Supreme Court Sides with DOL on Change to FLSA Interpretation

By Joanne Deschenaux March 10, 2015

The U.S. Supreme Court unanimously held March 9, 2015, that federal agencies do not have to go through formal rule-making to makes changes to rules that interpret regulations. The high court concluded that the U.S. Department of Labor (DOL) acted properly in issuing an “administrator interpretation” that reclassified mortgage loan officers as overtime-eligible under the Fair Labor Standards Act (FLSA) (Perez v. Mortg. Bankers Ass'n, No. 13-1041).

Writing for the court, Justice Sonia Sotomayor concluded that the U.S. Court of Appeals for the District of Columbia Circuit's decision in Paralyzed Veterans of America v. D.C. Arena, 117 F.3d 579 (D.C. Cir. 1997)—which states that an agency cannot significantly modify a previously issued definitive interpretation of a rule without public notice and comment—is “contrary to the clear text of the” rulemaking provisions of the Administrative Procedure Act (APA).

Justices Samuel Alito, Antonin Scalia and Clarence Thomas wrote separate concurring opinions.

Agencies Given ‘Wide Berth’

This decision means that the DOL, Equal Employment Opportunity Commission and National Labor Relations Board ” are given wide berth to promulgate rules outside of the normal agency rule making procedures of notice, time for rebuttal and comment considerations from constituent groups,” John Meyers, an attorney with Barnes & Thornburg in Atlanta, told SHRM Online. “We can expect the current administration to use this ruling to back up its authority to pass new or change existing precedents,” he said.

Tammy McCutchen, an attorney with Littler in Washington D.C., said that she was not surprised by the decision, which was “a pretty straightforward bit of statutory interpretation.”

McCutchen, who was the administrator of the Wage and Hour Division of the DOL between 2001 and 2004, added that the ruling “should give the DOL confidence to issue more interpretations of its own regulations through administrator interpretations.”

DOL Changed Stance Regarding Overtime Eligibility

The DOL had issued interpretive opinions in 1999 and 2001 explaining that mortgage loan officers did not fall under an exemption to the FLSA’s overtime pay requirement. But in 2006, a new interpretive rule said those officers were exempt and employers did not have to pay them for overtime.

The department's interpretation changed again in 2010. It issued an interpretive rule saying that the 2006 rule adopted an incorrect interpretation of a 2004 regulation defining who qualified for exemption from the overtime pay requirement. Mortgage loan officers once again qualified for overtime pay.

The Mortgage Bankers Association sued, arguing that the department violated the APA by failing to provide public notice and an opportunity to comment on the 2010 interpretive rule before issuing it. The district court agreed with the government's argument that the plain text of the APA exempts agency interpretive rules from notice-and-comment rulemaking.

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

The high court agreed June 16, 2014 to hear the case, and oral arguments were held on Dec. 1.

Concurring Opinions ‘Most Interesting Part’

The” most interesting part” of the decision is the concurrences by Alito, Scalia and Thomas, McCutchen said. They agree that the D.C. Circuit cannot create procedural hurdles to an executive agency changing interpretations of its regulations by requiring notice and comment rulemaking when these requirements do not exist in the APA, she noted.

“However, they also recognize the problem of unchecked executive agencies issuing interpretations of its 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.”

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

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

This is best summed up by the following statement by Justice Scalia, she concluded: “I would therefore restore the balance originally struck by the APA with respect to 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.”

Joanne Deschenaux, J.D., is SHRM’s senior legal editor.


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