Supreme Court Rules That Agency Interpretive Rules Are Not Subject To Notice-And-Comment Rulemaking

Recently, the Supreme Court issued a unanimous judgment that government agency "interpretive rules" are not subject to notice-and-comment rulemaking, but cautioned that those same rules do not carry the "force and effect of law." Perez v. Mortgage Bankers Assoc., Case No. 13-041 (Mar. 9, 2015). In Perez, the Supreme Court addressed whether an Administrator's Interpretation by the U.S. Department of Labor (DOL), which reversed the agency's prior position that mortgage loan officers were administratively exempt under the Fair Labor Standards Act (FLSA), was procedurally valid because it was issued without using the notice-and-comment process set forth in the Administrative Procedure Act (APA).

In March 2010, the DOL issued Administrator's Interpretation No. 2010-1 (the "Interpretation"), which concluded that employees who perform the "typical" duties of a mortgage loan officer employee do not satisfy the duties requirements of the FLSA's administrative exemption. The Interpretation was significant not only because it withdrew a 2006 opinion letter that reached the opposite conclusion—that certain mortgage loan officer employees qualified for the administrative exemption—but also because it established a new procedure for the DOL to provide broad interpretive guidance. The DOL's new procedure is a significant departure from its practice prior to 2010, under which it issued guidance in the form of rules and opinion letters limited to the specific facts presented to it in each request.

The Interpretation was a significant departure from this prior practice. Rather than respond to a specific set of facts presented by an employer, the Interpretation was based on the DOL's general understanding of the "typical" duties performed by employees in a certain role. By doing so, the DOL does not take into account any variations in duties that might exist among employees in the same position or with the same job title, across the industry or even at the same employer. Because the issue of exempt status is a question of fact, variations can affect significantly the question of qualifying for exempt status, thereby making categorical guidance less helpful.

The Mortgage Bankers Association (MBA) filed suit in U.S. District Court, District of Columbia, challenging the procedural validity of the Interpretation. The MBA's suit argued that the DOL's substantive change in its interpretation of the 2004 FLSA regulations required a notice-and-comment process under...