SCOTUS: DOL Permitted to Change Interpretation Rules Without Notice and Comment Rulemaking | Practical Law

SCOTUS: DOL Permitted to Change Interpretation Rules Without Notice and Comment Rulemaking | Practical Law

In Perez v. Mortgage Bankers Association, the US Supreme Court held that an administrative agency is not required to use notice and comment rulemaking when altering its interpretation of a regulation, even if the new interpretation deviates significantly from the agency's prior interpretation of the regulation. The court overturned the D.C. Circuit, which had vacated an "Administrator's Interpretation" issued in 2010 by the Department of Labor (DOL) without notice and comment rulemaking. Contrary to a DOL opinion letter issued in 2006, the 2010 interpretation provided that mortgage loan officers do not qualify as bona fide administrative employees under the Fair Labor Standards Act of 1938 (FLSA). In ruling that the DOL was not required to follow the Administrative Procedure Act's (APA) notice and comment procedures when it issued the 2010 interpretation, the court rejected the doctrine set forth by the DC Circuit in its 1997 opinion, Paralyzed Veterans of Am. v. D.C. Arena L.P.

SCOTUS: DOL Permitted to Change Interpretation Rules Without Notice and Comment Rulemaking

by Practical Law Labor & Employment
Published on 10 Mar 2015 • USA (National/Federal)
In Perez v. Mortgage Bankers Association, the US Supreme Court held that an administrative agency is not required to use notice and comment rulemaking when altering its interpretation of a regulation, even if the new interpretation deviates significantly from the agency's prior interpretation of the regulation. The court overturned the D.C. Circuit, which had vacated an "Administrator's Interpretation" issued in 2010 by the Department of Labor (DOL) without notice and comment rulemaking. Contrary to a DOL opinion letter issued in 2006, the 2010 interpretation provided that mortgage loan officers do not qualify as bona fide administrative employees under the Fair Labor Standards Act of 1938 (FLSA). In ruling that the DOL was not required to follow the Administrative Procedure Act's (APA) notice and comment procedures when it issued the 2010 interpretation, the court rejected the doctrine set forth by the DC Circuit in its 1997 opinion, Paralyzed Veterans of Am. v. D.C. Arena L.P.
On March 9, 2015, the Supreme Court held in Perez v. Mortgage Bankers Association that an administrative agency is not required to use notice and comment rulemaking when altering its interpretation of a regulation, even if the new interpretation deviates significantly from the agency's prior interpretation of the regulation. The court overturned the D.C. Circuit, which had vacated an "Administrator's Interpretation" issued in 2010 by the Department of Labor (DOL) without notice and comment rulemaking. Contrary to a DOL opinion letter issued in 2006, the 2010 interpretation stated that mortgage loan officers do not qualify as bona fide administrative employees under the FLSA. In ruling that the DOL was not required to follow the Administrative Procedure Act's (APA) notice and comment procedures when it issued the 2010 interpretation, the court rejected the doctrine set forth by the DC Circuit in its 1997 opinion, Paralyzed Veterans of Am. v. D.C. Arena L.P.. (No. 13-1041, (U.S. Mar. 9, 2015).)

Background

Mortgage Bankers Association (MBA), a national trade association representing over 2,200 real estate finance companies, brought an action challenging an "Administrator's Interpretation" issued by the DOL in 2010 (the "2010 interpretation") finding that mortgage loan officers do not qualify as bona fide administrative employees under the FLSA. The 2010 interpretation, issued without following the notice and comment procedure set forth in the Administrative Procedure Act (APA), reversed a DOL opinion letter from 2006 finding that mortgage loan officers did qualify for the administrative exemption. MBA challenged the 2010 interpretation based on the DC Circuit's holding in Paralyzed Veterans which required that agencies engage in notice and comment rulemaking when issuing a new interpretation of a regulation that deviates significantly from the agency's prior interpretation of the regulation (117 F.3d 579 (D.C. Cir. 1997)). MBA argued that the 2010 interpretation was procedurally invalid under the APA due to the DOL's failure to follow the notice and comment rulemaking procedures. The parties agreed throughout the litigation that the 2010 interpretation by the DOL constituted an interpretive rule.
The district court granted summary judgment to the DOL, finding that Paralyzed Veterans was not applicable because MBA had failed to establish that it relied on the DOL's 2006 opinion letter. The DC Circuit reversed and vacated the 2010 interpretation primarily on the basis of its holding in Paralyzed Veterans.

Outcome

The Supreme Court:
  • Reversed the DC Circuit's ruling.
  • Held that agencies are not required to engage in notice and comment rulemaking when issuing a new interpretation of a regulation that deviates significantly from a prior interpretation of the regulation.
  • Rejected the DC Circuit's holding in Paralyzed Veterans, finding that:
    • the APA's clear text requires notice and comment rulemaking only with legislative rules, not with interpretive rules (the type of rule at issue in this case); and
    • the section of the APA that addresses the procedures an agency must use when engaging in rulemaking specifically exempts interpretive rules from notice and comment requirements.
The Court rejected MBA's argument that an agency's new interpretation of a regulation that substantially deviates from a prior interpretation represents an amendment of the regulation requiring notice and comment procedures. In addition to noting the difference between "amend" and "interpret" in both common and legal usage, the Court pointed out that if notice and comment are not required for the initial interpretation of the regulation, there is no basis in the APA to require notice and comment rulemaking for any subsequent interpretations.
The court dispensed with MBA's remaining arguments, noting:
  • The "functional approach" to the APA advocated by the court in prior decisions was not applicable in this case (Christensen v. Harris County, 529 U.S. 576 (2000); Shalala v. Guernsey Memorial Hospital, 514 U.S. 87 (1995)). Christensen did not involve a new interpretation of a regulation but rather an interpretation that conflicted with a regulation. Meanwhile, Guernsey supported the principle that interpretive rules do not require notice and comment rulemaking.
  • As a matter of policy and fairness, agency attempts to elude notice and rulemaking procedures by means of interpretive rules were constrained by other provisions in the APA and by the arbitrary and capricious standard.
  • The FLSA contained a safe-harbor provision protecting an employer that relied on agency guidance that was later rescinded.
  • The DOL interpretation at issue could not be reclassified at this late stage as a legislative rule when MBA had conceded throughout the litigation that the DOL's interpretation of the mortgage loan officers was an interpretive rule.
Justices Alito and Thomas concurred in the judgment and with the bulk of the majority's opinion. Justice Alito's brief concurrence and Justice Thomas's lengthy concurrence addressed concerns about excessive agency and executive power, strongly hinting that each justice intends to try to overturn the Supreme Court's 1945 decision in Bowles v. Seminole Rock & Sand Co. when an appropriate case arrives at the court's doorstep (325 U.S. 410 (1945)).

Practical Implications

The Supreme Court's decision in Perez v. Mortgage Bankers Association removes a stumbling block to agency action that had existed since 1997, when the DC Circuit decided Paralyzed Veterans. Conceivably, agencies will have even stronger motivation to characterize their actions as interpretive rather than legislative. For employers trying to grapple with often-conflicting opinions from the DOL as to which types of employees qualify as bona fide administrative employees, this decision offers no foreseeable relief. The DOL may feel emboldened to re-examine other interpretations and opinion letters, with employers having little recourse to interfere with such efforts.