Mitchell V. Kentucky Finance Co.- Overtime Protections For Loan Officers

In Mitchell v. Kentucky Finance Co., 359 U.S. 290 (1959) theSupreme Court held that the business of making personalloans to individuals does not constitute “sales of . . . services”

by a “retail or service establishment,” within the meaning ofthe retail and service establishment exemption to the FairLabor Standards Act. This is the case regardless of whetherthe company might be thought of in the financial industry asbeing engaged in “retail financing.” Mitchell is importantbecause it helps ensure that mortgage loan officers andother similar positions are entitled to overtime pay.

Statutory Background – Retail and Service Establishment Exemption

The FLSA generally requires employers to pay overtime, i.e.

Section 7(i) does not define the term “retail or serviceestablishment.” However, when Congress enacted Section7(i) in 1961, a separate FLSA provision, 29 U.S.C. § 213(a)(2),exempted certain retail or service establishments from bothovertime and minimum wage requirements. Charbonneau v.Mortg. Lenders of Am., LLC, No. 18-2062-HLT-ADM, 2020 WL4334981, at *3 (D. Kan. July 28, 2020), citing Fair LaborStandards Amendments of 1961, Pub. L. 87-30, § 6, 75 Stat. 65,71 (1961) (setting forth amendments to 29 U.S.C. § 213).Section 13(a)(2) defined a “retail or service establishment” tomean “an establishment 75 per centum of whose annualdollar volume of sales of goods or services (or both) is not forresale and is recognized as retail sales or services in theparticular industry.” Id. Congress repealed Section 13(a)(2) in1989, but most courts have determined that the identicalterm in Section 7(i) has the same meaning. For example, theEighth Circuit explained:

When Congress passed § 207(i) in 1961, it specifically stated that the term “retail or service establishment” was to have the same meaning in that section as it did in § 213(a)(2). See 29 C.F.R. § 779.411 (1992). Thus, any construction of the term as defined in § 213(a)(2) became a part of the definition of the term as found in § 207(i). Nothing in the 1990 amendments changed § 207(i). The term “retail or service establishment” still remains, and there is no expression of congressional intent that it should be construed any differently. Absent specific congressional intent, we will not conclude that Congress retained the term “retail or service

Facts

Mitchell involved a suit to enjoin Kentucky Finance Company from violating the overtime and recordkeeping provisions of the FLSA. Kentucky Finance Company and a sister company were engaged in the business of making personal loans, in amounts up to $300, to individuals, and in purchasing conditional sales contracts from dealers in furniture and appliances.

The parties agreed that the company was subject to the FLSA’s overtime and recordkeeping provisions unless it constituted a “retail and service establishment” under Section 13(a)(2).

The question for the Court was therefore whether a company in the business of making personal loans to individuals constituted a “retail and service establishment” within the meaning of the FLSA.

The Court’s Decision

The Mitchell Court held that a personal loan company and “other financial institutions” including banks, insurance companies, and credit companies were not “retail or service establishments” within the meaning of Section 13(a)(2) because “there is no concept of retail selling or servicing in these industries.” Mitchell, 359 U.S. at 295. This is the case under the FLSA even if the company might be thought of inth fi i l i d t b i d i “ t il fi i ”

Any residual doubt on this score is dispelled by the explicit and repeated statements of the sponsors of the amendatory legislation and in the House and Senate Reports to the effect that ‘The amendment does not exempt banks, insurance companies, building and loan associations, credit companies, newspapers, telephone companies, gas and electric utility companies, telegraph companies, etc., because there is no concept of retail selling or servicing in these industries.

359 U.S. at 295 n6 (citing H.R.Conf.Rep., 95 Cong.Rec. 14932, U.S.Code Cong.Service 1949, p. 2265; Report of Majority of Senate Conferees, 95 Cong.Rec. 14877; and statement of Senator Holland, 95 Cong.Rec. 12505—12506.) The Court further held that “credit companies” covers “companies which deal in credit[.]” Under Mitchell, therefore, loan companies, credit companies, or other financial institutions do not qualify for the retail and service establishment exemption from the FLSA’s overtime requirements.

Analysis

Courts have subsequently confirmed that under Mitchell, employers selling financial products, including mortgages or other personal loans, are not retail or service establishments eligible for the overtime exemption. See, e.g., Charbonneau, 2020 WL 4334981, at *3 (collecting cases); In re Wells Fargo Home Mortg. Overtime Pay Litig., No. C 06-01770 MHP, 2008 WL 2441930, at *3-*6 (N.D. Cal. June 13, 2008) (finding exemption did not apply to bank that provides a variety offinancial products and services including mortgages);

In sum, Mitchell held that the business of making personal loans does not constitute “sales of . . . services” by a “retail or

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