United States: Loan Officers Fail To Establish Willful Violation Of FLSA In Collective Action

Last Updated: August 8 2014
Article by Angelo Spinola and R. Alex Boals

In Chapman v. BOK Financial Corp., a federal court in Oklahoma found that the plaintiff loan officers failed, as a matter of law, to establish a willful violation of the Fair Labor Standards Act (FLSA) and dismissed those claims that were time-barred by the FLSA's standard two-year limitations period.  This is a welcome decision for employers, as some federal courts hesitate to resolve the issue of willfulness at the summary judgment stage despite the plaintiff's failure to produce evidence of a willful violation. 

The employer classified its loan officers as exempt administrative employees, based in large measure on a 2006 Department of Labor (DOL) Opinion Letter that concluded "mortgage loan officers with archetypal job duties fell within the administrative exemption [to the overtime requirements of the FLSA]."  On March 24, 2010, the DOL issued an Administrator's Interpretation withdrawing the 2006 Opinion Letter and declaring that "employees who perform the typical job duties" of a mortgage loan officer "do not qualify as bona fide administrative employees." 

In light of the Administrator's Interpretation, the bank evaluated whether it should continue to classify its loan officers as exempt.  To that end, the bank (1) consulted outside resources, including banking trade organizations; (2) sent employees to seminars regarding the impact of the Administrator's Interpretation on FLSA coverage; (3) evaluated the applicability of various exemptions, including outside sales, highly compensated, executive, and administrative exemptions; and (4) surveyed other banks to gauge their response to the Administrator's Interpretation.  

Based on this analysis, the bank initially determined that its loan officers continued to meet one or more of the "white-collar" FLSA exemptions.  However, the bank re-evaluated its position based on a legal memorandum forwarded by the American Bankers Association in October, 2010, and in late 2010, decided to reclassify its mortgage loan officers as non-exempt effective January 1, 2011.  The bank did not pay overtime compensation from the date of the Administrator's Interpretation, March 24, 2010, through January 1, 2011. 

The loan officers brought a collective action, alleging that BOK misclassified them prior to January 1, 2011 and failed to pay them for "off the clock" work performed after they were re-classified as non-exempt.  The bank moved for summary judgment on the issue of willfulness.  The district court granted the motion, finding the plaintiffs could not demonstrate that bank knew or showed reckless disregard regarding whether its actions violated the FLSA. 

At the outset of its analysis, the court rejected the plaintiffs' argument that willfulness is inappropriate for resolution by summary judgment and stated that summary judgment is appropriate when plaintiffs have not met their burden of showing the defendant acted willfully.  Turning to the facts in the record, the court noted that plaintiffs had no evidence that the bank had previously been audited or investigated by the DOL for any FLSA violations and therefore it had not been put on notice that its practices violated the FLSA.  The plaintiffs argued that a prior "off-the-clock" lawsuit by an employee in the credit services department put the bank on notice of the FLSA violation, but the court disagreed, finding that "[p]laintiffs have not articulated how that lawsuit," which involved a different position, "placed [the bank] on notice that its loan officers were improperly classified under the FLSA."  

The court also found that the bank's reliance on both the administrative and outside sales exemptions, which are mutually exclusive, did not constitute evidence of willfulness because there was a "reasonable possibility" that one of the exemptions could apply. Significantly, the court ruled that "[e]ven if the evidence raises a genuine issue of whether [the bank] violated the FLSA, it does not create a genuine dispute as to whether the violation was willful."  The court refused to find willfulness where the employer merely "knew or suspected that his actions might violate the FLSA," as this would erase the distinction between willful and non-willful violations drawn by Congress. 

Finally, the court found that the bank did not act willfully by failing to compensate loan officers for overtime between the Administrator's Interpretation on March 24, 2010 and the effective date on which loan officers were made non-exempt, January 1, 2011.  The court held that, during this period, the bank made good-faith efforts to determine whether mortgage loan officers should properly be classified as exempt or non-exempt under the FLSA.  Therefore, the court concluded, the fact that that the bank did not pay its mortgage loan officers overtime for this period was not evidence of a willful violation. 


The Chapman decision is a positive development for employers, as it recognizes that the issue of willfulness is appropriate for summary resolution and places the burden of proof for willfulness squarely on the plaintiffs. The facts of Chapman are instructive as well.  The employer in that case kept abreast of developments in the law, took proactive steps to determine its obligations in light of changes in the law, and remained flexible and open to changing its position when confronted with new facts and analysis.  Employers are encouraged to follow this example.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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