DSNews The homepage of the servicing industry
Howard Knee
Howard M. Knee is a partner in the Los Angeles office of Blank Rome. Howard has more than 40 years of experience in labor and employment law and he advises employers in all aspects of labor and employment matters in both the private and public sectors, including for both large and small clients. Howard wrote an article for DS News in April 2014 on a court case in which mortgage underwriters sued a bank over the classification of the underwriters as exempt employees under the Fair Labor Standards Act, and he recently updated us on the decision in that case and its impact.
What was the ruling in the case of McKeen-Chaplin v. Provident Savings Bank?
The decision was that the mortgage writers are exempt under the administrative exemption contained in both federal law and state law. There are three primary exemptions: a professional exemption that covers lawyers, accountants, and doctors; an executive exemption, which covers CEOs, presidents, COOs, and executives; and the administrative exemption, which covers certain white-collar employees depending on the type of work they do and the extent to which they exercise independent judgment and discretion. In California, insurance adjusters are administratively exempt. Judge (Garland) Burrell (of the U.S. District Court for the Eastern District of California) held that the mortgage underwriters were also administratively exempt.
What effect do you think this court ruling will have on banks and on the mortgage industry?
First, there are a lot of banks and mortgage institutions, when they faced class-action lawsuits brought by their mortgage underwriters, settled for millions if not billions of dollars. Second, this is one federal district court decision. It's important because it's the first decision like this in favor of the bank in the area covered by the Ninth Circuit Federal Court of Appeals. There's a Second Circuit Court decision in the New York Court of Appeals (Davis v. JPMorgan Chase & Co.) that went the other way, in favor of the underwriters. There's a decision pending in the Sixth Circuit Court in Columbus, Ohio, where a bank won in the district court but the underwriters appealed the decision. If the underwriters appeal in our case, it will go up to the Ninth Circuit Court. Ultimately there will be a decision, and hopefully the decision will be that the underwriters are exempt. Up until the JPMorgan decision in New York, most institutions treated their underwriters as exempt. That way, they can come and go as they want, they don't have to clock in or out, they can work at night, or they can choose not work at all. It gives them a lot more freedom in terms of how they perform their job.
How did the JPMorgan case go in favor of the underwriters?
There are a few reasons. First, the court found that their people sold products, which made them non-exempt. Our people don't sell products. Second, it appeared because JPMorgan was such a big institution, their underwriters didn't seem to exercise the type of independent judgment and discretion that our underwriters exercised. According to the court, they just followed guidelines. Over all of this is something called the administrative-production dichotomy. This is one tool for determining whether employees are exempt or non-exempt. If you're on a production line, then you're exempt. The underwriters here essentially argued that they were on a production line, "producing" mortgages and "manufacturing" mortgages. The judge rejected that argument. If you look at the Second Circuit decision in the JPMorgan case, the court there put a lot more emphasis on the administrative-production dichotomy.
Are there other similar cases currently out there, and if so, do they have the potential to affect your case?
There was another decision within the Ninth Circuit in the state of Washington that went the other way (in favor of the underwriters). So now we have two district courts within the Ninth Circuit that have decided differently. If the plaintiffs appeal this to the Ninth Circuit, we'll get a circuit court decision here.
This is a step in the process toward clarifying exactly how the administrative exemption is going to be interpreted and whether underwriters are administratively exempt, which we think they are. In other words, (the district court decision) doesn't finally decide the issue; the issue is still in flux.
Is it possible that this issue could reach the U.S. Supreme Court?
It could if it's important enough and if the federal courts of appeals have different decisions. We have the Second Court decision (JPMorgan case) where they ruled the underwriters were non-exempt, and then we're going to get a decision from the Sixth Circuit, and if the underwriters in the Provident Savings decision appeal, then we're going to get a decision out of the Ninth Circuit. It may be that the California Supreme Court will take a case to resolve any conflict between the Circuit Courts.
