DOL Could Not Change Definitive Overtime Exemption Interpretation Without Notice and Comment Rulemaking: DC Circuit | Practical Law

DOL Could Not Change Definitive Overtime Exemption Interpretation Without Notice and Comment Rulemaking: DC Circuit | Practical Law

In Mortgage Bankers Ass'n v. Harris, the US Court of Appeals for the District of Columbia Circuit vacated a 2010 Department of Labor (DOL) "Administrator's Interpretation" which stated that mortgage loan officers do not qualify as bona fide administrative employees under the Fair Labor Standards Act of 1938 (FLSA) and withdrew a 2006 DOL opinion letter finding the opposite. The DC Circuit found that the DOL must engage in notice and comment requirements before it could revise an earlier definitive interpretation.

DOL Could Not Change Definitive Overtime Exemption Interpretation Without Notice and Comment Rulemaking: DC Circuit

by Practical Law Labor & Employment
Published on 09 Jul 2013 • USA (National/Federal)
In Mortgage Bankers Ass'n v. Harris, the US Court of Appeals for the District of Columbia Circuit vacated a 2010 Department of Labor (DOL) "Administrator's Interpretation" which stated that mortgage loan officers do not qualify as bona fide administrative employees under the Fair Labor Standards Act of 1938 (FLSA) and withdrew a 2006 DOL opinion letter finding the opposite. The DC Circuit found that the DOL must engage in notice and comment requirements before it could revise an earlier definitive interpretation.
On July 2, 2013, in Mortgage Bankers Ass'n v. Harris, the US Court of Appeals for the District of Columbia Circuit issued an opinion vacating a 2010 DOL "Administrator's Interpretation" which stated that mortgage loan officers do not qualify as administrative employees exempt from the FLSA's overtime requirements and withdrew a 2006 DOL opinion letter finding the opposite. The DC Circuit found that the DOL must engage in notice and comment requirements before it could significantly revise an earlier definitive interpretation. The court held that a party challenging this type of agency "flip-flopping" need not separately prove that it substantially relied on the earlier definitive interpretation. Instead, reliance is just one of several factors supporting the conclusion that an earlier agency interpretation was definitive.

Background

Petitioner Mortgage Bankers Association (MBA) is a national trade association representing over 2,200 real estate finance companies. The basic issue in this case was whether mortgage loan officers qualify for the administrative exemption under the FLSA. The more complicated issue was whether a party must substantially rely on a federal agency's definitive interpretation of a statute or regulation to challenge the agency's revocation of that interpretation without notice and comment rulemaking under the Administrative Procedures Act (APA). The DOL has released the following guidance on this issue:
  • In 2006, it issued an opinion letter concluding that "mortgage loan officers with archetypal job duties fell within the administrative exemption."
  • In 2010, a Deputy Administrator released an "Administrator's Interpretation":
    • stating that "employees who perform the typical job duties of the hypothetical mortgage loan officer do not qualify as bona fide administrative employees"; and
    • withdrawing the 2006 opinion letter.
Citing Paralyzed Veterans, MBA asserted that the DOL violated the APA by significantly changing its "definitive interpretation" without first undertaking notice and comment rulemaking. The District Court considered the dicta from DC Circuit's recent opinion in MetWest Inc., suggesting that a party challenging this type of agency action must show "substantial and justifiable reliance on a well-established agency interpretation." The District Court:
  • Held that MBA was unable to satisfy the standard for demonstrating reliance recognized in MetWest.
  • Rejected MBA's motion for summary judgment.
  • Dismissed MBA's substantive challenge to the 2010 DOL interpretation.
MBA appealed to the DC Circuit.

Outcome

The DC Circuit:
  • Noted that under Paralyzed Veterans and Alaska Hunters:
    • an agency must engage in notice and comment rulemaking before significantly changing a definitive interpretation of a regulation; and
    • reliance is only a factor that can elevate an otherwise non-definitive interpretation to a definitive interpretation. Parties need only show that an agency set out a definitive interpretation that the agency significantly changed without notice and comment rulemaking under the APA.
  • Held that a party challenging agency "flip-flopping" like the DOL's reversal of its 2006 opinion letter in the 2010 Admnistrator's Interpretation need not prove that it substantially relied on the agency's earlier interpretation to assert that the latter interpretation was invalid under the APA.
  • Reversed the District Court, without addressing the merits of the DOL's 2010 Administrator's Interpretation.

Practical Implications

This decision:
  • Imposes clear restrictions on the DOL's ability to change its established interpretations without engaging in the proper rulemaking process.
  • Should help employers anticipate and adjust for new DOL interpretations, as it should prevent the DOL from imposing new conflicting interpretations of statute and regulations unilaterally and without:
    • notice; or
    • providing employers an opportunity to comment on the new interpretation.
  • May also be a victory for employees in the near term because most of the changes in agency interpretations in recent years have:
    • imposed greater restrictions or obligations on employers; and
    • granted broader rights to employees and unions.

Court Documents