In an unanimous decision, the U.S. Supreme Court issued an opinion on March 9, 2015, Perez v. Mortgage Bankers Association, No. 13-1041, rendering mortgage-loan officers non-exempt employees entitled to overtime under the Fair Labor Standards Act (FLSA). For the purposes of employers, the status of the mortgage-loan officer has been laid to rest- until, at least, the new administration is sworn in.

Background. The FLSA requires that employees be paid overtime for working more than 40 hours per week, but exempts “any employee employed in a bona fide executive, administrative, or professional capacity.” The Administrative Procedures Act (APA) authorizes federal agencies to promulgate rules and generally requires that, to become effective, a legislative rule must go through notice-and-comment rulemaking – in which the public is given an opportunity to comment on a proposed version of the rule, and the agency responds to the comments. The public-comment process sometimes can significantly influence the content of legislative rules.

Procedural History. In 1999 and 2001, the Department of Labor’s Wage and Hour Division issued opinion letters finding that mortgage-loan officers do not qualify for the administrative exemption to overtime pay requirements under the FLSA. In 2004, during the Bush Administration, the Department issued new regulations regarding the exemption. The Mortgage Bankers Association (MBA) requested that the Department issue interpretations of the new regulations as they applied to mortgage-loan officers. Thus, in 2006, the Department issued an opinion letter finding that mortgage-loan officers did, in fact, fall within the administrative exemption of the FLSA under the new 2004 regulations. Under the Obama Administration, however, the Department altered its interpretation of the administrative exemption, and without notice or opportunity to comment, withdrew the 2006 opinion letter and issued an Administrator’s Interpretation concluding that mortgage-loan officers do not qualify for the administrative exemption.

MBA sued the Department on the grounds that the Administrator’s Interpretation was invalid under Paralyzed Veterans of Am. v. D. C. Arena L. P.,[1] which held that an agency must use the APA’s notice-and-comment procedures when issuing a new interpretation of a regulation that deviates significantly from a previously adopted interpretation. The District Court granted summary judgment to the Department; on appeal the D. C. Circuit agreed with MBA and reversed.

Court’s Analysis. In an opinion by Justice Sotomayor, the Court opined that the APA did not require the Department to follow the notice-and-comment procedure because an “interpretive rule” was at issue, which merely advises the public of the agency’s construction of the statutes and rules it administers, and did not have the force of law. The Court also rejected the D. C. Circuit’s interpretation of the APA in Paralyzed Veterans, noting that it had conflated sections 1 and 4 of the APA insofar as section 4 specifically exempts interpretative rules from notice-and-comment requirements. The Court rejected MBA’s argument that the 2010 interpretation was effectively an amendment of the 2004 regulation, on the grounds that this would produce an illogical result requiring notice-and-comment by the Department before issuing the revised 2010 interpretation but not before issuing the 2006 initial interpretation. Finally, the Court concluded that application of Paralyzed Veterans is not justified on practical and policy grounds, noting that other protections, including the arbitrary and capricious standard and legislative safe-harbor provisions, are available to entities faced with revisions to administrative interpretations.

Holding. A federal administrative agency, like the U.S. Department of Labor, is not required to use notice-and-comment procedures contained in the APA when issuing new interpretations of regulations.

The Bottom Line. The effective result of this opinion is that mortgage-loan officers remain non-exempt and are entitled to overtime. Employers must be diligent about keeping accurate and complete time cards and paying overtime where incurred.

For more information, please contact Emily J. Bordens.

 [1] 117 F.3d 579 (1997).


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