by William Funk ¹

Deference to Agency Amicus Brief

In Auer v. Robbins, -- S.Ct. -- (1997), some St. Louis police sergeants and a lieutenant were suing the police department for overtime pay under the Fair Labor Standards Act. That Act exempts from its coverage "bona fide executive, administrative, or professional employees." The Secretary of Labor adopted regulations to define the nature of this exemption, saying that these exempt employees were those employed on a "salary basis," compensation not subject to reductions because of "variations in the quantity or quality of the work performed." It was conceded, however, that these police officers could, at least in theory, have their salary reduced as a disciplinary measure. The police department first argued that, as applied to public employers, it was an improper interpretation of the statute to deny the exemption due to possible disciplinary reductions in salary. Justice Scalia, writing for a unanimous court, held that the meaning of the statutory term was ambiguous, and the agency's interpretation was reasonable, a garden-variety application of Chevron.

The police department then argued that the regulation had been adopted prior to the extension of the FLSA to state and local government, and that the Secretary had acted arbitrarily and capriciously in not revisiting the rule after the extension of the Act to state and local government. This is an interesting claim, especially in light of a split in the circuits over whether an AFDC regulation was arbitrary and capricious because of circumstances that arose after the adoption of the regulation, see Gamboa v. Rubin 80 F.3d 1338 (1996), but the Supreme Court made short work of it. Where the claim was that it was arbitrary and capricious not to conduct an amendatory rulemaking in light of a later occurrence, the Court said that there was "no basis for the court to set aside the agency's action prior to any application for relief addressed to the agency itself." In short, the burden was on those who wished the rule changed to petition for its change, and then if the agency refused, to challenge that refusal.

Even if the regulation was valid, there remained a question as to its proper application. Indeed, this was the question that had split the circuits, with some holding that the mere theoretical possibility that the employee's salary might be diminished as a disciplinary violation sufficed to eliminate the exemption. Others held that there had to be an actual policy or practice of using salary deductions as a disciplinary measure in order to eliminate the exemption. In this case, the Secretary of Labor had filed an amicus brief indicating his view that the exemption was eliminated only in the latter situation. The Court held that because the regulation was a creature of the Secretary's own invention, his interpretation of it was controlling unless "plainly erroneous or inconsistent with the regulation." Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945). Of course, there was only one problem; here the Secretary's interpretation was made only in an amicus brief in the case in question. No problem, the Court found, "[t]he Secretary's position is in no sense a 'post hoc rationalizatio[n]' advanced by an agency seeking to defend past agency action against attack. There is simply no reason to suspect that the interpretation does not reflect the agency's fair and considered judgment on the matter in question."

With respect to Chevron deference, it has been generally understood that at least with respect to litigating positions taken by an agency, no deference is appropriate. See Bowen v. Georgetown Univ. Hospital, 488 U.S. 204 (1988). But it was this case that the Court in Auer expressly distinguished, implying that it had involved an agency's post hoc rationalization, trying to defend past agency action. Thus, Auer seems to have carved out an exception (which could come to swallow the rule) with respect to litigating positions -- if the agency is not defending a past agency action through a post hoc argument, even a litigating position can qualify for controlling deference from a court. This, however, may be too facile. First, this is a litigating position in which the agency is not even a party; in which it has no stake other than as a disinterested representative of the public interest. Second, this interpretation is of the agency's regulation, not of a statute passed by Congress. That is, if Chevron is based on an implicit delegation theory, delegating to an agency to define ambiguous terms, Bowles is based on a relative competence/expertise theory, suggesting that an agency is in a better position than a court to determine the best meaning of its own regulations. This might be relevant to the form in which the interpretation is made, because the expression of expertise might be found in almost any form (so long as it was evidence of serious consideration), but if deference turns on the exercise of a delegated power, its exercise might require certain formalities beyond the mere filing of a brief. In any case, Auer will provide a fertile source for further speculation on the proper circumstances for and the extent of judicial deference to agency interpretations.

