Important APA Issue Awaits Supreme Court’s Review

The U.S. Supreme Court has agreed to review two decisions of the DC Circuit, which held that “when an agency has given its regulation a definitive interpretation, and later significantly revises that interpretation, the agency has, in effect amended its rule, something it may not accomplish [under the Administrative Procedure Act without notice and comment”. The cases to be reviewed are Perez, et al. v. Mortgage Bankers Association, et al., and Nickols, et al. v. Mortgage Bankers Association, and they involve the Department of Labor’s (DOL) application of the Fair Labor Standards Act (FLSA) to mortgage loan officers: Are they exempt from the FLSA’s overtime wage requirements, or are they not?

In the space of just a few years (2006 and 2010), the DOL issued two conflicting interpretations of the FLSA without providing notice and comment to the regulated community, in particular, the Mortgage Bankers Association. While the APA requires federal agencies to provide notice and comment when they engage in rulemaking, the law also provides that the requirement to provide notice and comment does not apply to interpretative rules.

The DC Circuit’s rationale, in ruling in both cases, which has not been followed by all the federal courts of appeal, is that when a definitive interpretation is so closely intertwined with a regulation, a significant change in the interpretation can be regarded as a repeal or amendment of the rule itself, necessitating these APA protections.

The consequences of the Court’s eventual decision could be very significant because most federal agencies utilize interpretative rules as an expedient and useful way to administer and implement the growing number of federal rules and policies, and subjecting this procedure to the APA could make the administrative process more equitable yet somewhat more cumbersome.

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