On March 2, 2016, the U.S. Court of Appeals for the Sixth Circuit held that residential loan underwriters of Huntington National Bank are administrative employees under the FLSA and therefore not entitled to overtime pay. The primary duty of an underwriter is to decide whether or not a customer qualifies for a desired loan, relying on an initial recommendation generated by an underwriting software program. To do this, the underwriter applies the bank’s guidelines and lending criteria, as well as any pertinent regulations, to determine whether the loan would fall within the bank’s acceptable level of risk. While the guidelines often give the underwriter a choice among options, at times they are silent and the underwriter must rely on personal experience or judgment to make a decision. An underwriter has the authority to approve a loan that does not meet the bank’s guidelines, and can make alternative credit recommendations to an otherwise non-qualifying customer.
As to the specific requirements of the administrative exemption (29 C.F.R. § 541.200(a)), the court noted that Huntington’s underwriters assist in the running and servicing of the bank’s business by making decisions about when the bank should take on certain kinds of credit risk, a duty that is ancillary to the bank’s principal “production” activity of selling loans. The underwriters therefore fell on the “administrative” side of the “administrative-production dichotomy,” one analytical tool used by courts to draw the line between employees who help to administer an employer’s general business operations (who can qualify for the overtime exemption) and those employees whose duties are principally related to the day-to-day production of the goods or services the employer sells (who often won’t). In reaching this conclusion, the Sixth Circuit acknowledged a potential split with the Second Circuit (which ruled in 2009 that loan underwriters fall on the “production” side of dichotomy), noting that in the Sixth Circuit, “the focus is on whether an employee helps run or service a business—not whether that employee’s duties merely touch on a production activity.”
The court also concluded that underwriters exercise discretion and independent judgment as to matters of significance for the bank, even though they consult published guidelines as they make decisions. While they don’t determine the bank’s overall risk policy, the underwriters still make decisions that significantly impact the business, and they actually determine the risk the bank will accept for any particular loan.
The opinion, in Lutz v. Huntington Bancshares, Inc., No. 14-3727, should be welcome news to all employers in the banking, lending, and financial services industries.