United States: U.S. Supreme Court Holds Agency Interpretations Are Not Subject To Notice-and-Comment Rulemaking Requirement

In 2004, the DOL revamped its regulations regarding the Fair Labor Standards Act (FLSA) administrative exemption.  In 2006, the Bush DOL issued an opinion letter finding that mortgage loan officers qualified for the administrative exemption.  In 2010, the Obama DOL withdrew the 2006 opinion letter and issued an Administrator’s Interpretation finding that mortgage loan officers did not qualify for the administration exemption.  The Mortgage Bankers Association’s (MBA) challenged the 2010 interpretation arguing that it was invalid under Paralyzed Veterans of America v. D.C. Arena L.P., 117 F.3d 579 (1997) because it significantly altered the DOL’s 2006 opinion letter and it was issued without employing the notice-and-comment procedures required by the Administrative Procedures Act (APA).  The district court rejected the argument, finding that the MBA had not demonstrated substantial and justifiable reliance on a well-established agency interpretation. The D.C. Circuit reversed, finding that reliance is but one factor courts must consider in assessing whether an agency interpretation qualifies as definitive. 

On March 9, 2015, the United States Supreme Court issued a unanimous decision in Perez v. Mortgage Bankers Association, 575 U.S. _____ (2015), rejecting the MBA’s contentions holding:  “The Paralyzed Veterans doctrine is contrary to the clear text of the APA’s rulemaking provisions and improperly imposes on agencies an obligation beyond the APA’s maximum procedural requirements.”  The Court further stated:  “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 when it amends or repeals that interpretive rule.”

While the decision grants agencies and future administrations more flexibility to fix or undo the work of their predecessors, the opinion does not stand for the proposition that agencies can reverse prior interpretations and enjoy substantial deference.  Significantly, in addressing the MBA’s concern that an agency’s interpretation of its own regulations have the same force as law because they may be entitled to deference under Auer v. Robbins, 519 U. S. 452 (1997) and Bowles v. Seminole Rock & Sand Co., 325 U. S. 410 (1945) the Court made clear that a revised interpretation is entitled to no deference if it appears to be the result of a simple shift of the political winds, stating:

Even in cases where an agency’s interpretation receives Auer deference, however, it is the court that ultimately decides whether a given regulation means what the agency says.  Moreover, Auer deference is not an inexorable command in all cases.  See Christopher v. SmithKline Beecham Corp., 567 U. S. ___, ___ (2012) (slip op., at 10) (Auer deference is inappropriate “when the agency’s interpretation is plainly erroneous or inconsistent with the regulation” or “when there is reason to suspect that the agency’s interpretation does not reflect the agency’s fair and considered judgment” (internal quotation marks omitted)); Thomas Jefferson Univ. v. Shalala, 512 U. S. 504, 515 (1994) (“[A]n agency’s interpretation of a . . . regulation that conflicts with a prior interpretation is entitled to considerably less deference than a consistently held agency view” (internal quotation marks omitted)).

That said, the majority did not address whether the particular regulation governing mortgage loan officers “reflect[s] the agency’s fair and considered judgment.”  As such, it remains unclear when and to what extent should courts give deference to an agency’s interpretive rules.

Picking up where the majority left off, Justices Thomas and Scalia discussed the precarious trend of judicial deference to agencies’ interpretation of their own rules and the weaknesses in the precedent on which Auer deference rests.  Indeed, Justice Scalia stated that, given the right case, he would abandon Auer deference all together to remove what he views as giving agencies more power to promulgate and interpret their own regulations than intended by the APA.

Accordingly, we can expect continued litigation regarding the ongoing viability of judicial discretion for certain agency actions.  More importantly, employers relying on rule interpretations issued by the DOL, EEOC, and the National Labor Relations Board, must be diligent in ensuring that they are not relying on interpretations that do not reflect the agency’s current position.

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