U.S. Supreme Court Strikes Down Doctrine Used To Curb Federal Agencies' Abrupt Changes of Enforcement Positions

Volume 14, Issue 5
March 9, 2015

Earlier today, in Perez v. Mortgage Bankers Association, No. 13-1041, a unanimous U.S. Supreme Court abolished a nearly twenty (20) year old legal doctrine that required federal administrative agencies to engage in the formal notice-and-comment rulemaking procedures under the Administrative Procedures Act (APA) before revising definitive interpretations of their regulations. The Court held that the "Paralyzed Veterans doctrine," so-called because of the name of the case in which the D.C. Circuit Court first articulated the doctrine, Paralyzed Veterans of Am. v. D. C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997), is contrary to the clear text of the APA's rulemaking provisions and improperly imposes an obligation on federal agencies beyond the APA's maximum procedural requirements.

The APA establishes the procedures federal administrative agencies must use for rulemaking and distinguishes between two types of rules: (1) "legislative rules" that are issued through formal notice-and-comment rulemaking procedures and have the force and effect of law; and (2) "interpretive rules" that are issued to advise the public of the agency's interpretation of the statutes and regulations it administers. As the Supreme Court observed, the APA categorically exempts interpretive rules from the often time-consuming formal notice-and-comment rulemaking procedures, which it found to be "fatal" to the Paralyzed Veterans doctrine.

The underlying dispute in Perez stems from changes of position taken by the U.S. Department of Labor (DOL) concerning whether or not mortgage-loan officers qualify for the administrative exemption to overtime pay requirements under the Fair Labor Standards Act (FLSA). In 1999 and 2001, the DOL issued letters opining that mortgage-loan officers did not qualify for the administrative exemption, but subsequently changed course in 2006 when it issued another letter opining that mortgage-loan officers did qualify for the administrative exemption, only to alter its interpretation again in 2010, without notice or an opportunity for comment, by withdrawing its 2006 opinion letter and issuing an Administrator's Interpretation concluding that mortgage-loan officers do not qualify for the exemption. The Mortgage Bankers Association filed a lawsuit contending that the Administrator's Interpretation was procedurally invalid under the Paralyzed Veterans doctrine because the DOL did not use the APA's notice-and-comment procedures when it issued a new interpretation of a regulation that deviated significantly from a previously adopted interpretation. Because an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, the Court held that it is also not required to use those procedures to amend or repeal an interpretive rule.

The impact of the Perez decision on employers is significant as it requires courts to give even more deference to the actions of federal agencies at a time when agency-overreaching is all too common. The Paralyzed Veterans doctrine served to restrain federal agencies from making abrupt changes in their regulatory interpretations. Without the protection of that doctrine, employers must increase their vigilance in monitoring the latest interpretive guidelines of the various federal agencies regulating aspects of their business for any sudden changes in their enforcement positions and modify any related business practices accordingly to avoid legal liability.

If you have any questions about this legal development, please do not hesitate to call the KZA attorney with whom you regularly work or call our office at (702) 259-8640.

KZA Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.