SCOTUS on DOL Interpretations

Yesterday, the Supreme Court issued its opinion in Perez v. Mortgage Bankers Ass'n. (opinion here). The Court held that executive branch agencies (in this case, the Department of Labor) may revise their interpretations of rules without abiding by the Administrative Procedure Act's (APA's) notice-and-comment rule-making process.

Although the ruling will affect administrative interpretation generally, this case arose from DOL's Wage and Hour Division's interpretation of the "administrative exemption" under the FLSA. through a series of opinion letters, and most recently an Administrator's Interpretation, the WHD has gone back and forth regarding whether mortgage-loan officers fall under the administrative exemption (as of the 2010 interpretation, they do not).

Yesterday's SCOTUS decision overrules the D.C. Circuit's Paralyzed Veterans doctrine, which required agencies to provide notice and an opportunity to comment prior to changing their interpretations after the initial interpretation.

So, are employers who relied on the old advice just screwed when the agency changes its mind? Nah. As Justice Sotomayor noted in the majority opinion, agencies must have "substantial justification" when "its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account." The changes must not be "arbitrary and capricious."

Also, many statutes have safe-harbor provisions that provide cover to employers who relied on the prior interpretation. For example, here, the FLSA provides that:

“[N]o employer shall be subject to any liability” for failing “to pay minimum wages or overtime compensation” if it demonstrates that the “act or omission complained of was in good faith in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation” of the Administrator of the Department’s Wage and Hour Division, even when the guidance is later “modified or rescinded.”

So, employers have some protection here.

In separate concurring opinions, Justices Scalia and Thomas pulled no punches in condemning the Supreme Court's previous rulings regarding deference - the idea that courts should defer to agency interpretations of statutes and regulations. Many people have concerns that executive branch agencies have grown into some extra-constitutional fourth branch of government that effectively creates laws. At least two Justices appear ready to reign it in by declining to afford agency interpretations (in their view) undue deference.