On March 9, 2015, the United States Supreme Court (the “Court”) issued its ruling in Nikols v. Mortgage Bankers Association, holding that federal agencies do not need to issue notice-and-comment procedures when amending or repealing an “interpretive” rule. The impact of this ruling means that federal agencies, including FERC, may modify or repeal their interpretative orders and policy statements without providing notice or a public comment period.
Under the Administrative Procedure Act (“APA”), federal agencies may engage in two kinds of rulemaking: (1) legislative; and (2) interpretative. When an agency engages in legislative rulemaking, it promulgates specific regulations and procedures that have the full force and effect of federal law. By contrast, when an agency engages in interpretative rulemaking, it advises the public of the agency’s construction of the statutes and rules that it administers. A key distinction between these two kinds of rulemaking is that, under the APA, legislative rules require a notice-and-comment period before they can be implemented, whereas interpretative rules do not.
In Nikols v. Mortgage Bankers Association, the Department of Labor (the “Department”) had, over the course of several years, issued differing interpretations of the applicability of an exemption under the Fair Labor Standards Act of 1932 to mortgage-loan officers. On each occasion when the Department changed its interpretation, it did not provide notice and a corresponding opportunity for public comment. The Mortgage Bankers Association filed suit after the Department again changed its interpretation in 2010, contending, among other things, that the Department’s interpretation of the statute was procedurally invalid under the so-called “Paralyzed Veterans” doctrine. Under the doctrine, an agency must use the APA’s notice-and-comment procedures when it wishes to issue a new interpretation of a regulation that deviates significantly from a previously-adopted interpretation. While the District Court granted sum-mary judgment to the Department, the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”), applying the Paralyzed Veterans doctrine, reversed the lower court’s ruling.
In its decision, the Court voided the Paralyzed Veterans doctrine, holding that it is contrary to the clear text of the APA’s rulemaking provisions, and improperly imposes on federal agencies an obligation beyond the APA’s maximum procedural requirements. Specifically, the Court found that the D.C. Circuit’s reading of the APA conflated the differ¬ing purposes of two sections of the Act—Section 1 and Section 4. The Court explained that while Section 1 requires agencies to use the same procedures when they amend or repeal a rule as they used to issue the rule, it does not specify what those procedures are. That, according to the Court, is the purpose of Section 4, which specifically exempts interpretive rules from notice-and-comment requirements. The Court reasoned that, by extension, because an agency is not required to use notice-and-comment procedures to issue an initial in¬terpretive rule, it is also not required to use those procedures to amend or repeal that rule.
A copy of the Court’s opinion may be found here.