On March 9th, 2015 the U.S. Supreme Court unanimously reversed the D.C. Circuit's opinion on federal agency rulemaking in Perez, Secretary of Labor v. Mortgage Bankers Association, holding that federal agencies need not issue interpretive rules (issued to advise the public on an agency's understanding and reading of the laws and rules it administers) under notice-and-comment rulemaking procedures of the Administrative Procedure Act ("APA"), regardless of whether the interpretation deviates from an interpretation the agency has previously adopted.

The Administrative Procedure Act ("APA") establishes the procedures federal agencies must use for rulemaking. In general there are two types of rules created and issued by federal agencies: legislative and interpretative. Legislative rules have the "force and effect of law," whereas interpretative rules do not and, thus, are not treated as binding law by the courts. While the APA requires that a legislative rule go through a rigorous public notice-and-comment process before the agency issues the final rule, it expressly provides that "interpretative rules" need not go through this notice-and-comment process.

In this case, Mortgage Bankers Association ("MBA") challenged the Department of Labor's ("DOL") shifting interpretation of DOL regulations defining the administrative exemption to the Fair Labor Standards Act and, specifically, the exemption's application to mortgage loan officers. In 2006, DOL issued an opinion letter opining that salaried mortgage loan officers fell within the administrative exemption as defined by the regulations, and therefore were not subject to the FLSA's minimum wage and overtime provisions. In 2010, the DOL reversed course in its "Administrator's Interpretation," withdrawing its 2006 opinion letter and opining that mortgage loan officers do not qualify for the administrative exemption. Neither the 2006 opinion letter nor the 2010 Administrator's Interpretation were issued under a notice-and-comment procedure.

The D.C. Circuit applied its prior precedent (i.e., the Paralyzed Veterans doctrine), which provided that if a federal agency has given its regulation a definitive interpretation, but then later significantly changes that interpretation without the notice-and-comment procedure, the agency has improperly amended its rule under the APA. See Paralyzed Veterans of Am. v. D.C. Arena L.P., 117 F.3d 579 (D.C. Cir. 1997). Here, because the DOL had not followed the notice-and-comment process before revising its opinion on application the exempt status of mortgage loan officers, the D.C. Circuit found that the 2010 Administrator's Interpretation must be vacated.

In its opinion, the Supreme Court reversed the D.C. Circuit and abrogated the Paralyzed Veterans doctrine, holding that the APA specifically excluded interpretive rules from notice-and-comment procedures. (Notably, MBA waived any argument that the DOL opinions at issue constituted "legislative rules," which the Court found require notice-and-comment under the APA, by failing to raise that issue in the lower courts or on certiorari.) The Court dismissed any concerns that the modification of an existing interpretation would be unfair and require a different result: "Because an agency is not required to use notice-and-comment procedures to issue an initial interpretative rule, it is also not required to use those procedures when it amends or repeals that interpretative rule."

With different parties occupying Congress and the White House, the Supreme Court's holding provides federal agencies a roadmap to achieve administrative priorities (even if it means reversing direction on significant regulatory issues) without the more challenging notice-and-comment process. Businesses that have relied on agency guidance, including opinion letters and other administrative interpretations, must be wary of shifting agency positions under the guise of "interpretive rules." For example, in March 2014, President Obama directed the DOL to propose modifications "modernizing" existing DOL regulations regarding the "white collar exemptions" (the very regulations at the heart of Mortgage Bankers Association). Those proposed revisions were expected to be made public in February 2015, but, as yet, no proposed revised regulations have been released for notice and comment. Mortgage Bankers Association may provide the DOL another avenue to achieve at least some of its goals through interpretive rules rather than the anticipated legislative rulemaking process.