The opinion of the court was delivered by: 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,*fn1 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
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 interpretation has not been
apparent to the rest of the baking industry.
According to the IBC, virtually all of the collective
bargaining agreements in the baking industry since 1972,
covering nearly 30,000 baking employees nationwide, have
included provisions allowing for the exemption of earned work
credits from the calculation of the regular rate, and thus the
overtime rate, of compensation for workers in the industry.
IBC also states that the DOL audited IBC and other bakeries
numerous times over the past two decades, yet never challenged
the earned work credit practice.
The court finds that the DOL's claims of consistent
interpretation of 29 U.S.C. § 207(e)(2) over the years are
incredible. Twenty years of oversight of the baking industry by
the DOL was more than adequate time for the DOL to make clear
its position on earned work credits. The DOL argues that the
onus was on the baking industry to seek a formal opinion from
the DOL on the status of earned work credits in the calculation
of pay. Surely the abandonment by the DOL of early litigation
on the issue, followed by twenty years of audits, which without
exception allowed the practice to continue, would be sufficient
affirmation for any industry that their accounting practices
were acceptable. Consequently, the court finds that the
interpretation urged by the DOL that earned work credits must
be included in the calculation of the regular rate of pay is
indeed a change in interpretation by the DOL.
The court concludes that the DOL has managed to cross the
threshold of providing a justification for its change in
policy and procedure. Saying "this interpretation is the most
consistent with the statute" does not speak well for an agency
which has had over two decades to enforce this regulation but
admits to "a discretionary course of relative inaction."
(Plaintiff's Memorandum at 11). Despite the traditional
deference to an agency's interpretation of its own
regulations, and the right of an agency to change its own
regulations, the fact that an agency has declined to enforce
a regulation for over twenty years and suddenly decides to
enforce it puts a tremendous burden on industries attempting
to act within agency guidelines.
Nonetheless, the court acknowledges that attempting to
enforce an interpretation of a regulation which is consistent
with the purposes of the statute is a valid reason for a
change in interpretation on the agency's part. The court is
further persuaded by the facts that the new interpretation
urged by the DOL is not unreasonable and that the relief
sought by the agency in this case is only prospective in
Consequently, because the court finds that the DOL has
provided a sufficient justification for its change in
interpretation of 29 U.S.C. § 207(e)(2), the court now grants
summary judgment in favor of the plaintiff, the Department of
IT IS THEREFORE ORDERED that the plaintiff's motion for
summary judgment ...