As widely reported, the Supreme Court of the United States recently rejected a challenge to the U.S. Department of Labor’s March 24, 2010 Administrator’s Interpretation (No. 2010-1), which concluded that mortgage loan officers do not qualify for the “administrative exemption” under the federal Fair Labor Standards Act (“FLSA”), and therefore that mortgage loan officers are entitled to overtime pay.
In so ruling, the Court held that the Administrative Procedure Act (“APA”) does not require a federal administrative agency to use the notice-and-comment procedure to amend or repeal “interpretive rules,” which “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.” Under the Court’s ruling, only a “legislative rule” requires notice-and-comment rulemaking, and has the “force and effect of law.”
A copy of the opinion is available at: http://www.supremecourt.gov/opinions/14pdf/13-1041_0861.pdf
Several commenters have noted that the Court’s ruling only lets stand the U.S. Department of Labor’s 2010 Administrator’s Interpretation as to the “administrative exemption” to overtime pay under the FLSA.
The commenters note that the ruling says nothing about other exemptions from the FSLA’s overtime pay requirements that might apply to mortgage loan officers, such as the FLSA’s “outside sales” exemption, the “executive” exemption, and the “highly compensated” exemption.
Other commenters note that, even though the Court held that the U.S. Department of Labor’s 2010 Administrator’s Interpretation is only an “interpretive rule,” and therefore officially does not have the “force and effect of law” (i.e., it is not necessarily binding on private parties or the courts), courts frequently defer to agency interpretations of a law or regulation.
Other commenters note the effects of this ruling on procedural rules relating to administrative law and statutory interpretation, not the least of which is that the ruling appears to empower federal agencies to make significant changes in their interpretation and application (and enforcement) of federal laws without need for notice-and-comment rulemaking procedure, with the new interpretation by the federal agency often being entitled to deference from the courts.
The ruling, some commenters note, might encourage challenges to agency interpretations as in effect being “legislative rules” that did not properly go through the notice-and-comment rulemaking (an argument the Court held was waived in this case), or perhaps other challenges that the new interpretation violates the “arbitrary and capricious” standard under 5 U.S.C. § 706(2)(A), or that the new interpretation is contrary to the unambiguous language of the statute, or that the new interpretation is not based on a reasonable or permissible construction of the statute (which the Supreme Court has indicated is the same or virtually the same as the “arbitrary and capricious” standard under 5 U.S.C. § 706(2)(A)).
The Administrator of the Department of Labor’s Wage and Hour Division (“DOL”) issued opinion letters in 1999 and 2001 that mortgage-loan officers do not qualify for the administrative exemption to overtime pay requirements under the Fair Labor Standards Act (“FLSA”).
In 2004, the DOL issued a regulation concluding that mortgage-loan officers did not qualify for the administrative exemption to the overtime pay requirements of the FLSA. Stated simply, this meant that mortgage loan officers were entitled to overtime pay.
At the request of an industry trade group, the DOL in 2006 reversed course, issuing an opinion letter to the effect that mortgage loan officers fell within the administrative exemption, and thus were not entitled to overtime pay.
However, in 2010, the DOL reversed course yet again by withdrawing its 2006 opinion letter and issuing a new “Administrator’s Interpretation,” which concluded that mortgage loan officers do not qualify for the administrative exemption, and thus are entitled to overtime pay.
The 1999, 2001, and 2006 opinion letters, and the 2010 Administrator’s Interpretation, were all issued without notice or an opportunity for comment.
The industry trade group sued, arguing that the DOL used the wrong rule-making procedure because the holding of the U.S. Court of Appeals for the D.C. Circuit in Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997), and its progeny requires an agency to use the notice-and-comment procedure when it comes up with a new interpretation of the law that deviates significantly from its previous interpretation.
The DOL won on summary judgment in the district court, but the D.C. Circuit reversed, finding that the Paralyzed Veterans doctrine controlled. The DOL appealed to the Supreme Court of the United States, seeking a writ of certiorari.
The Supreme Court reversed, holding that “[t]he 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.”
The Supreme Court noted that, under the APA, “[w]hen a federal administrative agency first issues a rule interpreting one of its regulations, it is generally not required to follow the notice-and-comment rulemaking procedures” under that statute.
The Court stated that the APA creates two kinds of rules: (1) “legislative rules” that are issued using a notice-and-comment procedure and have the force and effect of law; and (2) “interpretive rules” that are advisory only, providing the agency’s reading of the meaning of the statutes and rules it administers, and “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.”
The Court reasoned that, because an agency is not required to use this procedure when it initially issues an interpretive rule, it need not use it when it amends or repeals that rule. The Court held that “[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.”
The Supreme Court noted that “the APA requires an agency to provide more substantial justification when ‘its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account. It would be arbitrary and capricious to ignore such matters.’”
The Court also noted that “the FLSA provides that ‘no employer shall be subject to any liability’ for failing ‘to pay minimum wages or overtime compensation’ if it demonstrates that the ‘act or omission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation’ of the [DOL], even when the guidance is later ‘modified or rescinded.’”
Accordingly, the Court reversed the judgment of the U.S. Court of Appeal for the D.C. Circuit, rejecting the Paralyzed Veterans doctrine because it is inconsistent with the APA’s rulemaking provisions by imposing a judge-made obligation requiring the notice-and-comment procedure when an agency changes its interpretation of a regulation that it enforces.
Ralph T. Wutscher
McGinnis Wutscher LLP
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