Federal Agencies Can Reverse Rule Interpretations Without Notice and Comment

Current political events increasingly pit the powers of the Executive Branch against the powers of its co-equal branch of government – the Congress. In a 9-0 decision, the U.S. Supreme Court strengthened the Executive Branch’s authority when it held that federal agencies need not follow the “notice-and-comment” procedures of the Administrative Procedures Act (APA) when significantly altering interpretations of their own regulations.

In so ruling, the Court rejected arguments from business groups that condoning this practice would allow federal agencies to arbitrarily legislate under the guise of interpreting rules.

The Facts of the Case

The case, Perez v. Mortgage Bankers Association, involves the U.S. Department of Labor’s (DOL) determination that mortgage loan officers are not exempt from the overtime provisions of the Fair Labor Standards Act (FLSA). The suit argued that the new interpretation, which reversed the DOL’s previous, long-standing view, was procedurally invalid and violative of procedural due process because, under the APA, notice-and-comment rulemaking was legally required for the Agency to revise the interpretation of its regulation.

The Legal Background

The APA generally provides that “notice of proposed rulemaking shall be published in the Federal Register,” and, if such notice is required, the rulemaking agency must give interested persons an opportunity to submit written comments. Section 4, however, provides that this notice-and-comment requirement “does not apply” to “interpretative rules, general statements of policy, or rules of agency organization, procedure, or practice.” So was the DOL “rulemaking” when it provided a diametrically opposed, new interpretation?

The Court of Appeals for the District of Columbia thought so when it sided with the position of the Mortgage Bankers Association. Based on existing Circuit precedent set forth in Paralyzed Veterans of America v. D.C. Arena, it held that “[w]hen 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 APA] without [the due process requirements of] notice and comment.”

The Supreme Court’s Decision

The U.S. Supreme Court disagreed when it unanimously ruled against this prior precedent. It held that the D.C. Circuit’s Paralyzed Veterans doctrine, which held that agencies must allow for “notice and comment” when they substantially alter their regulatory interpretations, is contrary to the clear text of the APA’s rulemaking requirements. Moreover, it opined that such interpretation improperly imposes on agencies obligations that stray well beyond the APA’s maximum due process requirements.

As further explained by Justice Sonia Sotomayor, “Because an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures to amend or repeal that rule.”

While the outcome of this case is clearly not what business groups had hoped, this may not be the end of the story. In a separate concurring opinion, Justices Antonin Scalia, Clarence Thomas and Samuel Alito Jr. acknowledged that the D.C. Circuit’s decision was likely motivated by an “understandable concern about the aggrandizement of the power of administrative agencies.” They also raised concerns about the impact of their decision in conjunction with the Court’s prior ruling in Bowles v. Seminole Rock & Sand Co., under which courts must defer to an agency’s interpretation of its own ambiguous regulations.

“Agencies may now use these rules not just to advise the public, but also to bind them,” Scalia wrote. “Interpretive rules that command deference do have the force of law.” Accordingly, the justices welcomed the opportunity to reconsider Seminole Rock.