Supreme Court Upholds Department of Labor’s Authority to Issue Interpretive Rules Without Public Notice or Comment

Rules promulgated by agencies of the federal government can be divided into those which have the force and effect of law and those which are merely “interpretative” or provide general statements of policy concerning the agency’s view of the law. When an agency wishes to promulgate rules having the force and effect of law it must comply with the requirements of the Administrative Procedures Act (APA) by, among other things, publishing the proposed rules in advance, allowing sufficient time for public comment and responding to significant comments received. In Perez v. Mortgage Bankers Association, the United States Supreme Court addressed the issue of whether the Department of Labor (the “DOL”) was free to reverse itself about the proper interpretation of the laws over which it has enforcement responsibility without giving notice or allowing public comment of the proposed change. The Court unanimously held that the DOL was free to do so.

At issue in Perez was the proper interpretation of the “administrative exemption” of the Fair Labor Standards Act (“FLSA”), which exempts employers from the overtime provisions of that statute for those employees meeting the definition of “administrative employee.” In 2006, the DOL issued an opinion letter finding that mortgage loan officers fell within the administrative exemption. Four years later, however, the DOL reversed course and issued an Administrator’s Interpretation, which, in relevant part, concluded that mortgage loan officers were primarily salespersons who did not qualify for the exemption. It made this change without public notice and without allowing for public comment.

The Mortgage Bankers Association challenged the revised interpretation in federal court, arguing that once an agency gives a definitive interpretation and subsequently significantly revises that interpretation, the agency has – in effect – amended its rule and cannot do so without complying with the APA’s public notice and public comment requirements. The Supreme Court, however, rejected this position. Writing for the Court, Justice Sotomayor emphasized that the Association was asking the Court to ignore the provisions of the APA that specifically authorize federal agencies to issue interpretative rules without public notice and comment and that Congress had granted the courts only limited oversight over agency rulemaking. Justice Sotomayor reasoned that the danger of an agency attempting to use interpretative rules to “skirt” the APA’s notice and comment provisions was mitigated by the authority of the judiciary to determine in a given case that an agency’s interpretation was arbitrary and capricious. Moreover, Congress, by incorporating “safe harbor” provisions in its statutes, is able to afford protection to parties potentially affected by a change in agency interpretation. The Court noted that the statue at issue in Perez, the FLSA, contains such a “safe harbor” provision.

Employers must keep in mind that although “interpretive” rules may not have the force and effect of law, it is a common practice of courts to give “deference” to an agency interpretation of a law or of a regulation that does have the force and effect of law. Accordingly, it is critically important for employers to keep up to date on interpretative rules and guidances issued by the DOL, the EEOC, OSHA, and other agencies when making employment-related decisions and setting workforce policies.

Although three of the Justices (Alito, Scalia, and Thomas) in Perez issued concurring opinions to express their dissatisfaction with the concept of giving deference to agency interpretations, the majority opinion did not address that issue, which is for another day.

For answers to any questions regarding this blog or with regard to agency rules affecting employers generally, please feel free to contact an attorney in the Gibbons Employment & Labor Law Department.