The Fair Labor Standards Act generally requires employers to pay workers who labor more than forty hours a week overtime (1.5x the “regular rate”). However, the law has a number of exemptions, including for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership.” In 1970, the Labor Department interpreted “salesman” to mean “any salesman, parts-man, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership.” “Service Advisors” were not exempt, under this interpretation. Several courts rejected the interpretation that “service advisors” were not covered by the “salesman” exemption, because they are involved in sales. In 1978, the Department, through an opinion letter, stated that service advisors could be exempt. In 1987, the Department in its Field Operations Handbook confirmed that the service advisors would be exempt, and would not be eligible for overtime. In 2008, the Department of Labor issued a notice of proposed rulemaking, which acknowledged that every court, and the Department itself, treated service advisors as exempt since 1987. The proposal would conform the regulation with practice and prevailing judicial interpretations.
But then we had hope and change. Justice Kennedy’s majority opinion in Encino Motorcars, LLC v. Navarro explains what happened next:
In 2011, however, the Department changed course yet again. It announced that it was “not proceeding with the proposed rule.” 76 Fed. Reg. 18833. Instead, the Depart ment completed its 2008 notice-and-comment rulemaking by issuing a final rule that took the opposite position from the proposed rule. The new final rule followed the original 1970 regulation and interpreted the statutory term “salesman” to mean only an employee who sells automo biles, trucks, or farm implements. Id., at 18859 (codified at 29 CFR §779.372(c)(1)).
That is, the interpretation that was rejected by courts for four decades, and which the Labor Department had rejected in practice for three decades. Why did they do it?
The Department gave little explanation for its decision to abandon its decades-old practice of treating service advisors as exempt under §213(b)(10)(A). It was also less than precise when it issued its final rule. As described above, the 1970 regulation included a separate subsection stating in express terms that service advisors “are not exempt” under the relevant provision. 29 CFR §779.372(c)(4) (1971). In promulgating the 2011 regula tion, however, the Department eliminated that separate subsection. According to the United States, this change appears to have been “an inadvertent mistake in drafting.” Tr. of Oral Arg. 50.
Drafting error? Like “established by the state”? This is not the first time the Court has criticized the Obama administration for arbitrarily changing its positions. Based on political reasons. That last part wasn’t from the Court. It was from me. See earlier rebukes in Marvin M. Brandt Revocable Trust v. United States, Kiobel v. Royal Dutch Petroleum, Levin v. United States, US Airways v. McCutchen, and Myriad Genetics.
The Court unanimously held that this final regulation, which disregarded the proposed rulemaking, and offered no explanation, did not receive Chevron deference.
When Congress authorizes an agency to proceed through notice-and comment rulemaking, that “relatively formal administra tive procedure” is a “very good indicator” that Congress intended the regulation to carry the force of law, so Chev- ron should apply. Mead Corp., supra, at 229–230. But Chevron deference is not warranted where the regulation is “procedurally defective”—that is, where the agency errs by failing to follow the correct procedures in issuing the regulation. 533 U. S., at 227; cf. Long Island Care at Home, Ltd. v. Coke, 551 U. S. 158, 174–176 (2007) (reject ing challenge to procedures by which regulation was is sued and affording Chevron deference). Of course, a party might be foreclosed in some instances from challenging the procedures used to promulgate a given rule. Cf., e.g., JEM Broadcasting Co. v. FCC, 22 F. 3d 320, 324–326 (CADC 1994); cf. also Auer v. Robbins, 519 U. S. 452, 458– 459 (1997) (party cannot challenge agency’s failure to amend its rule in light of changed circumstances without first seeking relief from the agency). But where a proper challenge is raised to the agency procedures, and those procedures are defective, a court should not accord Chev- ron deference to the agency interpretation. Respondents do not contest the manner in which petitioner has chal lenged the agency procedures here, and so this opinion assumes without deciding that the challenge was proper.
The agencies are allow to change their positions, but they must provide a “reasoned explanation” for doing so.
Agencies are free to change their existing policies as long as they provide a reasoned explanation for the change. See, e.g., National Cable & Telecommunications Assn. v. Brand X Internet Services, 545 U. S. 967, 981–982 (2005); Chevron, 467 U. S., at 863–864. When an agency changes its existing position, it “need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate.” FCC v. Fox Televi- sion Stations, Inc., 556 U. S. 502, 515 (2009). But the agency must at least “display awareness that it is chang ing position” and “show that there are good reasons for the new policy.” Ibid. (emphasis deleted). In explaining its changed position, an agency must also be cognizant that longstanding policies may have “engendered serious reli ance interests that must be taken into account.” Ibid.; see also Smiley v. Citibank (South Dakota), N. A., 517 U. S. 735, 742 (1996). “In such cases it is not that further justi fication is demanded by the mere fact of policy change; but that a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.” Fox Television Stations, supra, at 515–516. It follows that an “[u]nexplained inconsistency” in agency policy is “a reason for holding an interpretation to be an arbitrary and capricious change from agency practice.” Brand X, supra, at 981. An arbitrary and ca pricious regulation of this sort is itself unlawful and re ceives no Chevron deference. See Mead Corp., supra, at 227.
