The U.S. Supreme Court ruled unanimously [1] to make mortgage bankers eligible for overtime pay under federal labor law today. The case brought by the Mortgage Bankers Association [2] (MBA) was to determine whether mortgage loan officers are covered under the Fair Labor Standards Act of 1938 (FLSA).
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The FLSA establishes minimum wage and maximum hour requirements. However, certain classes of employees are exempt from these standards. Exemption from these regulations is known as the administrative exemption. In 1999 and 2001, the Department of Labor’s Wage and Hour Division issued letters opining that mortgage-loan officers do not qualify for the administrative exemption. In 2004 the FLSA released the current regulations, prompting the MBA to ask for an explanation of the regulations as it applies to mortgage loan officers. In 2006, the department reversed its standing and issued an opinion stating mortgage bankers fell under the administrative exemption.
Then again four years later in 2010, the department reversed its decision and said mortgage loan officers “have a primary duty of making sales for their employers, and, therefore, do not qualify” for the administrative exemption. All of these interpretations were issued without warning and did not provide an opportunity for comment.
MBA filed complaint in the Federal District Court challenging the Administrator’s Interpretation, saying the document was inconsistent with 2004 regulation. More important to the case, the MBA argued the administrative ruling was procedurally invalid in light of the D.C. decision in the Paralyzed Veterans case, which ruled rule amendments can’t be made without notice and opportunity for comment because it violated the Administrative Procedure Act (ACA).
“Because notice-and-comment requirements may apply even to these later agency actions, the court reasoned, “allowing an agency to make a fundamental change in its interpretation of a substantive regulation without notice and comment” would undermine the APA’s procedural framework,” Justice Sonia Sotomayor said in her opinion.
The Department of Labor argued in an August Supreme Court brief that the D.C. Circuit's stance undermined the flexibility Congress wanted agencies to have. The appeals court's “judge-made procedural requirement” that agencies must utilize notice-and-comment rule-making before making a significant change to a rule that interprets a regulation was out of step with the APA and Supreme Court precedent, the brief said.
“In the end, Congress decided to adopt standards that permit agencies to promulgate freely such rules—whether or not they are consistent with earlier interpretations,” the justices said. “That the D.C. Circuit would have struck the balance differently does not permit that court or this one to overturn Congress’ contrary judgment.”