Business Groups Urge Supreme Court to Prevent Regulatory Flip-Flopping

Several prominent business groups, including the U.S. Chamber of Commerce and the National Association of Manufacturers, recently filed amicus briefs urging the Supreme Court to require federal agencies to follow the procedures set forth in the Administrative Procedure Act (APA) when altering interpretative guidance. These arguments are grounded in the requirements of the Fifth and Fourteenth Amendments to the Constitution which prevent both the federal and state governments from depriving any person of “life, liberty, or property without due process of law,” thus guaranteeing that government may not act unfairly or arbitrarily.

The APA is the federal law that governs the way in which administrative agencies of the Executive Branch may propose and establish regulations. The law also establishes the judicial procedure for the federal courts to directly review such agency decisions.

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 alleges 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 its reading of the regulation in an interpretive rule.

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” or merely providing a new interpretation?

The Issues Before the Court

The Court of Appeals for the District of Columbia sided with the position of the Mortgage Bankers Association. Based on existing precedent, 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 requirement of] notice and comment.” As other Courts of Appeal have reached the opposite conclusion, the resulting split led to the Supreme Court to take up this important constitutional question.

In its amicus briefs, the business groups urged the Supreme Court justices to prevent the DOL from reversing its interpretations without notice and comment, arguing that condoning the practice would allow federal agencies to arbitrarily make legislative policy under the guise of interpretive rules:

“[A]n agency could promulgate an ambiguous regulation in the first place and then, without having to respond to the concerns of the regulated community, merely interpret that rule to reach any of the results it desires,” the brief states. “But even then, no matter how much anyone had relied on the agency’s definitive interpretation, it could later change its mind, again without any feedback from the public.”

Given the issues at stake and the potential implications on the business community, we will be closely tracking the status of the case. We encourage you to check back for updates.

If you have questions about the Supreme Court case or would like to discuss how the decision may impact your company, please contact me or the Scarinci Hollenbeck Labor and Employment attorney with whom you work.