Authored by Barry J. Miller

On Monday, the Supreme Court accepted a petition for review two cases that may restrain administrative agencies, most notably the Department of Labor, in flip-flopping their interpretations of the law as control of those agencies passes between political parties.  The outcome of the case could hand employers a measure of certainty and stability as they try to interpret increasingly complex wage laws, or it could leave companies at the mercy of shifting political sands in designing policies and practices intended to last longer than one presidential administration.

The two cases stem from a lawsuit that the Mortgage Bankers Association filed to challenge the DOL’s reversal of its position on the overtime exempt status of mortgage loan officers.  In a 2006 opinion letter, the DOL opined that salaried mortgage loan officers met the FLSA’s administrative exemption because their primary duty was the administration of their employer’s financial services business (and not a form of sales), which included financial analysis that required the exercise of discretion and independent judgment regarding significant matters.  In April 2010, the DOL issued Administrator’s Interpretation 2010-1, which reversed the agency’s position, withdrew the 2006 opinion letter, and opined that mortgage loan officers generally were not subject to the administrative exemption because their primary duty was the sale of financial products.  The DOL’s 180-degree reversal on this issue was not based on any new law passed by Congress, any change in the governing FLSA regulations, or any apparent change in the duties of mortgage loan officers.  The Obama Administration simply preferred a more restrictive view on this issue than the Bush Administration had taken.  In the balance was the overtime eligibility of tens of thousands of workers and many millions of dollars in pending and threatened litigation.

The Mortgage Bankers Association sued the DOL, arguing that the Administrator’s Interpretation was invalid because the abrupt reversal in the DOL’s interpretation of the law created an unfair surprise for employers that had relied on the agency’s prior views (which were consistent with longstanding industry practice) in classifying their loan officers as exempt.  The trial court rejected this argument, but as we reported here, the U.S. Circuit Court of Appeals of for the D.C. Circuit overruled the trial court and held that the DOL’s conduct was contrary to doctrine that required the agency to solicit public comment and engage in formal rulemaking before such a reversal in its stated view of the law.

The DOL sought permission to appeal the D.C. Circuit’s ruling to the Supreme Court, as did a separate group of individuals represented by a law firm that has brought a large number of class action lawsuits challenging the exempt status of mortgage loan officers.  In addition, a group of 72 law professors from universities around the country filed their own brief urging the Supreme Court to review the D.C. Circuit’s decision, which they claim creates a schism with several other Circuit Courts of Appeals on an issue that has a fundamental impact on the authority vested in federal agencies.  The professors also argued that the D.C. Circuit’s decision was wrong, noting that agencies are not required to engage in formal rulemaking before announcing an interpretation of the law and therefore should not be required to do so before changing their stated views.

While it may seem abstract and technical, this issue has a concrete practical effect and is much broader than the exempt status of mortgage loan officers.  Rulemaking through the notice and comment process involves a significant investment of an agency’s time and other resources, particularly in comparison to informal statements of opinion like those found in opinion letters or the DOL’s Administrator’s Interpretations.  If the Supreme Court adopts the view of the Mortgage Bankers Association and the D.C. Circuit, federal agencies will be much less able to flip-flop their views of the law with successive election cycles.  If the Supreme Court rejects that view, it could embolden incoming presidential administrations to cast aside their predecessors’ interpretations of the law.  For employers undertaking to design long term compliance strategies in a polarized political environment, either result could resonate for years to come.