Regulators now have greater freedom to interpret established rules without undergoing a public comment process thanks to a decision handed down by the Supreme Court on Monday. With a 9-0 vote, justices agreed that regulatory clarifications and alterations, made through the use of interpretive rules, are not subject to the public review process required by the Administrative Procedures Act.
The settled case, Perez v. Mortgage Bankers Association, involved a Department of Labor rule establishing which employees are entitled to minimum wage pay and entitled to overtime pay. In 2010, the Department of Labor’s Wage and Hour Division issued an “Administrator’s Interpretation” concluding that mortgage-loan officers do not qualify for established wage and overtime exemptions. The Mortgage Bankers Association launched a legal challenge, arguing that the move was “procedurally invalid” and the government had no authority to impose that interpretation without first undergoing the public review process required under the APA.
The Supreme Court, however, sided with the government’s stance that rulemaking interpretations are not bound by the Congressional mandate, despite a lower court ruling in the D.C. Circuit Court that found otherwise. That court, in the case of Paralyzed Veterans of America v. D. C. Arena, held that an agency must use the APA’s notice-and-comment procedures when it issues a new interpretation of a regulation that deviates significantly from a previously adopted interpretation.
The High Court’s opinion, written by Justice Sonia Sotomayor, found that “the Paralyzed Veterans doctrine is contrary to the clear text of the APA’s rulemaking provisions and improperly imposes on agencies an obligation beyond the APA’s maximum procedural requirements.” The opinion adds: “Because an agency is not required to use notice-and-comment procedures to issue an initial interpretive rule, it is also not required to use those procedures to amend or repeal that rule…By mandating notice-and-comment procedures when an agency changes its interpretation of one of the regulations it enforces, Paralyzed Veterans creates a judge-made procedural right that is inconsistent with Congress’ standards.”
The Administrative Procedure Act (APA) establishes the procedures federal administrative agencies use for rule making, legally defined as the process of “formulating, amending, or repealing a rule.” The APA distinguishes between two types of rules. “Legislative rules” are issued through notice-and-comment rulemaking and have the “force and effect of law.” “Interpretive rules,” by contrast, are issued “to advise the public of the agency’s construction of the statutes and rules which it administers,” do not require a public notice-and-comment process, and “do not have the force and effect of law.”
Sotomayor wrote that the APA “provides recourse to regulated entities from agency decisions that skirt notice-and-comment provisions by placing a variety of constraints on agency decision-making” such as the ability to challenge rules that are “arbitrary and capricious,” and Congress may include safe-harbor provisions in legislation “to shelter regulated entities from liability when they rely on previous agency interpretations.”
Justice Antonin Scalia concurred with the majority opinion, but had reservations. “The APA exempts interpretive rules from [notice-and-comment] requirements,” he wrote. “But this concession to agencies was meant to be more modest in its effects than it is today…An agency may use interpretive rules to advise the public by explaining its interpretation of the law, but an agency may not use interpretive rules to bind the public by making law, because it remains the responsibility of the court to decide whether the law means what the agency says it means.”