On March 9, 2015, the United States Supreme Court (“Court”) issued its ruling in Perez v. Mortgage Bankers Association, upholding a Department of Labor interpretation regarding the status of mortgage loan officers as non-exempt under the Fair Labor Standards Act (“FLSA”), even though the DOL’s position was a 180-degree reversal from what it had said a few years prior. At issue in Perez was whether the Department of Labor could alter its position regarding whether mortgage loan officers qualify for the administrative exemption under the FLSA without adhering to the notice-and-comment rulemaking process set forth in the Administrative Procedure Act (“APA”). To fully understand the Court’s ruling, a brief background on both the APA and the applicability of the FLSA’s administrative exemption to mortgage loan officers is necessary.

The Administrative Procedure Act (“APA”) establishes the procedures federal administrative agencies, including the Department of Labor, use to formulate, amend, or repeal their rules. Under the APA, there are two types of rules—legislative rules and interpretive rules. Legislative rules, which have the force and effect of law, must be issued through a notice-and-comment process. In contrast, interpretive rules, which merely advise the public of an agency’s construction of the statutes and rules which it administers, do not have the force and effect of law and do not require a notice-and-comment process.

Prior to 2004, the Department of Labor’s Wage and Hour Division took the position that mortgage loan officers did not qualify for the FLSA’s administrative exemption to overtime pay requirements. However, in 2004, the DOL issued new regulations regarding the administrative exemption. As a result, the Mortgage Bankers Association requested from the DOL an opinion interpreting the new regulations and there applicability to mortgage loan officers. Without providing notice or an opportunity for comment, the DOL, in 2006, issued an opinion letter changing its position and finding that mortgage loan officers fell within the administrative exemption. Then, in 2010, without providing notice or an opportunity for comment, the DOL again changed its interpretation of the administrative exemption and issued an “Administrator’s Interpretation” that mortgage loan officers did not fall within the administrative exemption. The DOL’s 2010 interpretation set the stage for Perez.

In Perez, the Mortgage Bankers Association filed suit contending that, under District of Columbia Circuit (“D.C. Circuit”) case law, the DOL’s 2010 interpretation was procedurally invalid for lack of a notice-and-comment process prior to the changed interpretation. Specifically, the Mortgage Bankers Association contended that under the D.C. Circuit’s holding in Paralyzed Veterans of Am. v. D.C. Arena L.P., the DOL was required to use the APA’s notice-and-comment process because the 2010 interpretation of the administrative exemption deviated significantly from its previous 2006 interpretation.

The Court disagreed and held that the Paralyzed Veterans doctrine was in direct contrast to the APA’s rulemaking provisions. The Court expounded, finding that the APA only requires a notice-and-comment process for the formulation, amending, or repealing of rules (i.e. “legislative rules”). To the contrary, opinions or interpretation about existing rules (i.e. “interpretive rules”) are specifically exempt from the notice-and-comment process under the APA. Therefore, because the DOL’s 2006 opinion letter and 2010 Administrator’s Interpretation of an existing regulation was an “interpretive rule” as opposed to a “legislative rule,” no notice-and-comment process was required. As further support for its holding, the Court noted that the DOL’s previous opinion letters/interpretations of the administrative exemption, including the 2006 opinion letter, did not require a prior notice-and-comment process. Thus, it stood to reason that where the DOL was not required to use the notice-and-comment process to issue an initial interpretive rule, it was also not required to use the process when it changed its interpretation of the same rule.