees employed in a “bona fide executive, administrative, and professional capacity.” Id. § 213(a)(1)).

The FLSA does not define “bona fide executive, administrative, or professional capacity” and instead leaves the terms to be “defined and delimited” by regulations of the Secretary of Labor. Id. Exercising that delegated authority, the Secretary of Labor has promulgated a series of regulations defining these so-called “white-collar” exemptions. See 29 C.F.R. § 541.100 (“General rule for executive employees”); id. § 541.200 (“General rule for administrative employees”); id. § 541.601 (“Highly compensated employees”); id. § 541.708 (“Combination exemptions”).

To qualify for one of these white-collar exemptions, the employer must show that an employee is: (1) paid on a salary or fee basis;6 (2) at a rate of not less than $455 per week; and (3) performs certain primary job duties. The regulations define “salary basis” as follows:

An employee will be considered to be paid on a “salary basis” within the meaning of these regulations if the employee regularly receives each pay period on a weekly, or less frequent basis, a predetermined amount constituting all or part of the employee’s compensation, which amount is not subject to reduction because of variations in the quality or quantity of the work performed. [Subject to exceptions] an exempt employee must receive the full salary for any week in which the employee performs any work without regard to the number of days or hours worked. 29 C.F.R. § 541.602(a) (emphasis added). The defendant bears the burden to establish that the employee is paid on a salary basis.

The Court found that MLOA did not pay the Team Leads on a “salary basis” within the meaning of the FLSA regulations because the Team Leads’ compensation for a given month was based entirely on work performed in the previous month. According to the Court, the Team Leads were not paid on a salary basis because their compensation was not a predetermined amount and was subject to variations based on the quality or quantity of work performed.

Defendants argued that this compensation structure constitutes payment on a salary basis because “the precise amount of a Team Lead’s Headcount payment for a month would be apparent and predetermined by the last day of the prior month.” Alternatively, Defendants argued that summary judgment should be denied because it is controverted that the commission payments were not predetermined because MLOA’s compensation schedules specifically provided a formula for how these commissions were to be calculated and defined a specific percentage “override” amount Team Leads would receive for loans funded by the Loan Officers they supervised.

The Court disagreed, stating, “to put it plainly: The salary basis test requires that an employee know the amount of his compensation for each weekly (or less frequent) pay period during which he works, before he works. Here, however, MLOA’s Team Leads could not possibly know how much they would be compensated for a given month until after they had worked it. This is because the Team Leads’ compensation was based entirely off the amount of loans produced and the number of Loan Officers supervised in the previous month.”

According to the Court, despite Defendants’ assertions to the contrary, there is no material dispute as to whether the Team Leads’ commission payments were predetermined. The fact that the formula was predetermined and agreed upon is irrelevant; the regulations mandate that the amount of compensation received each pay period must be predetermined and agreed upon before the work is performed. Under MLOA’s compensation structure, the amount of compensation the Team Leads were entitled to receive for work performed in July (which would not be paid until approximately August 15) was not known until July 31—after the work had already been performed. Thus, the Team Leads were not paid “a predetermined amount” as required by 29 C.F.R. § 541.602(a). Accordingly, no reasonable jury could conclude that the Team Leads’ compensation was predetermined. Defendants therefore cannot establish that MLOA paid the Team Leads on a salary basis, so the Court granted summary judgment on these affirmative defenses.

This case illustrates that workers may not be exempt under the white collar exemptions because (1) they do not meet the duties test; or (2) they do not meet the salary basis test.  Both of these requirements must be satisfied in order to qualify for the white collar exemptions.  If you have been classified as exempt and denied overtime pay, contact an experienced employment attorney today.  Josh Borsellino represents workers seeking overtime pay.  Josh can be reached at 817.908.9861 and offers free consultations for overtime cases.  Josh handles overtime cases on a contingent fee basis, meaning that he does not get paid unless there is a recovery from the defendant.   

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