Federal agencies need not go through the formal and drawn-out “notice-and-comment” process when altering an interpretation of a regulation. In a unanimous decision, the Supreme Court in Perez v. Mortgage Bankers Association stated that the Administrative Procedure Act (the “APA”) does not mandate notice-and-comment rulemaking for interpretive rules. In doing so, the Supreme Court overturned the doctrine established by the D.C. Circuit’s 1997 decision, Paralyzed Veterans of America v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997), which had held that an agency must use the APA’s notice-and-comment procedures prior to issuing a new interpretation of a regulation that deviates significantly from a definitive interpretation the agency had previously adopted. In Perez, the Supreme Court addressed the question of whether the Paralyzed Veterans doctrine was consistent with the APA, ultimately finding that it was not.
Perez began as a dispute over whether mortgage loan officers were exempt from overtime under the Fair Labor Standards Act (the “FLSA”). At the center of the debate was the Department of Labor’s 2010 Administrative Interpretation that mortgage loan officers were not administratively exempt employees. The 2010 Administrative Interpretation withdrew a 2006 DOL opinion letter stating the opposite – that mortgage loan officers did fall within the FLSA’s administrative exemption. The Mortgage Bankers Association, a national trade association representing real estate finance companies, challenged the 2010 Administrative Interpretation, claiming that it was procedurally invalid under the Paralyzed Veterans doctrine because the 2010 Administrative Interpretation was issued without notice or an opportunity for comment.
The APA governs the procedures most federal administrative agencies use for rulemaking. First, a “general notice of proposed rulemaking” is issued by the agency, and the agency must then give interested persons an opportunity to comment on the proposed rule. The agency must consider the comments it receives during the period of public comment. When the agency sets forth the final rule, it must include a general statement of the rule’s basis and purpose and respond to the most significant comments. However, the notice-and-comment period does not apply to “interpretative rules” – a term that the APA does not define. In its March 9, 2015 decision, the Supreme Court held that the 2010 Administrative Interpretation, being an interpretative rule, was not subject to the notice-and-comment requirements of the APA.
As some federal judicial circuits had previously declined to follow the D.C. Circuit’s Paralyzed Veterans doctrine, the Supreme Court’s holding may ultimately prove to have limited consequences. Agencies are likely to continue to seek to avoid the APA’s notice-and-comment requirements by claiming that any changes they may make to how they read and apply their own regulations are only “interpretive” in nature. While Perez might embolden agencies in this regard, the Supreme Court did take care to note that other “constraints” on agency decision making do still exist if an agency tries to issue an interpretative rule so as to skirt notice-and-comment requirements. Among these, parties can still file suit, challenging the new interpretation as being arbitrary and capricious. Further, an agency’s ability to pursue enforcement actions against regulated entities for conduct in conformance with prior agency interpretations may be limited by principles of retroactivity. How Perez may affect the practices of various federal agencies, such as the DOL, the EEOC, and the NLRB, only time will tell.