McKeen-Chaplin filed a FLSA suit against her employer Provident Savings Bank seeking overtime compensation for mortgage underwriters. The district court ultimately decided that the mortgage underwriters qualified for the administrative exemption for overtime payment, as mortgage underwriters oversee quality control and Provident’s general business operations. McKeen-Chaplin then appealed the district court decision.
To qualify for administrative exemption for overtime, employers must prove that the employees meet all three conditions of the Secretary of Labor’s “short duties test”: 1) must be compensated not less than $455 per week; 2) must perform as a primary duty office or non-manual work related to management or general business operations; and 3) have as the primary duty the exercise of discretion and independent judgment on significant matters.
According to the Ninth Circuit Court of Appeals, mortgage underwriters make more than $455 per week, but they do not meet the second and third conditions to qualify for administrative exemption. The primary duty of mortgage underwriters goes towards Provident’s marketplace offerings, in the production of loans to be sold to clients by a mortgage loan officer. The job of an underwriter falls on the production side of the business, not the administrative side. Provident’s mortgage underwriters work within Provident’s established guidelines for loan risks, and do not have discretion or independent judgment on significant matters, as they operate within pre-established conditions.
The Ninth Circuit Appeals Court also established that simply because work does not qualify as being on the production side of the business, it does not necessitate that the work is administrative. Mortgage underwriters at Provident are not administrators nor corporate executives. Their primary purpose is completing tasks within the corporate framework that relate to the production side of the company, in the sale of loans. Therefore, the Ninth Circuit Appeals Court reverses the judgement of the district court and sends the case back to the district court to determine how much overtime is owed to McKeen-Chaplin and other mortgage underwriter plaintiffs from Provident Savings Bank.
Application: The duty of the employer is to establish that employees qualify for administrative exemption by meeting all three conditions of the “short duties test.” Mortgage underwriters do not qualify for administrative exemption, as they do not exercise independent discretion and work on the production side of the operation, not the administrative side. They function within the realm of predetermined guidelines and undertake tasks to produce a loan to be sold by the loan officers. They are therefore owed overtime payment.