Ruling gives nod to Labor Dept’s about-face on eligibility of mortgage loan officers for overtime without need for notice and comments
With a unanimous decision on March 9, the US Supreme Court freed federal agencies to revise their interpretive rules without needing to engage in a formal rulemaking process, a decision administrative law expert Kevin Stack, a law professor at Vanderbilt University, describes as ‘in the aggregate, a good case from the compliance perspective.’
The decision in Perez v. The Mortgage Bankers Association ended the doctrine known as the Paralyzed Veterans rule, after the 1997 DC Circuit case in which the doctrine was announced. Thatrule prohibited agencies from amending ‘interpretive rules’ without engaging in a formal notice and comment process, even though such a process isn’t required for interpretive rules by the Administrative Procedures Act (APA).
The rule at stake in Perez was the Department of Labor’s interpretation of a Fair Labor Standards Act rule regarding exemptions from overtime pay. In 2004, the DOL initiated a formal, notice-and-comment process to issue an interpretive rule that said that people who primarily sell financial products are entitled to overtime. In 2006, the DOL issued guidance about that rule, stating that because mortgage loan officers’ primary duty did not include selling financial products, they were exempt from overtime. In 2010, DOL reversed the loan officer ‘interpretive rule’, deciding that mortgage loan officers were entitled to overtime. The Mortgage Bankers Association sued, stating the change was improper under Paralyzed Veterans because the DOL had not engaged in notice and comment before making the change.
‘The Paralyzed Veterans rule gave agencies a disincentive to update their guidance, because changes could trigger notice and comment and there would be uncertainty as to whether the agency would be sued if it did not [provide for] notice and comment,’ Stack explains.
That disincentive was a problem, Stack says, because it ‘created a situation in which published guidance might not be the clearest statement of an agency's current position.’ Now that the Paralyzed Veterans rule is gone, agencies should systematically review their prior guidance and retain on their books only that which reflects a clear statement of their current views, says Stack. ‘That process should improve the accessibility and coherence of the agency’s policies. So the decision could be helpful for regulated parties.’
The Supreme Court’s unanimous rejection of the Paralyzed Veterans doctrine—ending mortgage loan officers’ exemption from overtime—doesn’t surprise Stack, who says the ruling is ‘a straightforward interpretation of the text of the APA. On procedural matters like this one the Court has adopted a pretty constrained reading of the text.’
Even though the Court was unanimous in rejecting the doctrine, the nine justices produced four opinions. The fracturing was much less extreme than the number of opinions suggests; essentially, the three concurrences—by Justices Alito, Scalia and Thomas--called for reconsidering or even reversing another doctrine relating to agencies’ interpretive rules.
’A pending question in the wake of this case, one that several members of the Court are promoting, is whether to revisit the longstanding rule that courts should defer to agencies on their interpretations of their own rules, known as Auer, or Seminole Rock, deference,’ says Stack If the Court rejects the Auer deference, it will free courts to strike down interpretive rules more easily, and might even encourage litigation over such rules.
Stack notes that ‘Auer has been trimmed already.’ However, given that ‘four justices appear ready to overrule it in a proper case’—Chief Justice Roberts has previously indicated his willingness to do so—it is very likely that a case raising that issue squarely will reach the Court soon, he adds.
