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CHANGING INTERPRETATIVE RULES ON EMPLOYEE CLASSIFICATION

By Ruth Kraft posted 03-17-2015 07:58 PM

  

U.S. SUPREME COURT RULES THAT US DEPARTMENT OF LABOR IS EXEMPT FROM RULEMAKING PROCESS!

 

In Perez v. Mortgage Bankers Association, the Supreme Court overturned a Circuit Court decision which vacated the decision of the trial court based on the Department of Labor’s failure to comply with the procedural requirements of the Administrative Procedure Act (“APA”).  Confused already?  In summary, the Supremes concluded that federal agencies are exempt from the notice and comment rulemaking process when they change their own interpretative rules.

Some of you know that I rail against the NYS Department of Labor’s failure to adhere to its own published guidelines in employment classification matters, which hits employers with a Catch-22.  Believing that they are following the rules, our mutual clients are sideswiped by the Department’s announcement that its own guidelines are simply that and can be discarded at any time (with, of course, what is now a six year look-back period for the misclassification, including lots of statutory interest!).

In the Perez case, the underlying issue was whether mortgage-loan officers are covered by the administrative exemption of the Fair Labor Standards Act, meaning that they can be paid as salaried rather than hourly workers.  In 1999 and 2001, the Wage and Hour Division of US DOL issued letters interpreting the FLSA and concluding that the loan officers did not qualify for the administrative exemption.  However, in 2006, it reversed course and concluded that they were within the exemption.  Then, in 2010, DOL changed its mind yet again, issuing an Administrative Interpretation that they did not qualify.  The interpretation focused on whether the “typical” mortgage loan officer was engaged in administration of the employer’s business or in the production of its products.  It concluded that the latter was the case because the primary business of the lenders is to design, create and sell lending products. 

The district court in Perez vacated this interpretation, holding that if an agency wants to re-interpret a regulation, it must use the APA notice and comment procedures.  The Supreme Court ultimately disagreed. Justices Alito, Scalia and Thomas raised concerns in concurring opinions as to the power vested in executive agencies.  Although none of the three is renowned for his concern as to 14th amendment due process, all of them find the ability of an agency to act outside the usual legislative process to be problematic. 

The takeaway: employers cannot consider any administrative interpretation issued to date to be sacrosanct and must be wary of “re-litigation” of standards to their ongoing detriment, creating instability both legally and economically.

Judge Ruth Kraft specializes in management-side employment issues including independent contractor audits and reclassification strategies.  To discuss a matter with Judge Kraft, contact (516) 353-3306 or email RKraft@Kirschenbaumesq.com.

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