Reich v. Interstate Brands Corp., 91-2345.

• Decision Date: 21 March 1994
• Docket Number: No. 91-2345.,91-2345.
• Citation: 849 F. Supp. 1261
• Parties: Robert REICH, Secretary of Labor, United States Department of Labor, Plaintiff, v. INTERSTATE BRANDS CORPORATION, a corporation, Defendant.
• Court: U.S. District Court — Central District of Illinois

849 F. Supp. 1261

Robert REICH, Secretary of Labor, United States Department of Labor, Plaintiff, v. INTERSTATE BRANDS CORPORATION, a corporation, Defendant.

No. 91-2345.

United States District Court, C.D. Illinois, Danville Division.

March 21, 1994.

Joan E. Gestrin, U.S. Dept. of Labor, Chicago, IL, for plaintiff.

Stuart H. Bompey, Orrick Herrington & Suttcliffe, New York City, for defendant.

ORDER

BAKER, District Judge.

This suit was brought by the Department of Labor (DOL) seeking a permanent injunction to restrain Interstate Brands Corporation (IBC) from further violations of the Fair Labor Standards Act (FLSA). Both parties moved for summary judgment. The only issue in the case is whether "earned work credits" qualify as "other similar payments" under 29 U.S.C. § 207(e)(2), and, like the other payments described in that section, are exempt from calculation as part of the "regular rate" of pay, and therefore, the overtime rate of pay. In its most recent order,¹ the court determined that the interpretation of the statute urged by the DOL was plausible, but because that interpretation differed dramatically from the interpretation that appeared to have been in place prior to this litigation, the DOL was ordered to provide a "reasoned analysis" for its change in interpretation, based on the requirement in Rust v. Sullivan, 500 U.S. 173, 186, 111 S.Ct. 1759, 1769, 114 L.Ed.2d 233 (1991). The DOL has put forward a sufficient analysis and the court now grants summary judgment in favor of the plaintiff, the DOL.

* * * * * *

In directing the DOL to show a reasoned analysis for its change in interpretation of the statute, the court referred to three cases in which the Supreme Court had required just such an explanation. Rust, 500 U.S. 173, 111 S.Ct. 1759; Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984); and Motor Vehicle Association of United States v. State Farm Mutual Auto Insurance Co., 463 U.S. 29, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983). The DOL accurately makes the point that each of these cases is a rulemaking case, where a new regulation has been promulgated, and the new regulation differs dramatically from the previous rule. However, the basis for requiring an agency to provide a reasoned analysis is a protection against arbitrariness on the part of the agency. As stated in the court's previous order, there are many valid reasons for allowing agencies the flexibility to change their policies. But no reason, or a bad faith reason for change would not be sufficient. Thus, an agency must provide a reasoned analysis to the public when it changes a policy as a protection to the public against arbitrary or bad faith acts on the part of the agency.

Admittedly, the cases in which this requirement has been applied have been cases where a new regulation has been promulgated. However, the court finds that the case of a new interpretation of an existing regulation, as happened with IBC and DOL, provides an equally compelling need for an explanation for the agency's change of mind. In the case of promulgation of a new rule, notice is provided in the Federal Register. Public hearings are held, and private parties have ample opportunity not only to become aware of the proposed changes, but to participate in the process of developing the new regulations.

In contrast, when an agency suddenly adopts a dramatically different interpretation of an existing rule, the agency does not have to provide anyone with notice or an opportunity to be heard. Requiring a reasoned analysis for change of an established longstanding interpretation of a rule can only have a salutary effect for all those affected by the rule. Therefore, the court now holds that when an agency changes its interpretation of an established regulation, it must provide a reasoned analysis for the change.

The DOL argues that it has not changed its position regarding the earned work credits as "other similar payments" under 29 U.S.C. § 207(e)(2), and in fact submits an affidavit by the Administrator of the Wage and Hour Division, Employment Standards Administration of the United States Department of Labor, affirming that the position of the DOL has always been not to include earned work credits under the definition of "other similar payments." However, if this has always been the interpretation of the DOL, that...