Co-authored by Barry Miller and Taron Murakami

On Monday, the Supreme Court heard arguments in a pair of cases addressing the Department of Labor’s reversal in its position regarding the exempt status of mortgage loan officers.  The Justices’ questions reflected concern about the DOL flip-flopping on this issue, but they also expressed a reticence to issue a broad ruling that would hamper agencies’ ability to render informal interpretations that have sudden and significant impacts on employers and other regulated entities.  A transcript of the argument is available here.

The consolidated case addresses the validity of the DOL’s 2010 Administrator’s Interpretation, in which the agency offered its sweeping conclusion that mortgage loan officers generally do not meet the FLSA’s administrative exemption, and in the process withdrew a 2006 Opinion Letter in which the DOL had reached the opposite conclusion.  Additional background is in our previous posts on the D.C. Circuit’s ruling that threw out the Administrator’s Interpretation as a capricious reversal that would require notice and comment rule making; on the D.C. Circuit’s refusal to reconsider that ruling; and on the Supreme Court’s decision to review the case.

While the government attempted to defend the DOL’s 2010 reversal as a result of the agency reaching the conclusion “that the 2006 interpretation was simply erroneous,” Justice Roberts noted “a change in the leadership at the agency” between 2006 and 2010, and Justice Scalia commented that the change in the Presidential administrations was “a more likely explanation.”  Their concern was not just that the agency had reversed its position with the political tides, but also that it had done so through informal guidance without formal rulemaking that would have provided employers notice of a potential change and an opportunity to comment.  Justice Kagan recognized that there was “a sense that agencies more and more are using interpretative rules and are using guidance documents to make law and . . . it’s essentially an end run around the notice and comment provisions.”

Several of the Justices also seemed inclined to tackle a more modest question than the one the parties had framed.  Justice Breyer, in particular, noted that the case raises very challenging points of administrative law and agencies’ power to change the law informally.  He later described another way for the Court to view the DOL’s reversal of its position and observed  “we can answer that pretty quickly, I think.”  Justice Breyer suggested that the Court doesn’t need to decide whether the Administrator’s Interpretation is entirely invalid, but can simply direct the lower courts to take the DOL’s reversal in position into consideration in deciding how much deference to extend the agency’s guidance.  Where, as with the exempt status of mortgage loan officers, the DOL’s position has flip-flopped, a court might ignore the agency’s views and decide the question based on case law and other devices used to interpret ambiguous statutes.

Questions asked at oral arguments are always in the nature of tea leaves, and it remains to be seen how the Supreme Court will resolve its apparent concerns about the inconsistency of the DOL’s position with its hesitance to wade into deeper questions of administrative law.  If the Court holds that the Administrator’s Interpretation is not entirely invalid but also may be worthy of little or no deference from the courts, employers could be thrown further into limbo regarding the exempt status of mortgage loan officers and other employees who may be subject to inconsistent guidance from the DOL.

It should also be noted that, regardless of the fate of the Administrator’s Interpretation and the DOL’s position on the application of the FLSA’s administrative interpretation to mortgage loan officers, employers have availed themselves of other defenses to the onslaught of overtime litigation in the mortgage industry.  We blogged on a successful alternative defense of the exempt status of loan officers as outside sales employees here.