Tuesday, May 15, 2018

Are Commercial Appraisers Entitled to Overtime? A Pending Class Action Filed Against a Bank Might Answer that Question

Overtime class actions by residential real estate appraisers have ravaged large appraisal firms and management companies for the last six years. While there were a few earlier cases, the first signs that overtime litigation under the federal Fair Labor Standards Act (FLSA) would become a widespread problem for appraisal firms and AMCs came in 2012, as appraisers were being laid off at some large firms. The writing was on the wall, and I warned of the trend in a February 2013 blog post. Two months later, a collective action seeking unpaid overtime was filed against Bank of America and its AMC LandSafe Appraisal Services in the U.S. District Court for the Central District of California. The lawsuit resulted in a $36 million settlement which was distributed to hundreds of past and present LandSafe staff appraisers. (The legal documents discussed in this article can be found in this area of my website: Overtime and Employment Cases.)

While the settlement amount was perhaps astounding in that case, the biggest impact it has had on other firms and AMCs has stemmed from the trial court's order on a summary judgment motion. Before we get to the significance of that order and whether commercial appraisers need to be paid overtime, let's take a look at general federal overtime requirements as they apply to appraisers.

Overtime law basics for appraisers. Under the FLSA, employees in most types of businesses are required to be paid overtime at 1.5 times their regular hourly rate if they work more than 40 hours in a seven-day workweek, unless they are properly classified as "exempt." Under the FLSA, it's a two-part analysis to determine whether an employee is exempt. The first part is straightforward: is the employee paid on a salary basis and does that salary exceed $455 per week? If the answer is "no," then the employee is not exempt and must be paid overtime if he or she works more than 40 hours in a seven-day workweek. (Some individual states impose higher minimum thresholds than the federal government; I am only covering the current federal rules here.)

The second part of the exemption analysis is more difficult and involves determining whether the employee actually performs exempt-type work duties. This is where the test gets fuzzy for appraisers. For non-supervisory employee appraisers, the second part of the analysis primarily comes down to whether the employee is determined to perform either "professional work" or "administrative work." Under the FLSA, if the employee satisfies the salary requirement and performs either professional or administrative work, then the employee would be exempt from overtime. Professional work generally means performing duties which are predominantly intellectual, require specialized high-level education (usually, but not always, above a four-year degree) and require the exercise of discretion and judgment. Administrative work generally means performing duties that would be thought of as managerial, like managing human resources or performing financial accounting, and involving independent decision-making about significant issues. (For employees who actually supervise at least two other full time employees, there is also a supervisory exemption.)

Judge Carter's order in the Landsafe case. There is no definitive appellate court guidance on whether real estate appraisers performing valuation work are properly treated as exempt employees. There is also little specific guidance from the federal Department of Labor, other than a fairly obscure single opinion letter. Thus, in considering whether appraisers must be paid overtime, what we are mostly left with for guidance are decisions at the trial court level, and Judge Carter's order is the most prominent among such decisions.

By the time he heard the plaintiffs' motion for summary judgment against LandSafe, Judge Carter was quite familiar with residential mortgage appraising because he had just handled the FDIC's lawsuits alleging 100+ million dollars in damages against the AMCs eAppraiseIT and LSI Appraisal relating to appraisals for failed lender Washington Mutual. In a 61-page opinion, Judge Carter analyzed the job of a LandSafe appraiser reporting appraisals on standard residential forms. What he wrote was not flattering. In ruling that LandSafe's appraisers did not qualify for the administrative employee exemption, he found, in part:

Appraisers do not exercise discretion with regards to matters of significance. Appraisers do not have the authority to formulate, affect, interpret, or implement management policies or operating practices; they do not carry out "major" assignments in conducting the operations of the business; they do not have the authority to commit the employer in matters that have significant financial impact; while Appraisers may have to consider issues beyond established guidelines, they generally do not have the authority to "waive" or "deviate from" established policies and procedures without prior approval; they do not have the authority to negotiate and bind the company on significant matters . . .
Judge Carter further ruled that the appraisers did not meet the exemption for “learned professionals” because although a degree is required to become an appraiser, “the coursework is not narrowly focused on the Appraisers' position.”

His published decision in the LandSafe case soon spawned about ten other class actions by residential appraisers against appraisal firms and AMCs, as well as some individual cases against small firms. His decision is cited in nearly every such case. Now, the overtime issue is at the doorstep of employers of commercial appraisers.

Must commercial appraisers be paid overtime? The question is teed up in a pending case entitled Karali v. Branch Banking and Trust Company in the U.S. District Court for the District of New Jersey. In this case, a conditionally certified class, led by an MAI certified general appraiser, is suing BB&T for unpaid overtime. The class actually consists of both "Appraisal Review Officers" who are mostly certified general appraisers employed primarily to review commercial real estate appraisals for BB&T and "Real Estate Evaluators" who perform evaluations and may be either appraisers or non-appraisers. And, it should be noted that the lead law firm on the plaintiffs' side handled the $36 million case against LandSafe.

Each side has filed a motion for summary judgment on the issue of whether the appraisers (and evaluators) are exempt from overtime under the administrative and professional exemptions. The plaintiffs, of course, are contending that the appraisers do not satisfy the exemptions and generally downgrade their own work and the role of appraisers in BB&T's business structure. Here is an example argument from their brief:

Appraisers do not help run BB&T’s business. Appraisers do not typically have “managerial responsibilities.” . . . They do not supervise other employees, and have no authority to hire, fire, promote, or provide annual reviews to other employees. . . . Instead, Appraisers are subject to a high degree of supervision, including frequent staff meetings, one-on-one meetings with their managers, performance reviews, and close monitoring of their production, turnaround times, and quality by their managers and the QC Group.
On the other side of the case, BB&T is seeking to show that one or both of the exemptions apply to its appraisers and thus alleviate the requirement to pay them overtime. BB&T is also trying to differentiate the work of its employee appraisers from the work described by Judge Carter in the LandSafe case. In its brief, BB&T offers arguments such as:

Most appraisal reviews performed by [Appraisal Review Officers] are on commercial properties, which are more complex than residential appraisals in that different and more varied appraisal techniques and methodologies are used; there is a greater knowledge and experience base needed for understanding these appraisal methodologies; and the types of commercial properties (i.e. convenience stores, multi-family homes, golf courses) and issues associated with those commercial properties are quite varied.
It will likely be some months before the Court makes a ruling in the BB&T case, but the matter should be watched closely by firms, AMCs and lenders employing staff commercial appraisers. While the case most specifically relates to commercial review work, rather than performance of commercial appraisals themselves, it could have a big impact on the future direction of overtime litigation by commercial appraisers. If the ruling spawns more suits, however, it might be tough for appraisers to keep or grow respect for their profession, while suing more of the firms and banks that employ them for overtime and rest breaks -- and denigrating their own work to win the cases.

(The legal documents discussed in this article can be found in this area of my website: Overtime and Employment Cases.)