In a unanimous decision announced on March 9, 2015, the U.S. Supreme Court held, in the case of Perez v. Mortgage Bankers Association, that the U.S. Department of Labor (DOL) could change its mind as to whether mortgage loan officers are entitled to overtime pay under the administrative exemption of federal Fair Labor Standards Act (FLSA). The Court’s discussion, however, goes beyond the DOL and expands the impact of this decision to all federal administrative agencies and all employers covered by the regulations the agencies are charged to enforce. Here is what you need to know now.

Mortgage loan officer re-classification

The question of whether mortgage loan officers are properly classified as exempt or not exempt from the FLSA’s overtime requirements dates back to 2004, when the DOL—through a formal rulemaking process—revised its regulations so as to require payment of overtime to any employee “whose primary duty is selling financial products.” In 2006, the DOL issued an opinion letter clarifying that, because the “primary duty” of mortgage loan officers is not necessarily selling financial products, mortgage loan officers are not entitled to overtime pay. That DOL interpretation held until 2010, when the agency issued an “Administrator’s Interpretation” reversing its 2006 opinion letter and stating that, in fact, mortgage loan officers should be classified as non-exempt under the FLSA regulations and entitled to receive overtime pay whenever it is earned.

The Supreme Court’s decision reverses the 2013 ruling of the United States Court of Appeals for the District of Columbia Circuit (D.C. Circuit), which previously held that the DOL was required to go through a formal rulemaking process before changing its mind on the mortgage loan officers issue. The D.C. Circuit held that the DOL’s change of heart was invalid because the DOL did not go through the appropriate process before changing its interpretation of the FLSA regulations.

Perhaps the only silver lining for employers in the Supreme Court’s Perez decision is recognition by the Court that the FLSA protects employers who have, up to this point, relied in good faith on the DOL’s 2006 opinion letter in classifying mortgage loan officers as exempt from overtime pay requirements under the FLSA’s administrative exemption. Thus, it is possible that some employers may escape retroactive liability for failing to pay overtime to mortgage loan officers, although such determinations can only be made on a case-by-case basis. Moreover, the Perez decision does not affect—in any way—mortgage loan officers who qualify as exempt from overtime pay under FLSA exemptions other than the administrative exemption (e.g., the executive exemption).

The bottom line? If your organization currently employs mortgage loan officers and classifies those employees as exempt from overtime pay under the FLSA’s administrative exemption, you should take immediate action to re-classify those employees or determine if other exemptions apply. Failure to do so puts your organization at risk of DOL enforcement action and potential liability for failure to pay overtime premiums to your mortgage loan officer employees.

General agency power to flip-flop

While the impact of this decision on the mortgage banking industry may be obvious, other employers should realize the wide-sweeping consequences this decision has for federal agencies and their ability to interpret and re-interpret the interpretive regulations they enforce in the future. Any federal agency now clearly has the ability to provide interpretative guidance on how to comply with the regulations they enforce, and then decide to change its mind by changing the terms of compliance without notice. While the Court indicates in Perez that there may be a safe-harbor to retroactive liability for the period of time those employers complied with the DOL’s initial regulatory interpretation, relying on similar safe-harbors for the actions of other agencies poses its own risks. The practical implications are that employers will have very little recourse when agencies have a change of heart, so employers must be able to react in a nimble fashion to comply with any new administrative guidance.