The Supreme Court ruled unanimously in the case of Perez v. Mortgage Bankers Association that federal agencies do not have to engage in notice-and-comment rulemaking when substantially changing an interpretative rule. Writing for the Court, Justice Sotomayor stated that “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 when it amends or repeals that interpretive rule.” IPMA-HR joined with other state and local governments in an amicus curiae brief that agreed with the lower court that that significant changes to an interpretation of an agency’s regulation amounts to effectively changing the regulation, which requires notice-and-comment rulemaking.
In 2006, the Department of Labor (DOL) issued an opinion letter stating that mortgage loan officers who work more than 40 hours a week were exempt from overtime under the Fair Labor Standards Act (FLSA). In 2010, DOL withdrew the opinion letter in an “Administrator’s Interpretation” that reached the opposite conclusion. Since 1997, under the Paralyzed Veterans doctrine, the D.C. Circuit’s rule has been that if an agency makes a significant change to an existing interpretative rule, the agency must first conduct notice-and-comment rulemaking.
The Supreme Court threw out the Paralyzed Veterans doctrine on the grounds that the text of the Administrative Procedure Act (APA) clearly states that the notice-and-comment requirement does not apply to interpretative rules. Additionally, the APA prohibits courts from adding any requirements to an agency’s rulemaking procedures not found in the APA. “By mandating notice-and-comment procedures when an agency changes its interpretation of one of the regulations it enforces, Paralyzed Veterans creates a judge-made procedural right that is inconsistent with Congress’ standards.” Only Congress has the authority to add requirements to an agency’s rulemaking procedures.
The Supreme Court rejected the Mortgage Bankers Association argument that the DOL regulation was not an interpretive rule, but a substantive rule which requires notice-and-comment rulemaking. The Court reasoned that when an agency tries to classify a rule as interpretative to avoid notice-and-comment rulemaking the public has other ways to challenge the agency’s action. First, the agency’s regulations can be substantively challenged. Second, Congress can create safe harbor provisions “that shelter regulated entities from liability when they act in conformance with previous agency interpretations.” And finally, “principles of retroactivity” may limit an agency’s ability to enforce new regulations against entities previously in compliance with agency regulations. Additionally, the Court ruled that the Association waived this argument by failing to raise this point in the lower courts.