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Supreme Court Sides with DOL Regarding Agency Rulemaking

In the case Perez v. Mortgage Bankers' Association (2015 U.S. LEXIS 1740), the Supreme Court ruled in favor of the Department of Labor ("DOL") and upheld changes the DOL made to an interpretive rule. In 1999 and 2001, the DOL issued interpretive rulings holding that mortgage-loan officers do not qualify as administrative officers and, hence, are not subject to the Fair Labor Standards Act ("FLSA") overtime exemption. In 2004, the DOL changed its ruling and said that mortgage-loan officers do, in fact, fall into the FLSA's overtime exemption category. Finally, in 2010, the DOL went back on its 2004 decision, and ruled without "notice or comment" that the loan officers do not fall under the exemption. In siding with the DOL, the Supreme Court also overturned the "Paralyzed Veterans Doctrine" laid out by the Second Circuit Court of Appeals in Paralyzed Veterans of America v. D.C. Arena L.P (117 F. 3d 579).1

Executive agencies can issue two types of rules, "legislative" and "interpretive" rules. Legislative rules basically serve as law enacted and can only be issued through notice-and-comment rulemaking. When legislative rules need to be interpreted to fit certain circumstances or require slight changes, executive agencies issue interpretive rules. Agencies can simply issue interpretive rules without notice-and-comment, in part because these rules do not have the force of law.2

The "Paralyzed Veterans Doctrine" held that an executive agency is required to use the Administrative Procedure Act's ("APA") "notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from a previously adopted interpretation."3 The Supreme Court, in its opinion by Justice Sotomayor, overturned the rule established in Paralyzed Veterans of America. The Court held that the "APA's categorical exemption of interpretive rules from the notice-and-comment process is fatal to the Paralyzed Veterans doctrine."4 The Court does not want the APA to be preempted in a way that would give courts the ability to review any executive action for "procedural correctness" to work towards a vague goal of enhancing the well-being of the public.5

The Mortgage Bankers Association argued that the Court's ruling will allow for egregious flip-flopping by executive agencies in interpreting rules.6 The ruling undoubtedly gives executive agencies more power in interpreting rules and clearly allows for interpretations of a rule to be altered over time, as seen with the DOL's handling of mortgage-loan officers' overtime status. But the Court also recognized that the APA "provides recourse to regulated entities from agency decisions that skirt notice-and-comment provisions by placing a variety of constraints on agency decision making, e.g., the arbitrary and capricious standard."7

If you have any questions regarding this subject or this posting, please contact Valerie Chang ([email protected]) or Michael Ols ([email protected]). We can also be reached toll-free at (866) 540-5505.

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