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High Court Sides with DOL, Holding that Agencies May Flip-Flop on Regulatory Interpretations Without Engaging in Notice-and-Comment Rulemaking; But Questions Remain Over Judicial Deference to Those Interpretations

In June, we wrote that the U.S. Supreme Court agreed to address whether a federal agency (in this case, the Department of Labor) must engage in formal notice-and-comment rulemaking in order to significantly alter its interpretation of the agency’s regulations (in this case, a rule interpreting a particular FLSA overtime exemption).  Yesterday, in a unanimous decision authored by Justice Sonia Sotomayor (with three separate opinions concurring in the judgment), the high court in Perez v. Mortgage Bankers Association sided with the DOL and held that the Administrative Procedure Act (APA) does not require agencies to engage in notice-and-comment procedures when flip-flopping on a previously adopted interpretation unless required by the statute being interpreted.  However, several concurring opinions demonstrated that the justices remain split over the level of deference courts must provide to agency interpretations, a much larger issue that may soon come to the forefront.

The Supreme Court concluded that the plain text of the APA does not require federal agencies to undertake notice-and-comment rulemaking when promulgating “interpretive rules” such as the 2010 Obama administration DOL Wage and Hour Division Administrative Interpretation concluding that mortgage loan officers are overtime-eligible—an interpretation reversing a 2006 Bush administration DOL Opinion Letter concluding that mortgage loan officers were overtime-exempt.  The Court held that the circuit court opinion (and the line of cases it follows) is “contrary to the clear text of the APA’s rulemaking provisions, and it improperly imposes on agencies an obligation beyond the ‘maximum procedural requirements’ specified in the APA.”  The Court further concluded: “The text of the APA answers the question presented.… [U]nless ‘notice or hearing is required by statute,’ the Act’s notice-and-comment requirement ‘does not apply ... to interpretative rules.’  This exemption of interpretive rules from the notice-and-comment process is categorical, and it is fatal to the rule announced” by the D.C. Circuit.

As we noted in our previous post, the Supreme Court’s decision is significant because of its wide-ranging impact.  Indeed, the decision will affect the manner in which all federal administrative agencies go about revising existing interpretive rules.  Now, since notice-and-comment rulemaking is unnecessary in issuing, amending or rescinding interpretive rules, it is considerably easier for the DOL (and other agencies) to change course—and do so abruptly—on regulatory interpretations.  This may not be welcome news for businesses relying on consistency in agency regulatory interpretations.  Such interpretive guidance, which as it stood was already subject to the seemingly ever-changing political whims of federal agencies, is likely more susceptible than ever to flip-flopping.

While we now know that agencies can change course, the decision may have brought a larger controversial issue to the forefront: the level of deference that courts have to provide those agency interpretations.  At least three justices in concurring opinions signaled that they may be open to revisiting the Supreme Court doctrine that says courts should defer heavily to those interpretations.  While a fourth justice expressed a similar desire in a separate case, it is unclear whether a five-justice majority exists to overturn that precedent, which would amount to a major change in the law.

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David Katz