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Mortgage Underwriter Exempt from Overtime

December 12, 2008
Linda Havey worked as a mortgage underwriter for Homebound Mortgage Inc. in Colchester, Vermont, from April 2002 to November 2003. The compensation system for mortgage underwriters varied, in that Homebound had four "base levels" that corresponded to the number of loans the employee reviewed each month during the previous quarter. The lowest base salary was $48,000, which was paid in all cases. The base salary would increase if the employee reviewed at least 73 loans each month in the previous quarter.

   Havey sued Homebound and four individual defendants in November 2003, claiming that she was denied overtime pay in violation of the Fair Labor Standards Act and Vermont law. Havey argued that Homebound’s compensation system did not meet the salary basis test for the exemption because it provided for deductions within a pay period for problems found with the quality of work. The U.S. District Court found in favor of Homebound, and Havey appealed.

   The U.S. Court of Appeals for the 2nd Circuit, based in New York, ruled that Havey was exempt from overtime pay as an administrative employee under the FLSA and Vermont law because the adjustments to her minimum $48,000 base salary each quarter were prospective and never reduced her base salary, and thus did not violate the salary basis test. The 2nd Circuit held that the "two-part salary scheme was not designed for the purpose of circumventing the requirements of the FLSA" but instead "was designed to give underwriters an incentive to take on larger quantities of work, while maintaining standards of care so they were not receiving additional pay for shoddy work that needed to be done over." Havey v. Homebound Mortgage Inc., 2d Cir., No. 06-0978 (10/22/08).

IMPACT: Exempt status will be denied only if there is either an actual practice of making deductions for quality or quantity of work, or a clear policy effectively communicating that deductions will be made in specified circumstances.

Workforce Management, November 17, 2008, p. 10 -- Subscribe Now!