The D.C. Circuit Court of Appeals has sided procedurally with the Mortgage Bankers Association in a case involving the reclassification by the Department of Labor (DOL) of mortgage loan officers as nonexempt employees who are eligible for overtime pay.

Background: A 2006 opinion letter by the DOL awarded exempt status to mortgage loan officers, meaning they were salaried workers not eligible for overtime pay under the terms of the Fair Labor Standards Act (FLSA). In 2010, the Obama administration DOL reversed that Bush-era opinion and declared loan officers to be nonexempt employees eligible for overtime pay. As a result, loan officers nationwide began pressing their employers for unpaid overtime wages.

A district  judge sided with the DOL when the Mortgage Bankers Association sued for reversal, but the D.C. Appeals Court on Oct. 2 sided with the association on the issue of the legitimacy of the 2010 ruling. The bankers had argued unsuccessfully in district court that the DOL could not reclassify any employees previously classified as exempt without publishing a ruling and opening the rule to a public commentary period. The Appeals Court, citing the Administrative Procedure Act and previous case law, said the association was correct, but did not rule on the legitimacy of the reclassification itself.

As a result, the DOL will have to issue a proposed rule on the issue and, after opening it for public commentary, publish the proposal as a final rule, thus formalizing the nonexempt, overtime-eligible status of mortgage loan officers.

Thus the Mortgage Bankers Association has won a temporary reprieve, but all indications are that the DOL will simply make everything formal — and legal — by going through the necessary steps to publish a final rule. At that point, mortgage loan officers will be entitled to unpaid back overtime wages.