The U.S. Supreme Court decided in Perez v. Mortgage Bankers Association that federal agencies are not required to use the Administrative Procedure Act's (APA) notice and comment procedures when issuing or making changes to rules interpreting regulations. The Court’s decision in Perez clarifies the broad interpretive rulemaking power of federal agencies, including the U.S. Department of Labor (DOL).

The case deals with the administrative exemption to overtime pay under the Fair Labor Standards Act (FLSA). After the DOL issued new regulations about the exemption in 2004, the Mortgage Bankers Association (MBA) requested a new interpretation of the regulations concerning mortgage loan officers. In 2006, the DOL’s Wage and Hour Division issued an opinion letter finding that mortgage loan officers were exempt. However, without providing notice or soliciting comments, the DOL reversed this finding in 2010, concluding that mortgage loan officers generally will not qualify for the exemption.

The MBA filed suit, arguing that the DOL’s reversal was procedurally invalid under the D.C. Circuit’s 1997 opinion in Paralyzed Veterans of America v. D.C. Arena L.P. In that case, the court decided that federal agencies must use APA notice-and-comment procedures when issuing new regulatory interpretations. Three former mortgage loan officers intervened, seeking to defend the DOL’s interpretation.

Siding with the DOL, the Supreme Court reasoned that, because agencies are not obligated to follow notice-and-comment procedures when issuing initial interpretations, they are likewise not obligated to do so when amending or repealing the initial interpretation. Writing for the Court, Justice Sonia Sotomayor looked to the APA’s text, pointing out the distinction between formal rulemaking and interpretive rules. Formal rulemaking requires the agency to provide notice and the opportunity for interested parties to comment. On the other hand, unless notice-and-comment is required by a particular law, the APA’s rulemaking requirements do not apply to interpretive rules.

In Perez, the Court did not address whether the DOL’s interpretation was correct. Instead, the Court only examined whether the DOL had followed the APA when it unilaterally changed the rule. Nevertheless, following Perez, federal agencies apparently are free to unilaterally amend or reverse interpretive rules without providing the public with notice or the opportunity to comment. In light of this newly clarified scope of regulatory authority, employers should be aware that even long-standing interpretations are subject to change without notice.

Note, however, that a different analysis may apply to mortgage loan officers who spend a significant amount of time making sales outside the office. Under the FLSA, a mortgage loan officer engaged in selling as a primary duty, where the selling customarily and regularly occurs outside of the office, could qualify for the “outside salesperson” exemption. In January 2015, a federal district court in Hartman v. Prospect Mortgage, LLC granted summary judgment to the employer in favor of the exemption, even though the employee in question spent only 25-30 percent of her time making outside sales.

The court in Hartman focused on the “customarily and regularly” requirement, explaining that the outside sales work must be “greater than occasional,” though it may be “less than constant,” and should be “normally and recurrently performed every workweek.” Thus, even if loan officers no longer qualify as exempt under the FLSA’s administrative exemption, they could qualify under the outside salesperson exemption. It is important to consider whether this exemption exists under applicable state law as well.

Attorneys in Ballard Spahr’s Consumer Financial Services and Labor and Employment Groups routinely advise clients on developments in financial regulations and employment laws, including the FLSA. For more information, please contact Brian D. Pedrow in Ballard Spahr’s Labor and Employment Group at 215.864.8108 or pedrow@ballardspahr.com, CFS Practice Leader Alan S. Kaplinsky at 215.864.8544 or kaplinsky@ballardspahr.com, Mortgage Banking Co-Practice Leader Richard J. Andreano, Jr. at 202.661.2271 or andreanor@ballardspahr.com, Mortgage Banking Co-Practice Leader John D. Socknat at 202.661.2253 or socknatj@ballardspahr.com, Rogers Stevens at 215.864.8409 or stevensro@ballardspahr.com, or the Ballard Spahr attorney with whom you work.


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