Not a Member?  Become One Today!

High Court to Decide if DOL Must Use Rulemaking to Change Regulatory Interpretation

By Joanne Deschenaux  6/18/2014
Copyright Image Permissions

The U.S. Supreme Court agreed June 16, 2014, to consider whether the U.S. Department of Labor (DOL) is required to engage in formal notice-and-comment rulemaking before changing its interpretation of Fair Labor Standards Act (FLSA) regulations (Perez v. Mortg. Bankers Ass'n, No. 13-1041; Nickols v. Mortg. Bankers Ass'n, No. 13-1052).

The justices will review a decision of the U.S. Court of Appeals for the District of Columbia Circuit, which vacated a 2010 administrative interpretation by the DOL's Wage and Hour Division that mortgage loan officers are not exempt from the FLSA's minimum wage and overtime pay requirements. The DOL switched its position from a 2006 opinion letter that loan officers were exempt–without allowing public comment through formal rulemaking.

APA Requirements

The Administrative Procedure Act (APA) requires notice-and-comment rulemaking, the D.C. Circuit ruled, because the DOL's 2010 guidance was a “definitive” regulatory interpretation that significantly reversed the agency's stance expressed in the 2006 opinion letter.

The appellate court rejected the DOL's argument that the Mortgage Bankers Association (MBA), which had sued to challenge the 2010 interpretation, could prevail only if it showed “substantial and justifiable reliance” on a “well-established agency interpretation.”

In seeking review for the DOL, the solicitor general argued that the D.C. Circuit decision conflicts with the APA, which says an agency's “interpretive” rules are exempt from notice-and-comment rulemaking, as well as with rulings from other federal circuits that have held that the APA allows agencies to modify interpretive rules without notice and comment. The decision “raises a fundamental and recurring question” about the APA’s “structure and meaning” and the “obligations that Congress elected to impose on administrative agencies,” the federal government claimed.

Even if a circuit conflict exists, Supreme Court review is unwarranted, the MBA said in opposing review, because of President Barack Obama's March 2014 instructions to the DOL to “modernize and streamline” its existing overtime regulations through formal rulemaking, including the exemption at issue in the loan officers' case.

Issue Broader than Specific FLSA Exemption

The solicitor general said the legal issue under the APA is broader than the DOL's interpretation of the specific FLSA exemption involved in the loan officers' case. The D.C. Circuit said that once a court has classified an agency interpretation as “definitive,” that interpretation can't be “significantly revised” without notice-and-comment rulemaking under the APA. Because the DOL acknowledged that its 2010 guidance was a “definitive” interpretation of the FLSA's administrative exemption as applied to mortgage loan officers that conflicts with the agency's 2006 opinion letter, the D.C. Circuit said no independent inquiry was needed on whether the MBA substantially and justifiably relied on the 2006 interpretation and a federal district court must vacate the DOL's 2010 guidance.

However, the solicitor general said that the court’s ruling conflicts with the APA, which “expressly exempts” an agency's formulation, amendment and repeal of “interpretative” rules from notice-and-comment rulemaking.

The APA's directive exempting interpretive rules from formal rulemaking is “unambiguous” and the Supreme Court has repeatedly made clear that “interpretive rules do not require notice and comment,” the solicitor general said.

That principle makes sense because an interpretive rule is a statement “issued by an agency to advise the public of an agency's construction of the statutes and rules which it administers” and such a rule lacks the force and effect of law, the solicitor general said.

The decision also contradicts Supreme Court rulings that an executive department shouldn't be stopped from changing its interpretation of agency regulations when it believes a prior interpretation is legally mistaken, the solicitor general said.

Case May Be Moot; No Real Circuit Split

Opposing review, the MBA said the underlying dispute over whether notice-and-comment rulemaking is required to change the DOL's interpretation of its 2004 FLSA white-collar exemptions may be moot given Obama's recent instruction that the DOL engage in new rulemaking regarding those exemptions.

“The underlying issue in this case is the application of the FLSA with respect to loan officers,” the MBA said. “Adoption of a new regulation to that end—through notice-and-comment rulemaking—obviates the need for the Department of Labor to defend its 2010 administrator interpretation” that mortgage loan officers are not FLSA-exempt.

The MBA also argued that there is no “deep rift” among federal appeals courts. Although “some tension” may exist among the federal circuits about when notice-and-comment rulemaking is required, the circuit courts' different results can be explained by different factual situations, the MBA claimed.

The case will be heard in the 2014-15 term, which begins in October.

Joanne Deschenaux, J.D., is SHRM’s senior legal editor. 


Copyright Image Permissions


Swipe for more!