• Supreme Court Holds Agency Interpretations Are Not Subject to Formal Rulemaking
  • May 13, 2015
  • Law Firm: Shawe Rosenthal LLP - Baltimore Office
  • In Perez v. Mortgage Bankers Ass’n, a unanimous Supreme Court upheld a government agency’s authority to issue “interpretive rules” without going through the formal rulemaking process.

    Facts of the Case: The Department of Labor’s (DOL) Wage and Hour Division (WHD) had issued opinion letters in 1999 and 2001 stating that mortgage loan officers were not exempt from the overtime requirements of the Fair Labor Standards Act. In 2006, following the 2004 revision of the overtime regulations, the DOL issued another letter opining that the loan officers were exempt. In 2010, however, the DOL issued an “Administrator Interpretation” (a broader form of guidance replacing the DOL’s situation-specific opinion letters) in which it once again reversed course and found loan officers to be non-exempt under the 2004 regulations.

    The Mortgage Bankers of America (MBA) filed suit, arguing that the DOL’s substantive change in its interpretation of the 2004 regulations required the agency to follow the formal notice-and-comment procedures established for agency rulemaking. The district court found for the DOL. On appeal, however, the U.S. Court of Appeals for the D.C. Circuit held that the DOL’s Administrator Interpretation was procedurally invalid. The D.C. Circuit relied on its prior decision in Paralyzed Veterans of Am. v. D.C. Arena L.P., in which it stated that a substantial change in an agency’s interpretation of its own regulations must be subject to the notice-and-comment process, in order to allow stakeholders and other interested parties to submit comments on the proposed change for the agency’s consideration before issuing a final interpretation.

    The Court’s Ruling: The Supreme Court reversed the D.C. Circuit’s decision, finding that Paralyzed Veterans imposed improper procedural rulemaking requirements on agencies. The Court found that notice-and-comment rulemaking only applies to legislative rules (those rules that implement statutes) and not to interpretive rules (by which agencies advise the public of their construction of the statute). The Supreme Court went on to observe, however, that interpretive rules “do not have the force and effect of law.” Thus, courts may grant a lower level of deference to an agency interpretive rule than a legislative rule.

    Lessons Learned: This ruling grants agencies great leeway in the ability to significantly change its interpretation of its rules - which will undoubtedly have a negative effect on employers who seek to rely on agency interpretations. Employers may not be able to categorically rely on agency interpretations, and must be vigilant about keeping on top of any changes in such interpretations.