Overtime Lawsuits Affecting Appraisal Firms, Lenders and AMCs
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Are employee appraisers of appraisal firms, AMCs or lenders “exempt” from overtime pay under the FLSA?
Under the federal Fair Labor Standards Act (FLSA), employees in most types of businesses are required to be paid overtime at 1.5x their hourly rate if they work more than 40 hours in a seven-day workweek, unless they are properly classified as “exempt.” As I’ll show in three cases below against an appraisal firm, a lender and an AMC, this law presents a genuine liability risk to businesses in the valuation industry. Let’s start with what should seem like a basic question:
Are employee appraisers of appraisal firms, AMCs or lenders “exempt” from overtime pay under the FLSA?
Unfortunately, answering that question correctly is not always easy. It cannot be answered categorically for all appraisers. Under the FLSA, it’s a two-part analysis to determine whether an employee appraiser is exempt. The first part is straightforward: is the appraiser paid on a salary basis and does that salary exceed $455 per week? If the answer is “no,” then the appraiser is not exempt and must be paid overtime if he or she works more than 40 hours in a seven-day workweek. Under this first part of the analysis, for example, an employee appraiser would not be exempt if his or her employer paid the appraiser solely on a per-assignment basis; however, if the employee appraiser received per-assignment compensation on top of a base salary of at least $455 per week, then the appraiser would satisfy the first part of the exemption test.
The second part of the exemption analysis is more difficult and involves determining whether the appraiser actually performs exempt-type work duties. This is where the test gets fuzzy. For an employee appraiser who performs actual appraisal work (thus, I’m not talking about appraisers working in executive-level positions such as chief appraiser), the second part of the analysis is primarily going to come down to whether the appraiser is determined to perform either “professional work” or “administrative work.” Under the FLSA, if the appraiser satisfies the salary requirement and performs either professional or administrative work, then the appraiser 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, not bookkeeping, for a business. Such work is usually differentiated from line or production work.
There is no appellate case laying out an analysis for determining whether appraisers are exempt under the FLSA. Thus, without clear precedent applying the FLSA to appraisers, the answers are fuzzy and require judgment about the circumstances of the work being performed by the appraiser for his or her employer. At one end of the spectrum, if the appraiser’s position involves preparing narrative appraisals of high-level commercial properties and the position requires a certified general credential, years of experience and a designation, I would feel safe concluding that the appraiser is exempt from overtime requirements under the professional work exemption, assuming the appraiser receives the minimum salary. Looking at the other end of the spectrum, if the appraiser’s position involves form-driven, checklist-type production work (perhaps performing “reconciliations”), I believe that treating the appraiser as an exempt employee and not paying overtime for more than 40 hours of work in a week would present a high risk for a claimed FLSA violation. Going a little further, if the position in a valuation firm involves mere QC-type work and does not actually require an appraiser license or certification, I think it’s highly unlikely that the employee would be considered exempt. Appraisal positions in the middle of these extremes are more difficult calls.
What are the consequences to an employer for misclassifying an employee appraiser as “exempt” from overtime?
The main risk is that the employee will later file a legal action alleging that he or she worked more than 40 hours in a workweek, perhaps for a period of years and will demand all of the unpaid overtime, penalty damages, interest and attorneys’ fees. This isn’t just a threat for big firms. Even mom-and-pop appraisal firms employing just one or two appraisers have been dragged into FLSA overtime lawsuits by former employees.
A Mom-and-Pop Situation. In one case, Urnikis-Negro v. American Family Property Services, the appraisal firm was owned by a husband and wife — Mr. and Mrs. Lash. The husband was a certified appraiser and also a church pastor. Through their firm, the Lashes employed two of their congregation’s members — who were brother and sister. Ms. Urnikis-Negro — the sister — was employed by the Lashes to handle overall quality control and to review the reports being prepared by Mr. Lash and other appraisers. During her employment, she became a trainee appraiser (the court referred to her as an “associate appraiser). She received an annual salary of $52,000 — more than Mr. Lash paid himself. The trial court described her primary job duties as follows:
Urnikis-Negro’s work in this regard largely consisted of that of a glorified proofreader. Her responsibility in reviewing the appraisal reports was to make sure that all the necessary parts of the report form were filled in, the form did not contain facially apparent errors, and it did not have internal inconsistencies.
