DC Seal.bmpAuthored by Alex Passantino

Take a step with us into the way-back machine.  In 2006, the Wage & Hour Division issued an opinion letter approving the mortgage industry practice of classifying mortgage loan officers as exempt from the FLSA’s minimum wage and overtime requirements under the administrative exemption.  In 2010, WHD flip-flopped.  It issued the first-ever Administrator Interpretation, reversing its 2006 position, withdrawing the 2006 opinion letter, and finding that mortgage loan officers did not qualify for the administrative exemption.  A short time later, the Mortgage Bankers Association (MBA) sued DOL.

Yesterday, a unanimous panel of the D.C. Circuit vacated (here) DOL’s 2010 Administrator Interpretation.  The court agreed with the MBA that the Administrative Procedure Act (APA) required what the court referred to as DOL’s “significant revision” to a definitive interpretation to go through the full regulatory process:  a proposed regulatory revision, a public comment period, consideration of the received comments, and a final regulation (collectively known as “notice-and-comment” rulemaking).  In doing so, the court rejected DOL’s argument that a third element —  “substantial and justified reliance” on the earlier interpretation — was required prior to triggering the need for the regulatory process.

The D.C. Circuit’s ruling is not the first time that DOL has seen what many view to be its not-so-subtle efforts to circumvent the regulatory process overruled.  Last summer, the Supreme Court struck a blow to DOL’s “regulation by amicus” program in rejecting deference to the Department’s amicus curiae brief filed in Christopher v. SmithKline arguing that pharmaceutical sales representatives did not qualify for the outside sales exemption.  Before that, the Seventh Circuit refused to defer to yet another Administrator Interpretation (related to the compensability of time spent changing clothes).

The APA’s notice-and-comment rulemaking standards require a lengthy process before an interpretive change can be effectuated — developing the proposal, submitting it for review internally at the Department, obtaining clearance from the Office of Management and Budget and other Departments, preparing the proposal for publication in the Federal Register, allowing 30-90 days (or more) for the public to comment, reviewing and analyzing the comments (often numbering in the thousands), developing the final rule, submitting it for review internally at the Department, obtaining clearance from OMB and other agencies, preparing the proposal for publication in the Federal Register, and dealing with the media and Congressional inquiries accompanying virtually every step of the process. 

DOL attempted to avoid this process by setting forth significant policy changes and pronouncements in Administrator Interpretations and amicus curiae briefs.  It now seems clear that DOL (and other cabinet agencies) will be required to take on the heavy lifting if they hope to make the types of interpretive changes they believe to be worth making.