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D.C. Circuit Orders Labor FLSA Interpretation Vacated & Clarifies APA Requirements

Posted in Judicial Review & Remedies, Regulatory Process

In yet another blow to the current Administration’s attempts to rewrite policy, the United States Court of Appeals for the District of Columbia Circuit vacated a decision of the district court and remanded with instructions to vacate a 2010 Department of Labor (DOL) Fair Labor Standards Act (FLSA) opinion letter – Mortgage Bankers Association v. Harris.  The 2010 Obama Administration opinion letter reversed course on a 2006 Bush Administration opinion letter.  The crux of the case was whether DOL had adopted a definitive interpretation of its own regulations in 2006, sufficient to require that a significant change in that position later would require promulgation of a rule.  In this case, and clarifying the tests that it applies, the court of appeals found that DOL had committed such an error, reversed the district court decision on summary judgment, and directed the district court to vacate the 2010 opinion letter.

Background:  Individuals “employed in a bona fide … administrative … capacity” are exempt from the Fair Labor Standards Act’s minimum wage and maximum hour (or 40 hour overtime) requirements.   In 2006, DOL issued an opinion letter concluding, on the facts presented, that mortgage loan officers with archetypal job duties fell within the administrative exemption.  In 2010, however, with a change in administration, DOL issued an “Administrator’s Interpretation” declaring that “employees who perform the typical job duties” of the hypothetical mortgage loan officer “do not qualify as bona fide administrative employees,” and explicitly withdrew the 2006 opinion letter.

Under a 2006 interpretation, the employers would not be liable to employees for overtime compensation; but under the 2010 interpretation, the employers would be liable for overtime compensation.  As the FLSA creates a private right of action, the interpretation is critical to liability that transcends the relationship between employers and the DOL partly because DOL is specifically authorized not only to enforce and regulate, but to authoritatively opine under the FLSA – Administrator’s Interpretations affect the private relationship and, under the 2010 letter, employers might be liable for back wages.

Legal Premise:  While there is no barrier to an agency altering its initial interpretation of a statute or rule to adopt another reasonable interpretation — even one that represents a new policy response generated by a new administration, which is often the case – the D.C. Circuit has previously determined that once an agency gives its regulation an interpretation, it can only change that interpretation as it would formally modify the regulation itself: through the process of notice and comment rulemaking under the Administrative Procedure Act (APA).  The notice and comment requirements of the APA do not apply to interpretative rules, but if an interpretation of a statute or rule has the force and effect of law, then the interpretation is a substantive or legislative rule subject to notice and comment procedures.  In the context of the FLSA, the DOL’s authority to issue “Administrator’s Interpretations” heightens the potential for substantial and justifiable reliance under the D.C. Circuit’s precedent.

Analysis:  On its face, the analysis contains just two elements: definitiveness and a significant change.  A definitive or authoritative interpretation test, however, leaves open a range of potential issues of definition.  The critical issue here is how a court evaluates private parties’ reliance on the interpretation given by the agency – whether reliance must be separately proven or just a part of definitiveness.  The DOL, through the Department of Justice (DOJ), argued that reliance was a separate and independent requirement – and a plaintiff must show all requirements are met.  Appellants argued that reliance is just a factor.  Reliance can elevate an otherwise non-definitive interpretation into a definitive interpretation as a part of the existing definitiveness element.  The district court took the DOL’s view; the court of appeals took MBA’s view.  Once a court has classified an agency interpretation as such, the interpretation cannot be significantly revised without notice and comment rulemaking.  Reliance is only a factor in definitiveness.

The court admitted that the details pose the problem, and (in a footnote) that the “operative assumption – the belief that a definitive interpretation is so closely intertwined with the regulation that a significant change to the interpretation constitutes a repeal or amendment of the regulation – is subject to an intercircuit conflict.  The law of the circuit, however, is that a definitive interpretation can be a substantive regulation.

The ruling increases focus on the changing interpretations given by agencies in implementing statutes and their implementing regulations and creates at least a temporary problem for the agencies:  they must focus on what they have said in the past and determine how they may change those statements.  If the agency has provided a definitive interpretation in the past, one upon which the private sector has relied, changing position will require a notice and comment change in rules.