Because of the large volume of appraisal work during the height of the real estate bubble, the appraisal firm was quite busy and Ms. Urnikis-Negro frequently worked more than 40 hours per week, but there were no records of the actual time worked. When work slowed in December 2005, the Lashes terminated Ms. Urnikis-Negro. The work slow down probably had something to do the fact that the State of Illinois had suspended Mr. Lash’s appraisal license in May 2005. Ms. Urnikis-Negro, however, landed on her feet and quickly found a new job with a bank. She then sued the Lashes and their appraisal firm for unpaid overtime.
The trial court had no problem concluding that she was not engaged in professional or administrative work based on finding that her work was really glorified proofreading, and the court concluded she was not exempt. Because there were no actual time records, the court estimated the overtime based on testimony. In the end, the court awarded her $24,866 in unpaid overtime and penalties, plus $95,130.71 in attorneys’ and costs. Ms. Urnikis-Negro actually appealed the damages award contending that her damages were under-calculated and should have been $111,787.50, but she lost that appeal.
A True Appraiser Class Action Case. The Urnikis-Negrocase, of course, wasn’t quite an “employee appraiser” case because the plaintiff was only a trainee and, moreover, only performed proofreading and ministerial type work in the office. There have been other cases filed by licensed and certified appraisers seeking unpaid overtime, but the disputes haven’t been pushed past the trial court level and haven’t created meaningful appellate decisions. The results have usually been quiet settlements. One true appraiser overtime case that received some public attention was filed in 2010 by in-house appraisers against JPMorgan Chase and a mortgage company that it acquired EMC Mortgage. This case was filed by two named plaintiffs who worked as “review appraisers.” According to the court documents, although their position was called “review appraiser,” the appraisers holding that job seemed to perform a variety of functions which included not only review appraisals but also standard appraisals as well and quality control-type reviews. There were about 160 appraisers that held the position at Chase/EMC during the relevant period covered by the case.
Chase and EMC tried to argue the professional and administrative exemptions in connection with the plaintiffs’ motion to certify a class for the lawsuit, but the court ruled that the case could go forward as a class action. In the end, 121 appraisers opted to join the class. The case settled in May 2012, with Chase paying $1,195,000 to a settlement fund for the 121 appraisers. After subtracting the attorneys’ fees, it worked out to about $7,400 per appraiser.
A Recent Case Against an AMC. Let’s turn to a case filed last year against an AMC/lender services company in Colorado named Integrated Asset Services. Like the Urnikis-Negrocase, this case does not concern true appraisers. Instead, it concerns “appraisal managers” at a large AMC, who were tasked with communicating with appraisers about appraisal orders and performing quality control reviews of the reports submitted. Keep in mind, of course, that the allegations here come from the plaintiff’s complaint and the allegations very well may not be accurate. If the allegations are true, however, my personal opinion is that this will be a hard case for the AMC to defend – for the same reasons that the mom-and-pop appraisal firm in Illinois could not defend treating a “glorified proofreader”/trainee as exempt in the Urnikis-Negro case.
In her complaint filed in federal court in August 2012, the plaintiff “appraisal manager” seeks to litigate the lawsuit as a class action on behalf of all “appraiser managers” at the AMC:
This is the plaintiff’s description in her complaint of the alleged job duties of an “appraisal manager” at IAS:
The plaintiff then alleges that she personally worked 50-70 hours per week and was never paid overtime:
We’ll see how the case works out. It could have significant ramifications for the legal risk faced by other AMCs or firms treating similar valuation-related positions as exempt. It’s not so much that legal precedent will be established but rather that this case may fuel more litigation about overtime issues in the valuation industry. In fact, IAS itself is facing two other alleged class actions seeking overtime. One of the cases is filed on behalf of “valuation managers” who handled BPOs and other agent-performed work. The last case seeks unpaid overtime on behalf of “reconciliation coordinators” who handled a process for accepting or rejecting valuations used for REO properties or default dispositions. This particular case was filed by a former employee of IAS who worked for the firm for over 10 years and ultimately held the title “Vice President of Reconciliation and Appraisals” at the time she lost her job in August 2012 — about a month later, she filed the class action complaint for overtime.
I do believe that many appraisal firms and AMCs may be at risk for similar litigation involving overtime issues and that these three cases could lead to future additional litigation against other firms.
The complete complaints in each case are available on www.AppraiserLaw.com at this link.