The Supreme Court slapped down a labor action by the Obama administration Monday, ruling that the administration was wrong to rescind a long-standing exemption to federal overtime rules in 2011.
A 6-2 court majority scolded the Labor Department for arbitrarily changing the standard without properly bothering to explain why it was doing it.
“One of the basic procedural requirements of administrative rulemaking is that an agency must give adequate reasons for its decisions … But where the agency has failed to provide even that minimal level of analysis, its action is arbitrary and capricious and so cannot carry the force of law,” said Justice Anthony Kennedy, writing for the majority.
The case is Encino Motors vs. Navarro. Kennedy’s majority opinion was joined by Chief Justice John Roberts and Justices Sonya Sotomayor, Elena Kagan, Ruth Bader Ginsburg and Stephen Breyer. Justices Sam Alito and Clarence Thomas, the court’s leading conservative voices, dissented.
Karen Harned, executive director of the National Federation of Independent Business’s Small Business Legal Center, cheered the decision. “Federal agencies cannot whimsically flip-flop when interpreting federal law. Small businesses build their businesses on the expectation that they can rely on longstanding regulatory practices. So if an agency is going to all of the sudden pull the rug out from underneath the regulated community, and change a longstanding interpretation of what the law requires, they need to have a very good justification,” she said.
The ruling represents a chipping away at the administration’s efforts to extend overtime rules and another rebuke against its broader effort to expand federal agencies’ authority through new rules and reinterpretations of old ones. Last year, a unanimous Supreme Court in the case Mach Mining struck down the Equal Employment Opportunity Commission’s novel claim that the courts had no oversight regarding its pre-trial settlement efforts. In the 2014 case Noel Canning, the court rejected the White House’s argument that the president could use his recess appointment powers to fill vacant administration positions even when the Senate said it was still in session.
Monday’s case involved whether “service advisers” at car dealerships, people who advise customers on what repairs their car needs when it is brought in to be serviced, were eligible to be paid overtime once they worked past 40 hours in a week. Since 1978, the Labor Department had said these workers were included with car salesmen and mechanics under an exemption to the Fair Labor Standards Act, the federal law covering overtime. The department did not move to make it an official rule until 2008, though.
After initially announcing it would codify the existing exemption, the department reversed itself in 2011, saying that service advisers would be made eligible for overtime after all. Encino Motorcars, a Los Angeles Mercedes-Benz dealership, challenged the department’s action, and the Supreme Court heard oral arguments in April.
The case turned on whether the department had properly followed the Administrative Procedures Act, the law covering official rulemakings. The law requires federal agencies to explain why they are changing a rule and to allow for public comment regarding the change. Kennedy bluntly said that administration didn’t follow those rules and therefore the new regulation had to be voided.
“The unavoidable conclusion is that the 2011 regulation was issued without the reasoned explanation that was required in light of the department’s change in position and the significant reliance interests involved. In promulgating the 2011 regulation, the department offered barely any explanation,” Kennedy said.
Notably, the court’s ruling did not say that the department’s new overtime interpretation was wrong, just that it failed to follow the proper procedure. In a dissent joined by Alito, Thomas argued that the court should have ruled that the service advisers were included by the overtime exemption.
“The plain meaning of the various terms in the exemption establish that the term ‘salesman’ is not limited to only those who sell automobiles. It also extends to those ‘primarily engaged in … servicing automobiles,'” Thomas said.
Officials in the Obama administration did not return calls for comment.
