Yesterday, the United States Supreme Court unanimously held that a federal agency need not engage in “notice-and-comment” rulemaking pursuant to the Administrative Procedure Act (APA) before significantly altering a rule that interprets one of its regulations. In Perez v. Mortgage Bankers Association, the Court reversed a D.C. Circuit Court of Appeals decision that vacated a 2010 Department of Labor (DOL) interpretative rule that had flip-flopped the agency’s stance on the exempt status of mortgage-loan officers.
The case dealt with a series of DOL “interpretive rules,” which are issued to advise the public of an agency’s interpretation of the statutes and rules it administers. In 1999 and 2001, the DOL issued opinion letters stating that mortgage-loan officers do not qualify for the Fair Labor Standards Act (FLSA) administrative exemption. Then, after promulgating new FLSA regulations in 2004, the DOL issued a letter in 2006 opining that mortgage-loan officers do, in fact, fall within the administrative exemption. However, in 2010, the DOL issued an Administrator’s Interpretation that again reversed course, concluding that mortgage-loan officers do not qualify for the administrative exemption. When a challenge to the Administrator’s Interpretation reached the D.C. Circuit Court of Appeals, the court vacated the Interpretation on procedural grounds. The court relied on a series of cases known as the Paralyzed Veteransdoctrine, in which it held that when an agency significantly alters an existing interpretive rule, the revision must go through notice-and-comment rulemaking, which requires the agency to allow public comment on a proposed rule before it is enacted.
The Supreme Court reversed, holding that the D.C. Circuit’s Paralyzed Veterans doctrine is inconsistent with the APA. The Court explained that the explicit language of the APA provides that, unless required by statute, the notice-and-comment requirement does not apply to interpretive rules. The Court stated further that interpretive rules are categorically exempt from the notice-and-comment requirement that applies to legislative rules, and because an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it does not need to use those procedures when it amends that rule.
The Court’s decision is likely to have a considerable effect on the aggressiveness with which federal agencies amend their interpretive rules. After all, the Court has now ruled that the “maximum procedural requirements” of the APA are clearly laid out in the statute and courts have no greater authority to review agency action for procedural correctness. Therefore, as long as an agency has promulgated an interpretive rule rather than a legislative one, the agency has free rein to amend the rule, even in such a significant way as to reverse positions on an issue.
However, there are several reasons why today’s decision may not have a substantial practical effect on liability. The Court was careful to stress that interpretive rules “do not have the force and effect of law and are not accorded that weight in the adjudicatory process.” The Court also gave short shrift to the argument that interpretive rules essentially have the force of law because they are entitled to deference, explaining that wide procedural latitude in interpretative rulemaking is countered by the fact that courts ultimately decide whether those interpretations are correct. Plus, one potential defense to FLSA claims is that the employer acted in good faith and in reliance on an agency interpretation, even if that interpretation proves to be wrong. Thus, while federal agencies may feel a new, unchecked freedom to unilaterally amend interpretive rules and it is important for employers to pay close attention to agency interpretations, those interpretive changes will not necessarily translate into liability for employers.