Monday, March 10, 2014

FYI: ED Va Rules in Favor of Mortgage Lender in FLSA Overtime Case

The U.S. District Court for the Eastern District of Virginia recently granted a mortgage lender’s motion for summary judgment as to a former employee’s overtime allegations under the federal Fair Labor and Standard Act (“FLSA”), ruling that the mortgage loan officer plaintiff was exempt from the FLSA’s minimum wage and overtime requirements.


The Court also ruled that misclassifying an employee for FLSA purposes is not a willful violation that triggers the FLSA’s three-year statute of limitations.


A copy of the opinion is available at:  Link to Opinion


A former mortgage loan officer employee (“Plaintiff”) filed a complaint against his former mortgage lender employer (“Defendant”) for alleged violations of FLSA.  Specifically, Plaintiff alleged that Defendant misclassified him as an “exempt” employee under FLSA, and therefore improperly failed to pay him minimum wage and overtime compensation. 


Defendant moved for summary judgment arguing that under the “outside sales exemption,” Plaintiff was exempt from FLSA’s overtime and minimum wage requirements. Defendant also argued that all of Plaintiff’s claims were time barred under the FLSA’s two-year statute of limitations for “ordinary violations.”


The Court first examined Defendant’s statute of limitations argument.  Under FLSA, there is a two-year statute of limitations for ordinary violations, and a three-year statute of limitations for willful violations.  If Plaintiff’s claim was found to be an ordinary violation, it would be barred under the two-year statute of limitations as he ceased working on October 16, 2009 and did not file suit until January 6, 2012.  Thus, Plaintiff argued that Defendant’s violations were willful and were done with a reckless disregard for his rights. 


Specifically, Plaintiff claimed that Defendant knew or had reason to know that he was not a non-exempt employee. The Court noted that other courts have found that employers willfully violate FLSA when “they ignore specific warnings that they were out of compliance, destroyed or withheld records to block investigations into their employment practices, or split employees’ hours between two companies’ books to conceal their overtime work.” Herman v. Palo Grp. Foster Home, Inc. 183 F.3d 468, 474 (6th Cir. 1999).


However, the Court also noted that “an incorrect assumption that a pay plan complies with FLSA does not meet the criteria for a willful violation.” Terwilliger v. Home of Hope Inc., 21 F. Supp. 2d 1305, 1308 (N.D. Okla. 1998)


Based on the above-cited law, the Court determined that Defendant’s violations were not willful.   As a result, Plaintiff’s claims were time barred under the two-year statute.  The Court based its decision on the fact Plaintiff failed to show that Defendant’s other loan officers claimed they were entitled to overtime compensation, or that Defendant was on notice that its loan officers might be entitled to overtime pay. 


Moreover, the court noted that the Department of Labor recently concluded that loan officers generally fall under the outside sales exemption. 


Plaintiff attempted to argue that Defendant acted with reckless disregard by alleging Defendant did not track his working hours.  The Court rejected this argument stating Defendant’s failure to keep contemporaneous record of Plaintiff’s work activities does not suggest Defendant acted with an awareness or reckless disregard of Plaintiff’s non-exempt status.


Plaintiff next argued that Defendant’s violations were willful because Defendant did not individually assess the exempt status of each loan officer.  The Court rejected this argument, ruling that it is “unrealistic to suggest that an employer is obligated to conduct a review of the activities of each individual employee in order to rely on an exemption in cases such as this.”  The Court also held that Plaintiff failed to show that Defendant’s failure to make an individual assessment did not rise to the level of recklessness needed to show a willful violation.


In addition to finding that Plaintiff’s claims were time barred, the Court still examined whether Plaintiff was exempt under the “outside sales exemption.”  The FLSA exempts employees from minimum wage and overtime requirements if an employee is categorized as an outside sales person.


As you may recall, an outside sales person is defined as an employee:


(1)Whose primary duty is:


      (i)   making sales . . ., or


(ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and


(2) Who is customarily and regularly engaged away from the employer's place or places of business in performing such primary duty.


As to the primary duty prong of “making sales,” the FLSA defines sale or sell “as any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” The term “primary duty” is defined to mean “the principal, main, major or most important duty that the employee performs.”  29 C.F.R. section 541.700(a). 


As to the second prong, “the phrase customarily and regularly means a frequency that must be greater than occasional but which, of course, may be less than constant.” An outside sales employee must be customarily and regularly engaged “away from the employer’s place of business.”  This means an outside sales employee “is an employee who makes sales at the customer’s place of business or, if selling door to door, at the customer’s home.”  Sales made by mail, telephone or the Internet are not included in the definition of “outside sales.”


It was undisputed that Plaintiff’s main duty was to make sales within the meaning of the outside sales exemption.  Thus, the Court only examined whether Plaintiff “customarily and regularly” engaged in exempt sales activities away from Defendant’s offices.


In determining whether Plaintiff customarily and regularly engaged in exempt sales activities, the Court examined Plaintiff’s deposition testimony. Plaintiff’s testimony revealed he spent a significant amount of time each week away from the office engaging in sales related activities including meeting with realtors, networking with potential customers, and preforming seminars. The Court held these activities were sufficient to trigger the exemption “as it is the nature of the time spent outside the office, rather than the amount of time” spent outside the office.


Plaintiff argued that loan officers qualify for the outside sales exemption only if they customarily and regularly make sales to borrowers’ home or places of businesses. The Court rejected Plaintiff’s argument, holding that this was too narrow of an interpretation of the exemption and noting that other courts have rejected similar interpretations in the past.


Therefore, because the Court held that Defendant met both prongs of the “outside sales exemption,” the Court granted Defendant’s summary judgment motion and dismissed Plaintiff’s complaint.






Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
(312) 551-9320
(312) 284-4751
(312) 493-0874


Admitted to practice law in Illinois



          McGinnis Wutscher Beiramee LLP





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