Federal Courts Deal a Blow to DOL Regulatory Efforts

Executive Summary: Recently, two different federal courts have invalidated statutory interpretations by the Department of Labor's Wage and Hour Division (WHD). Generally, WHD may create regulations on its own to assist in clarifying ambiguities and to fill statutory gaps within the Fair Labor Standards Act (FLSA). The current administration has used this administrative process to modify the law in ways that advance its agenda, often without much, if any, input from employers. The federal court decisions striking down the DOL's aggressive campaign to modify wage-and-hour law through the regulatory process will hopefully send a message that the DOL must stay within the powers delegated to it by Congress, including obtaining employer perspectives when necessary.

In the first decision, an Oregon federal district court invalidated regulations issued by WHD prohibiting agreements between employers and their employees allowing employers to retain employee tips and prohibiting tip pools from including non-tipped employees - even if the employer does not take a tip credit. In the second decision, the D.C. Circuit Court of Appeals invalidated WHD's 2010 Administrator's Interpretation, which opined that individuals employed as mortgage bankers were not exempt from the FLSA's overtime and minimum-wage requirement under 29 U.S.C. 213(a)(1). These decisions are a good sign that the DOL's aggressive regulatory efforts will not go unchecked by the courts.

Mortgage Bankers Association v. Harris

In Mortgage Bankers Assoc. v. Harris, No. 12-5246 (D.C. Cir. July 2, 2013), the United States Court of Appeals for the D.C. Circuit vacated WHD's Administrator's Interpretation FLSA 2010-1, because the DOL reversed its position on the exempt status of mortgage loan officers without adhering to public notice and comment rulemaking requirements.

In 2006, the DOL opined that typical mortgage loan officers were exempt administrative employees. In 2010, the DOL reversed course and found that the administrative exemption did not apply to such employees. The Mortgage Bankers Association (MBA) challenged the 2010 interpretation, arguing that the DOL was not permitted to change its "definitive interpretation" of the FLSA without first undergoing notice and comment rulemaking pursuant to the Administrative Procedure Act. The District Court denied the MBA's motion for summary judgment, finding that notice and comment was not required because MBA had not established...