Earlier this week, the U.S. Supreme Court agreed to review whether the Department of Labor must engage in notice-and-comment rulemaking in order to significantly alter its interpretation of the agency’s Fair Labor Standards Act regulations (Perez v. Mortgage Bankers Association and Nickols v. Mortgage Bankers Association). This decision will certainly impact employers by giving them a better sense of how “permanent” or “reliable” an agency’s interpretive rules are (in this case, the DOL’s stance on a particular overtime exemption), which will in turn shape employment policies.
The Supreme Court will review a July 2013 decision from the District of Columbia Circuit Court of Appeals vacating a 2010 DOL Wage and Hour Division Administrative Interpretation that the FLSA entitles mortgage loan officers to overtime. The Administrative Interpretation, which was issued without public comment through rulemaking, reversed an earlier 2006 Bush administration DOL Opinion Letter that concluded that mortgage loan officers were exempt from the FLSA’s overtime requirements.
The Administrative Procedure Act, 5 U.S.C. 551 et seq., generally provides that agencies issuing regulations must give interested parties an opportunity to submit written comments on the proposed regulations. The APA also provides that its notice-and-comment requirement does not apply to interpretative rules unless notice is otherwise required by statute. Under D.C. Circuit precedent, however, when an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has in effect amended its rule, something it may not accomplish under the APA without notice-and-comment. The D.C. Circuit therefore ruled that because the DOL’s 2010 Administrative Interpretation was a “definitive” regulatory interpretation that significantly revised (in fact, reversed) the agency’s position from the 2006 Opinion Letter, notice-and-comment rulemaking was required under the APA.
The D.C. Circuit’s stance on the APA has also been adopted by the Fifth Circuit, but a circuit split exists. Several circuits, including the First and Ninth Circuits, have found that the APA allows agencies to amend interpretive rules without notice-and-comment rulemaking.
This case is significant because of its wide-ranging impact. The decision will affect the manner in which all federal administrative agencies go about revising existing interpretive rules. As it stands now, businesses are at the mercy of how agencies interpret their regulations on a given day, interpretations that often change drastically and suddenly for seemingly political reasons. A ruling affirming the D.C. Circuit and requiring notice-and-comment rulemaking would make it more challenging and time-consuming for the DOL and other agencies to change course on regulatory interpretations.
Oral argument will take place during the Court’s next term which begins in October, and a decision is expected by this time next year. We will of course follow the developments of the case.