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March 16, 2015 Practice Points

SCOTUS Nixes APA Notice-and-Comment Requirement

The Paralyzed Veterans doctrine developed by the D.C. Circuit gets struck down.

Kathryn Hinton and David Gevertz – March 16, 2015

In Perez v. Mortgage Bankers Association, No. 13-1041, the U.S. Supreme Court struck down the Paralyzed Veterans doctrine developed by the D.C. Circuit Court of Appeals requiring agencies to employ the full notice-and-comment rulemaking procedure of the Administrative Procedures Act (APA) when issuing new interpretations of their regulations that differ significantly from prior interpretations. See Paralyzed Veterans of America v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997). In so holding, the Supreme Court has paved the way for federal agencies that enforce civil rights—including the Department of Justice and the Equal Employment Opportunity Commission—to more easily alter or reverse their positions on substantive issues of law without the need to go through the notice-and-comment process.  

In Perez, the Department of Labor (DOL) had issued a series of conflicting and inconsistent opinions regarding the exempt status of mortgage-loan officers under the administrative exemption of the Fair Labor Standards Act (FLSA). In 1999 and 2001, the DOL issued letters holding that mortgage-loan officers did not qualify for the exemption. In 2004, the DOL issued new regulations regarding the exemption, and in 2006, the DOL issued an opinion letter finding that mortgage-loan officers did qualify for the exemption under the new regulations. Finally, in 2010, the DOL reversed itself again, withdrawing the 2006 opinion letter and issuing an administrator's interpretation (AI) concluding that mortgage-loan officers did not qualify for the exemption. The Mortgage Bankers Association (MBA) filed suit, arguing that the AI was procedurally invalid under the D.C. Circuit's Paralyzed Veterans decision. The D.C. Circuit agreed and vacated the AI because it was issued without following the APA's notice-and-comment rulemaking procedure.  

The Supreme Court reversed the D.C. Circuit, concluding that the Paralyzed Veterans doctrine was invalid under the plain language of the APA. The APA distinguishes between two types of rules—legislative rules, which have the full force and effect of law, and interpretive rules, which are issued to advise the public of the agency's construction of the statutes and rules which it administers, but do not have the full force and effect of law. The Supreme Court held that the APA plainly does not require an agency to follow the notice-and-comment process for interpretive rules, only legislative ones. As the AI issued by the DOL was an interpretive rule, the DOL's failure to follow the notice-and-comment procedure did not render it invalid.  

This decision is not particularly surprising in light of the Supreme Court's straightforward interpretation of the plain language of the APA. However, it may still result in tangible consequences for employers and civil-rights advocates. Since 1997, Paralyzed Veterans operated as a hindrance to unilateral agency action. Now, federal agencies may be motivated to begin issuing interpretive rules such as AIs or opinion letters more frequently in an effort to enhance their enforcement efforts without being hindered by their prior interpretations of regulations. Employers and civil-rights advocates should be aware that this may lead to an uptick in inconsistent interpretive guidelines from the DOJ, EEOC, and other federal agencies in the coming years, particularly as presidential changes lead to inevitable changes in agencies' enforcement priorities. As interpretive rules become more malleable, pursuit of enforceable judicial decisions, rather than reliance on changeable agency interpretations, may become increasingly necessary.

Keywords: litigation, civil rights, administrative law, veterans

— Kathryn Hinton and David Gevertz, Baker Donelson, Atlanta, GA

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