The Supreme Court ruled unanimously today that an agency does not need to post a public notice and solicit comments when it revises one of its interpretive rules.
In a decision on two consolidated cases, the court reversed a federal appellate court ruling against the Department of Labor for its revisions to overtime and minimum wage requirements for mortgage brokers.
And in so doing, the court overturned a seminal precedent from the U.S. Court of Appeals for the District of Columbia Circuit, 1997's Paralyzed Veterans of America v. D.C. Arena.
Today's ruling in Perez v. Mortgage Bankers Association and Nickols v. Mortgage Bankers Association has broad implications for all federal agencies, including U.S. EPA, which has increasingly relied on interpretive rules and informal guidance on water and air issues.
Justice Sonia Sotomayor, in the opinion for the court, wrote that the Paralyzed Veterans doctrine is flatly contradicted by the text of the Administrative Procedure Act.
"The text of the APA answers the question presented," she wrote in a 14-page opinion. "This exemption of interpretive rules from the notice-and-comment process is categorical, and it is fatal to the rule announced in Paralyzed Veterans."
The cases concern an administrative exemption to minimum wage and overtime payments for employees whose primary duty is selling financial products.
In 2010, the Labor Department issued a rule that reversed its prior interpretation. The new rule said mortgage bankers no longer qualify for the exemption.
The Mortgage Bankers Association challenged the new rule in court. They lost in district court, but the D.C. Circuit reversed in July 2013, relying on its precedent in Paralyzed Veterans.
Victory for Obama administration
The decision is a broad win for agencies and the Obama administration, which asked the high court to review the case.
For example, when EPA proposed its major Waters of the United States jurisdiction rule under the Clean Water Act, it carved out about 50 agricultural exemptions in a separate interpretive rule (Greenwire, April 4, 2014).
The agency has similarly relied on interpretive rules in determining whether multiple adjacent buildings may be aggregated into one emitting source under the Clean Air Act. And it has issued informal "guidance" relating to mountaintop-removal coal mining.
Thomas Lorenzen, a former Justice Department environmental attorney, said today's ruling gives agencies "more flexibility to fix interpretations that may be legally flawed."
But he also pointed out that the decision could allow future administrations to more easily undo the work of their predecessors.
"What it means is that incoming administrations won't be bound by the interpretive rulings of prior administrations," Lorenzen, now at Dorsey & Whitney, said.
Conservative judges sought stronger action
While the judgment was unanimous, some of the court's conservative members would have gone further and overturned Supreme Court precedent that is fundamental to judicial deference to agency rulemaking.
Justice Antonin Scalia wrote that the high court's 1997 Auer v. Robbins decision, which held that a court should defer to an agency interpreting its own regulations, has given the administrative state too much power.
Scalia said the court should "abandon" Auer.
"By supplementing the APA with judge-made doctrines of deference, we have revolutionized the import of interpretive rules' exemption from notice-and-comment rule-making," Scalia wrote in a separate opinion. "Agencies may now use these rules not just to advise the public, but also to bind them."
Two other conservatives, Justices Clarence Thomas and Samuel Alito, also indicated that they were open to such reasoning in their own opinions.
Click here for the opinion.
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