Statutory Construction: EEOC and Title VII

The issue in Walters v. Metropolitan Educational Enterprises, Inc., 117 S.Ct. 660 (1997), was the meaning of "employer" under Title VII of the Civil Rights Act of 1964. The act defines "employer" to mean someone who "has fifteen of more employees for each working day in each of twenty or more calendar weeks in the current or preceding calendar year." The dispute involved whether an employer "has" an employee whenever the employee is on the payroll or only on days when that employee is actually compensated or at work. The discrepancy can arise because of part-time workers who are on the payroll for the week but may not actually be present on one or more days in the week. Under one interpretation, that part-time worker would be counted as an employee toward the jurisdictional number; under the other, he would not. The Court unanimously decided that the more inclusive definition, the payroll method, governed. Justice Scalia, writing for the Court, related that the EEOC, both under Title VII and the Age Discrimination Act, and the Department of Labor under the Family and Medical Leave Act had adopted the payroll method, but he noted that the EEOC's authority under Title VII does not include rulemaking authority over the issue. He then turned to dictionaries and found three whose definition of "have" supported the interpretation that an employer need only have an employment relationship with an individual to "have" that person as an employee. Finally, Justice Scalia noted practical problems in implementing the other definition of employee.

Statutory Construction: Banking Regulation

The Resolution Trust Corporation sued several officer of a federal savings bank alleging that they had violated the legal standard of care they owed that institution. The question in the case was what source of law should govern their standard of care: state law, federal common law, or a particular federal statute that speaks of "gross negligence." The Court, in an opinion by Justice Breyer, unanimously concluded that the particular federal statute provides a floor, but not a ceiling, on the standard of care, so that state law would govern if it sets a higher standard of care, such as simple negligence. Atherton v. FDIC, 117 S.Ct. 666 (1997). The Court first addressed whether there was federal common law to be applied. It acknowledged that the Court had held in 1891 that federal common law governed federally chartered banks, but, the Court said, this predated Erie v. Tompkins. More recently, the Court has indicated that the circumstances where federal common law is justified are "few and restricted," and normally it is a precondition to the creation of federal common law that there is a "significant conflict between some federal policy or interest and the use of state law." Here the Court found no such conflict. The mere fact that there could be different standards between the states was not enough, given the fact that "our Nation's banking system has thrived despite disparities in matters of corporate governance." Next, the Court addressed whether the particular federal statute precluded any state-imposed standard of care. The statute (12 U.S.C. § 1821(k)) states that an officer "may be held personally liable for [damages] for gross negligence." It then goes on to say that "[n]othing in this paragraph shall impair or affect any right of the [RTC] under other applicable law." This plain language suggested to the Court that the provision did not preclude application of a higher standard of care imposed by a state. Moreover, the Court found the legislative history on this subject generally supportive of this conclusion, although it noted that the history was not all on one side. Justices O'Connor, Scalia, and Thomas wrote a separate concurring opinion to disavow any reliance on legislative history.

Certiorari Granted

SEC Rule Beyond its Statutory Authority

The Eighth Circuit reversed the criminal conviction of a person who had bought stock in a target corporation, which was about to be the subject of a tender offer, on the basis of inside information he obtained as an attorney for the acquiring corporation. United States v. O'Hagan, 92 F.3d 612 (1996). One of the counts had been that he violated Rule 14e-3 of the Securities and Exchange Commission in making these purchases. The court held that the SEC's rule, which specifically prohibits the kind of conduct involved here, was beyond the SEC's authority under Section 14(e) of the Securities Exchange Act. Despite the explicit grant of authority to make rules to "define ... such acts and practices as are fraudulent, deceptive, or manipulative," the court found that the agency could not define what was "fraudulent." That term, the court stated, was not intended to have a meaning different from its common legal definition, and the Supreme Court has interpreted "fraudulent" under Section 10(b) of the Act to require breach of a fiduciary duty. The SEC's rule (and the activity here) is not premised upon a fiduciary duty, so its reach is too broad. The court also overturned the convictions based on violations of the federal Mail Fraud statute and Rule 10b-5. Three circuits have held that Rule 14e-3 does not exceed the agency's authority under the Act.

Suspension Without Pay Requires Pre-suspension Hearing

A police officer of a state university was arrested at the home of a friend in the course of a drug raid on the house, and he was charged with possession of marijuana. The police notified the university, which immediately suspended him without pay. While the criminal charges against the officer were dropped, the suspension was not lifted. Thereafter, the university demoted him to the position of a groundskeeper and gave him pay at that level back to the date of his suspension. The Third Circuit held that Due Process requires some sort of hearing before a person can be suspended without pay. Homar v. Gilbert, 89 F.3d 1009 (1996).

1. Professor of Law, Lewis & Clark Law School; Editor-in-Chief, Administrative & Regulatory Law News.