Based on this framework, the Obama Labor Department’s 2011 regulation was not entitled to Chevron deference.
Applying those principles here, the unavoidable conclu sion 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 reli ance interests involved. In promulgating the 2011 regula tion, the Department offered barely any explanation. A summary discussion may suffice in other circumstances, but here—in particular because of decades of industry reliance on the Department’s prior policy—the explanation fell short of the agency’s duty to explain why it deemed it necessary to overrule its previous position.
Whatever potential reasons the Department might have given, the agency in fact gave almost no rea sons at all. In light of the serious reliance interests at stake, the Department’s conclusory statements do not suffice to explain its decision. See Fox Television Stations, 556 U. S., at 515–516. This lack of reasoned explication for a regulation that is inconsistent with the Department’s longstanding earlier position results in a rule that cannot carry the force of law. See 5 U. S. C. §706(2)(A); State Farm, supra, at 42–43. It follows that this regulation does not receive Chevron deference in the interpretation of the relevant statute.
I haven’t read this carefully, but this opinion may have a bearing on the Net Neutrality litigation, where the FCC radically altered several decades of its position on common carriage.
Ultimately, the Court remands the issue back to the 9th Circuit, with instructions to decide it without applying Chevron.
RBG, joined by Sotomayor, concurred to write that even on remand, the regulation is not arbitrary and capricious. She also stresses that nothing in the opinion alters settled law.
I write separately to stress that nothing in today’s opin ion disturbs well-established law. In particular, where an agency has departed from a prior position, there is no “heightened standard” of arbitrary-and-capricious review. Id., at 514. See also ante, at 9. An agency must “display awareness that it is changing position” and “show that there are good reasons for the new policy.” Fox, 556 U. S., at 515 (emphasis deleted). “But it need not demonstrate to a court’s satisfaction that the reasons for the new policy are better than the reasons for the old one; it suffices that the new policy is permissible under the statute, that there are good reasons for it, and that the agency believes it to be better, which the conscious change of course adequately indicates.” Ibid.
Justice Thomas–who believes all administrative law is unlawful–concurred, joined by Justice Alito. The dynamic duo (who write together very often on the Scalia-less Court), explain that there is no reason to remand the case: the Court should resolve the issue properly before it.
I agree with the majority’s conclusion that we owe no Chevron deference to the Department’s position because “deference is not warranted where [a] regulation is ‘proce- durally defective.’ ” Ante, at 8. But I disagree with its ultimate decision to punt on the issue before it. We have an “obligation . . . to decide the merits of the question presented.” CBOCS West, Inc. v. Humphries, 553 U. S. 442, 472 (2008) (THOMAS, J., dissenting). We need not wade into the murky waters of Chevron deference to de- cide whether the Ninth Circuit’s reading of the statute was correct. We must instead examine the statutory text. That text reveals that service advisors are salesmen pri- marily engaged in the selling of services for automobiles. Accordingly, I would reverse the Ninth Circuit’s judgment.
CT’s opinion offers a grammatical discourse on the difference between a “salesman” and a “service advisor,” with citations to two dictionaries, and a discussion of gerunds.
I start with the uncontroversial notion that a service advisor is a “salesman.” The FLSA does not define the term “salesman,” so “we give the term its ordinary mean- ing.” Taniguchi v. Kan Pacific Saipan, Ltd., 566 U. S. ___, ___ (2012) (slip op., at 5). A “salesman” is someone who sells goods or services. 14 Oxford English Dictionary 391 (2d ed. 1989) (“[a] man whose business it is to sell goods or conduct sales”); Random House Dictionary of the English Language 1262 (1966) (Random House) (“a man who sells goods, services, etc.”). Service advisors, whose role it is to “interact with customers and sell them services for their vehicles,” ante, at 2, are plainly “salesm[e]n.” See ibid. (cataloguing sales-related duties of service advisors).
A service advisor, however, is not “primarily engaged in selling . . . automobiles.” §213(b)(10)(A). On the contrary, a service advisor is a “salesman” who sells servicing solu- tions. Ante, at 2. So the exemption applies only if it cov- ers not only those salesmen primarily engaged in selling automobiles but also those salesmen primarily engaged in servicing automobiles.
The exemption’s structure confirms that salesmen could do both. The exemption contains three nouns (“salesman, partsman, or mechanic”) and two gerunds (“selling or servicing”). The three nouns are connected by the disjunc- tive “or,” as are the gerunds. So unless context dictates otherwise, a salesman can either be engaged in selling or servicing automobiles. Cf. Reiter v. Sonotone Corp., 442 U. S. 330, 339 (1979).
And for good measure, there is a citation to Justice Scalia:
There is no basis to infer that Congress means anything beyond what a statute plainly says simply because the legislation in question could be classified as “remedial.” See Scalia, Assorted Canards of Contemporary Legal Analysis, 40 Case W. Res. L. Rev. 581, 581–586 (1990).