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SCOTUS: Federal Agencies Are Not Required to Follow the APA in Creating “Interpretive Rules”

on Wednesday, 15 April 2015 in Labor & Employment Law Update: Sarah M. Huyck, Editor

In 2006, following the Department of Labor’s (DOL) 2004 promulgation of new regulations regarding the administrative exemption under the Fair Labor Standards Act (FLSA), the DOL issued an opinion letter finding that mortgage loan officers fell within the administrative exemption under those regulations. Four years later, and under a different administration, in the first ever Administrator’s Interpretation (AI), the DOL altered its interpretation of the FLSA’s administration exemption as it applied to mortgage loan officers. The Mortgage Bankers Association (MBA) filed a lawsuit challenging the AI because it had been issued without notice or opportunity for comment. The MBA argued that because the DOL had significantly revised its previous interpretation, it had “in effect amended its rule, something it may not accomplish” under the Administrative Procedures Act (APA) “without notice and comment,” giving the public an opportunity to weigh in on a proposed version of the rule.

On March 9, 2015, in a case called Perez v. Mortgage Bankers Association, the Supreme Court rejected the MBA’s argument and upheld the AI. The Court differentiated between two kinds of rules, finding that “legislative rules” must go through notice and comment rulemaking under the APA. In contrast, the Court found that the APA’s notice-and-comment requirement does not apply to “interpretive rules.” The Court justified the difference in treatment between the two types of rules by noting that interpretive rules “do not have the force and effect of law.”

Overturning an earlier case out of the D.C. Circuit on which the MBA relied, the Court rejected the notion that an agency needs to adhere to the APA’s requirements when it issues an interpretive rule that conflicts with a previous interpretation. The Court found that agencies need only “use the same procedures when they amend or repeal a rule as they used to issue the rule in the first instance.” The Court dismissed the MBA’s attempt to treat an interpretive rule that conflicts with the agency’s previous position differently from other interpretive rules. Such a distinction is unnecessary, according to the Court, because some statutes, such as the FLSA, include safe harbor provisions “that shelter regulated entities from liability when they act in conformance with previous agency interpretations.”

Though the effect of the Court’s opinion was the confirmation of the AI, the concurring opinions foreshadowed a possible scaling back of the judicial deference given to agency interpretive rules in the future. Concurring in the judgment only, Justices Scalia, Thomas, and Alito questioned the legitimacy of the Supreme Court’s precedent, which has continually evolved since 1945, on the deference to which interpretive rules are entitled, including deference given to informal interpretations taken by agencies only in litigation.

The most obvious effect of this opinion is on those employers with mortgage loan officers. There is now no question that such employees (at least as the job is traditionally structured) do not qualify for the administrative exemption from overtime. However, more significant to other employers is the Court’s validation of the DOL’s use of AIs. The DOL has issued only four total AIs on wage and hour issues—two in 2010 and two more in 2014. Following the Court’s opinion in the MBA case, the DOL may feel able to issue more AIs with impunity. And unless and until the Court reconsiders the deference that is to be given to such AIs, employers should follow their guidance.

Allison D. Balus

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