On March 9, 2015, the United States Supreme Court ruled unanimously in two consolidated cases that a federal agency does not have to go through the formal rulemaking process, which includes providing public notice and an opportunity for comment, “when it wishes to issue a new interpretation of a regulation that deviates significantly from one the agency has previously adopted.”
The underlying issue in the two cases — Perez v. Mortgage Bankers Association and Nickols et al. v. Mortgage Bankers Association — began when the United States Department of Labor (“DOL”) changed its opinion regarding whether mortgage-loan officers are covered by the so-called “administrative exemption” of the Fair Labor Standards Act. Prior to 2004, DOL’s Wage and Hour Division issued written advisory opinions that mortgage-loan officers are not eligible for the administrative exemption, and are entitled to payment of overtime for hours worked over 40 in a work week. In 2004, DOL revised its white collar exemption regulations, but there was some ambiguity regarding whether mortgage-loan officers fell within the revised administrative exemption. In 2006, DOL’s Wage and Hour Division issued a written advisory opinion that mortgage-loan officers qualify for the administrative exemption as revised in 2004. However, in 2010, DOL’s Wage and Hour Division changed its mind and issued a written advisory opinion that mortgage-loan officers do not qualify for the administrative exemption.
The Mortgage Bankers Association challenged this 2010 administrative interpretation in federal court, alleging, among other things, that DOL’s interpretation was procedurally invalid in light of a previous decision by the U.S. Court of Appeals for the D.C. Circuit (Paralyzed Veterans v. D.C. Arena L.P.). Under the so-called “Paralyzed Veterans doctrine,” an agency may not significantly revise its interpretation of a regulation without providing public notice and an opportunity for comment pursuant to the Administrative Procedure Act (“APA”). The D.C. Circuit re-affirmed the doctrine in the Mortgage Bankers Association cases, holding that the 2010 administrative interpretation had to be vacated because DOL did not hold a notice-and-comment period.
The Supreme Court reversed the D.C. Circuit’s decision. In an opinion penned by Justice Sonia Sotomayor, the Court held that the “Paralyzed Veterans doctrine” is contrary to the clear text of the APA’s rulemaking provisions, and it improperly imposes on agencies an obligation beyond the ‘maximum procedural requirements’ specified in the APA.” Justice Sotomayor stated that although the D.C. Circuit was correct that the APA requires agencies to follow the notice-and-comment requirements when amending or repealing a substantive rule — in the same manner as issuing a substantive rule in the first instance — the D.C. Circuit “went wrong” when it applied the same reasoning to interpretations of rules. In sum, “[b]ecause an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures when it amends or repeals that interpretive rule,” unless “notice or hearing is required by statute.”
The implications of the Supreme Court’s decision reach far beyond the FLSA status of mortgage-loan officers. The Supreme Court’s ruling paves the way for federal agencies to make significant changes to its interpretations of rules without notice to the public and an opportunity for public comment. Although employers can still look to administrative interpretations (such as opinion letters issued by DOL’s Wage and Hour Division) for some guidance in complying with employment laws and regulations, employers should be diligent about keeping up with any changes to those administrative interpretations.