Mortgage Loan Officers are Not Exempt Employees per the DOL and the Supreme Court Says that is Okay
The legal ping-pong match between the Department of Labor (DOL) and the Mortgage Bankers Association (MBA) over whether mortgage loan officers are eligible for overtime appears to be at an end. The Supreme Court recently issued its opinion in Perez v. Mortgage Bankers Association, holding that the DOL’s amendment of its interpretive rules to provide that mortgage loan officers do not qualify for the administrative exemption—despite the fact that the DOL did not go through a public notice and comment period when it amended its guidance—seems dispositive. Accordingly, when an administrative agency such as the DOL amends or repeals one of its interpretive rules, it does not need to go through the public notice and comment period for rule making.
Employers should take note of the ruling as it affirms the DOL’s ability to amend or repeal its previous interpretations without having to go through the notice and comment process, overruling a previous D.C. Circuit case that had held that the amending of a previous interpretation did require the public notice and comment period.
As a quick overview, the Administrative Procedures Act (APA) provides that a federal administrative agency can issue “legislative rules” that are the agency’s “statement[s] of general or particular applicability and future effect” designed to “implement, interpret, or prescribe law or policy.” 5 U.S.C. § 551(4). Issuance of legislative rules requires public “notice and comment” in which the agency must issue notice of the proposed rule, give opportunity for written comment, among other things. “Interpretative rules,” by contrast, are those that are “issued by an agency to advise the public of the agency’s construction of the statutes and rules which it administers.” Perez, p. 3 (quoting Shalala v. Guernsey Memorial Hosp., 514 U.S. 87, 99 (1995)). As the Court and others recognize, issuing interpretative rules for an agency is comparatively easier than legislative rules. Id.
The Perez case centered around the question of whether mortgage loan officers fall under the administrative exemption of the FLSA for those “employed in a bona fide executive, administrative, or professional capacity.” 29 U.S.C. § 213(a)(1). The FLSA gives the Secretary of Labor the authority to define and delimit the categories of exempt employees. The DOL opined in 2006 that mortgage loan officers qualified for the exemption, but then in 2010 reversed that interpretation and held that loan officers do not qualify. Not surprisingly, the MBA filed suit challenging the interpretation. After the DOL prevailed at the trial level, the D.C. Circuit reversed in favor of the MBA, holding that the issuance of an interpretative rule required the notice and comment period under the APA. The Supreme Court’s ruling reversed the D.C. Circuit, finding that a previous D.C. Circuit opinion, Paralyzed Veterans of Am. V. D.C. Arena L.P., was contrary to the text of the APA’s rulemaking provisions. The Court highlighted that the APA provides an avenue to challenge agency rule making under the arbitrary and capricious standard, and that many statutes provide a safe harbor provision when a business entity has relied on a previous agency interpretation.
The Court recognized that whether an agency action qualifies as a legislative or an interpretive rule is the subject of much debate, and this ruling will likely increase both the significance and controversy surrounding the DOL’s issuing of rules without any notice and comment. Employers should recognize, however, that this ruling affirms that the DOL has more latitude to issue its interpretation of the statutes and rules it administers without the concern that it must undertake the more laborious (no pun intended) notice and comment process. Also, it means that the DOL takes the position that mortgage loan officers are nonexempt and will proceed accordingly.