In Perez v. Mortgage Bankers Ass’n, 575 U.S. 92, 135 S. Ct. 1199 (2015), the Supreme Court held that an agency, like the Department of Labor, is not required to use notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from one the agency has previously adopted. The practical effect of this ruling was that the DOL’s 2010 interpretation of FLSA regulations concluding that mortgage-loan officers do not qualify for the FLSA’s administrative exemption — which the DOL issued without notice-and-comment procedures — was allowed to stand. Consequently, mortgage loan officers were deemed by DOL to be generally entitled to overtime pay.
As the Perez Court explained, the Administrative Procedure Act (APA) establishes the procedures federal administrative agencies use for “rule making.” Rule-making is the process of “formulating, amending, or repealing a rule.” 5 U.S.C. § 551(5). The APA distinguishes between two types of rules:
- “Legislative rules” are issued through notice-and-comment rulemaking, see §§ 553(b), (c), and have the “force and effect of law,” Chrysler Corp. v. Brown, 441 U.S. 281, 302–303 (1979).
- “Interpretive rules,” by contrast, are “issued … to advise the public of the agency’s construction of the statutes and rules which it administers,” Shalala v. Guernsey Memorial Hospital, 514 U.S. 87, 99 (1995), do not require notice-and-comment rulemaking, and “do not have the force and effect of law,” ibid.
The DOL’s Wage and Hour Division is charged with administering the Fair Labor Standards Act, the federal law governing overtime pay. The FLSA has numerous vaguely-defined exemptions, including the administrative exemption. Employees whose job duties and pay satisfy the criteria for an exemption are not entitled to overtime pay under the FLSA. For this reason, many FLSA cases focus on whether or not a certain job or category of employees meets the criteria for an exemption.
Perez resolved an (at the time) ongoing dispute over whether mortgage-loan officers qualify for the administrative exemption to overtime pay requirements. The practical effect of the decision has been that mortgage-loan officers are generally deemed not qualified for the administrative exemption, and therefore entitled to overtime pay.
In 1999 and 2001, DOL issued letters in which the agency opined that mortgage-loan officers do not qualify for the administrative exemption. In 2004, the DOL issued new regulations regarding the exemption.
In response to the new regulations, Mortgage Bankers Association (MBA) requested the DOL provide a new interpretation of the revised regulations as they applied to mortgage-loan officers. In 2006, the DOL’s Wage and Hour Division issued an opinion letter finding that mortgage-loan officers fell within the administrative exemption under the 2004 regulations. Then, in 2010, the DOL again altered its interpretation of the administrative exemption. Without notice or an opportunity for comment, the Department withdrew the 2006 opinion letter and issued an Administrator’s Interpretation concluding that mortgage-loan officers do not qualify for the administrative exemption. 135 S. Ct. at 1200-01.
MBA filed suit. It contended that the Administrator’s Interpretation was procedurally invalid under the D.C. Circuit’s decision in Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579 (1997). Paralyzed Veterans held that an agency must use the APA’s notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from a previously adopted interpretation. 135 S. Ct. at 1200-01.
The Court’s Decision
The Court held that the Paralyzed Veterans doctrine was contrary to the text of the APA’s rulemaking provisions and improperly imposed on agencies an obligation beyond the APA’s “maximum procedural requirements.” Accordingly, the DOL’s interpretation that mortgage-loan officers were entitled to overtime pay was allowed to stand. 135 S. Ct. at 1201, 1205-10.
First, the Court observed that the APA’s “categorical exemption of interpretive rules from the notice-and-comment process” was fatal to the Paralyzed Veterans doctrine. The Court criticized the D.C. Circuit’s reading of the APA as conflating the differing purposes of §§ 2 and 4 of the APA. Specifically, Section 2 requires agencies to use the same procedures when they amend or repeal a rule as they used to issue the rule, but it does not say what procedures an agency must use when it engages in rulemaking. 5 U.S.C. § 551(5); 135 S. Ct. at 1201, 1206-07.
The Court observed that stating the procedures an agency must use in rule-making is the purpose of Section 4 of the APA. Section 4 of the APA specifically exempts interpretive rules from notice-and-comment requirements. See 5 U.S.C. § 553(b)(A). The Court therefore concluded that because an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures to amend or repeal that rule. 135 S. Ct. at 1206-07.
Second, the Court explained that this “straightforward reading” of the APA harmonizes with longstanding principles of this Court’s administrative law jurisprudence. The Court pointed out that it had consistently held that the APA “sets forth the full extent of judicial authority to review executive agency action for procedural correctness[.]” 135 S. Ct. at 1207 (quoting F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 513 (2009)). The Court emphasized that the APA’s rulemaking provisions are no exception to that basic principle, as Section 4 establishes “the maximum procedural requirements” that courts may impose upon agencies engaged in rulemaking. Id. (quoting Vermont Yankee Nuclear Power Corp. v. Natural Resources Defense Council, Inc., 435 U.S. 519, 524 (1978)). The Court concluded that by mandating notice-and-comment procedures when an agency changes its interpretation of one of the regulations it enforces, Paralyzed Veterans created a “judge-made procedural right” that was inconsistent with Congress’ standards. 135 S. Ct. at 1206-07.
Thus, the DOL’s amended interpretation of the FLSA’s administrative exemption — that mortgage loan-officers do not qualify for the exemption and therefore are generally entitled to overtime pay — was allowed to stand.
In sum, Perez held that the DOL is not required to use notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from one the agency has previously adopted. The practical effect of this ruling was that the DOL’s 2010 interpretation of FLSA regs concluding that mortgage-loan officers do not qualify for the FLSA’s administrative exemption — which the DOL issued without notice-and-comment procedures — was allowed to stand. Consequently, mortgage loan officers were deemed by DOL to be generally entitled to overtime pay.
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