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DC Circuit Finds DOL’s Unilateral Reversal of Prior Published Enforcement Position Exceeded its Authority; Public Notice and Comment was Required

On July 12, 2013 by Schnader in Labor and Employment

By Scott J. Wenner

On the heels of a series of high-profile  appellate defeats suffered by the NLRB’s efforts at rulemaking, the United States Court of Appeals for the District of Columbia Circuit found that the Department of Labor’s Wage & Hour Division (WHD), exceeded its authority in unilaterally publishing its first ever “Administrator Interpretation” (AI) in 2010. In that AI, the WHD announced that it was abandoning its long-standing practice of publishing Opinion Letters specifically addressing narrow facts presented largely by businesses in favor of more broadly applicable AIs.

WHD’s first AI addressed the proper classification of mortgage loan officers for overtime eligibility. Correctly noting that this issue had prompted frequent litigation, this AI unilaterally announced that:

1)     the DOL was rescinding its 2004 opinion letter finding these loan officers are exempt from overtime pay,

2)     adopting an interpretation inconsistent with its 2004 “white collar exemption” regulations, and

3)     the agency henceforth would begin enforcing the opposite position on the same question.

Pointing to the WHD’s failure to conduct formal rulemaking (requiring the publication of notice and the opening of a comment period to obtain the views of the public) – a requirement of the Administrative Procedure Act – the Mortgage Bankers Association filed a lawsuit seeking to have the AI declared invalid. The Association lost in the District Court but the Court of Appeals reversed. The Appellate Court did not address the merits of the AI, but declared the AI invalid and unenforceable because the WHD did not have the authority to promulgate such an interpretation unilaterally. Of course, the WHD is free to commence formal rulemaking and eventually promulgate the AI as a rule, but   it cannot enforce the interpretation it favors until such time.

The court, which hears a high volume of administrative agency matters, based its opinion on two of its earlier precedents. Those cases hold an agency that has definitively interpreted a published regulation, but then later significantly revises that rule, has effectively amended the regulation – an agency action that must comply with the notice and comment requirements of the Administrative Procedure Act, which seems like a matter of fundamental fairness. The courts have expressed concern over the absence of that quality in the administration of the labor and employment laws by the responsible federal agencies over the past four years.