The demise of bank loan underwriters' exempt status has been greatly exaggerated—at least according to a recent Sixth Circuit decision upholding the dismissal of a putative collective action against Huntington Bank. The court disagreed with underwriters who alleged that they were improperly classified as exempt and thereby wrongfully denied overtime pay. Instead, the court agreed that underwriters are administrative employees and thus exempt from overtime. This ruling stands in stark contrast to the Second Circuit's 2009 opinion in Davis v. J.P. Morgan Chase & Co., which held that such employees were non-exempt employees engaged in "production" type activities.
The underwriters at Huntington Bank at issue performed two main functions: (1) they reviewed the information in bank loan applications to verify its accuracy; and (2) they determined whether applicants qualified for a particular loan. While they utilized extensive guidelines in determining whether to approve a given loan, underwriters also exercised considerable discretion in either approving, denying, or modifying a given bank loan.
To qualify as administrative exempt under the FLSA, an employee must, as their primary duty, (1) perform office or non-manual work directly related to the management or general business operations of the employer or employer's customers; and (2) exercise discretion and independent judgment with respect to matters of significance.
In applying the FLSA's test for administrative employees, the court in Lutz v. Huntington Bancshares, Inc. focused on underwriters' performance of duties that directly relate to the management or business operations of the bank. The court found that underwriters fit the DOL's definition of administrative employees, or those who "perform work directly related to assisting with the running or servicing of the business," as opposed to, for example, those working on a manufacturing production line or selling a product in a store. The court found that running and servicing of the bank's business included making decisions about whether the bank should act on a particular credit risk, something that is ancillary to the bank's principal "production" activity of selling loans. Unlike the Second Circuit's opinion, which focused on whether an employee's duties merely touch on a production activity, the Sixth Circuit focused on whether an employee "helps run or service a business."
The court also found that underwriters exercised sufficient "discretion and independent judgment with respect to matters of significance" finding that, despite the use of proscribed guidelines, they had the authority and freedom to make an independent choice after considering multiple courses of action. In other words, even though underwriters relied on pre-set guidelines and manuals in making credit decisions, they exercised discretion in advising about which loans to accept.
Ultimately, the court rejected the plaintiffs' plea to find underwriters non-exempt if they so much as touched the production area of the bank. This decision reinforces employers' argument for a broader application of the administrative exemption, even outside of the financial industry, to counter the narrow view of the administrative exemption espoused by the Second Circuit.
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