United States: Second Circuit Rules Bank Loan Underwriter Eligible for Overtime Pay

On November 20, 2009, the U.S. Court of Appeals for the Second Circuit in the case of Whalen v. J.P. Morgan Chase & Co., No. 08-4092 (2d Cir. November 20, 2009) held that a loan underwriter employed at J.P. Morgan Chase & Co. (Chase) was not covered by the administrative exemption from the overtime requirements of the Fair Labor Standards Act and, thus, was eligible for overtime pay.By Robert P. Davis and Diana L. Hoover
Mayer BrownThe opinion is significant for financial institutions and other financial services businesses that classify their underwriters as exempt from overtime under federal law, relying primarily on the �administrative� exemption from overtime. It is likely to receive significant attention, since there is relatively little appellate authority on the exempt status of loan underwriters.

In the case, the underwriter was classified as an �administrative� employee exempt from federal overtime. The Second Circuit described the employee’s duties as follows:

�[He] evaluated whether to issue loans to individual loan applicants by referring to a detailed set of guidelines, known as the Credit Guide, provided to him by Chase. The Credit Guide specified how underwriters should determine loan applicant characteristics such as qualifying income and credit history, and instructed underwriters to compare such data with criteria, also set out in the Credit Guide, prescribing what qualified a loan applicant for a particular loan product… An underwriter was expected to evaluate each loan application under the Credit Guide and approve the loan if it met the Guide�s standards. If a loan did not meet the Guide�s standards, certain underwriters had some ability to make exceptions or variances to implement appropriate compensating factors.�

The district court granted summary judgment in favor of the employer and the Second Circuit reversed, concluding that the underwriter did not meet the requirements of the administrative exemption. In particular, the court found that the underwriter�s work involved �the �production� of loans — the fundamental service provided by the bank,� rather than exempt administrative work. Having found for the underwriter on this issue, the Second Circuit did not address the second part of the administrative exemption test — whether the employee customarily and regularly exercised discretion and independent judgment.

It is important to note that due to the dates of the underwriter�s employment, the Second Circuit analyzed this issue primarily under the administrative exemption as it existed before the U.S. Department of Labor updated and clarified that exemption through regulations issued in 2004. But, the court did not suggest that it would reach a different result under the post-2004 version of the regulations. Further, the court did not address important administrative opinions issued by the Labor Department since 2004. Finally, the Second Circuit�s view of what generally constitutes �production� work is not shared by many other federal courts.

Editor�s Note:
We�re pleased to offer this article on the administrative exemption from the overtime requirements of the Fair Labor Standards Act as it relates to loan underwriting � admittedly, not standard fare for abfjournal.com readers. But since risk takes on many forms, we think it is worthy of our readers� attention given the nature and situs of the case in question.


Robert P. Davis, partner, and Diana L. Hoover, partner at Mayer Brown, a global legal services organization comprising legal practices that are separate entities (Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; and JSM, a Hong Kong partnership, and its associated entities in Asia. The Mayer Brown Practices are known as Mayer Brown JSM in Asia. For more information, visit www.mayerbrown.com.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

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