In case you haven’t heard, the U. S. Supreme Court unanimously upheld federal agencies’ rights to not have to go through formal rule-making to make changes to rules that interpret regulations. On March 9, 2015, the high court concluded that the U. S. Department of Labor (DOL) acted properly in issuing an “administrator interpretation” that reclassifies mortgage loan officers as overtime-eligible under the Fair Labor Standards Act (FLSA). (Perez vs. Mortgage Bankers Association, No. 13-1041).

Justice Sonya Sotomayor wrote the majority opinion that was backed by Justices Samuel Alito, Antonin Scalia, and Clarence Thomas who each wrote supporting opinions. In short, Justice Sotomayor concluded that the U. S. Court of Appeals for the District of Columbia’s Circuit’s decision in Paralyzed Veterans of America vs. D. C. Arena, 117 F.3d 579 (D. C. Cir. 1997), which states that an agency cannot significantly modify a previously issue definitive interpretation of a rule without public notice and comment is “contrary to the clear text of the” rule-making provisions of the Administrative Procedure Act (APA).

What Does This Mean?

With this ruling, agencies such as the National Labor Relations Board, Equal Opportunity Commission, and the Department of Labor will be given a wide berth to formally proclaim and put into action rules outside the normal agency rule-making procedures of notice, rebuttal time, and comment considerations from constituent groups. John Meyers, an attorney with Barnes & Thornburg in Atlanta, told Society for Human Resource Management’s SHRM Online that, “We can expect the current administration to use this ruling to back up its authority to pass new or change existing precedents.”

Attorney Tammy McCutchen with Littler in Washington, D. C., and was the DOL Wage & Hour Division Administrator from 2001-2004 said she was not surprised by the decision, that it was a pretty straightforward statutory interpretation. The ruling “should give the DOL the confidence to issue more interpretations of its own regulations through administrator interpretations.”

The Changes in Overtime Eligibility

In 1999 and 2001, the DOL issued interpretive opinions that mortgage loan officers did not fall under the FLSA overtime pay requirement. In 2006, however, a new interpretive rule said those officers were exempt, and employers did not have to pay them overtime.

In 2010, the rule changed again, when the DOL issued an interpretive rule stating that the 2006 rule adopted an incorrect interpretation of a 2004 regulation that what jobs qualified for exemptions from the overtime rule. Once again, mortgage loan officers qualified for overtime pay.

The Mortgage Bankers Association sued with the argument that the department violated the APA by failing to provide public notice and an opportunity to comment on the 2010 interpretive rule before issuance. The District Court agreed with the government’s argument that the plain text of the APA exempts agency interpretive rules from notice and comment rule-making.

The U. S. Court of Appeals for the D. C. Circuit reversed the ruling, relying on Paralyzed Veterans decision.

The High Court agreed to hear the case on June 16, 2014, with oral arguments on December 1st.

Opinions Most Interesting

McCutchen said the “most interesting” part of the decisions was the concurring decisions by Alito, Scalia, and Thomas. They agree that the D. C. Circuit Court cannot create procedural hurdles to an executive agency changing interpretations of their regulations by requiring notice and comment rule-making when these requirements to not exist in the APA.

“They also recognize the problem of unchecked executive agencies issuing interpretations of their own regulations–without notice to the public, but which really do bind the public–and to which courts must defer under prior Supreme Court precedent.”

“The concurring justices seem sympathetic to the evil the D. C. Circuit was trying to address, although they agree the D. C. Circuit’s approach was not consistent with the APA.”

“Instead,” McCutchen said, “The three justices suggest that the court should reconsider prior cases requiring deference to an agency’s interpretation of its own regulations.”

In the words of Justice Scalia, “I would, therefore, restore the balance originally struck by the APA with respect with an agency’s interpretation of its own regulations…The agency is free to interpret its own regulations with or without notice and comment; but courts will decide–with no deference to the agency–whether that interpretation is correct.