Opinion ID: 204689
Heading Depth: 2
Heading Rank: 2

Heading: Whether Deference to the Secretary's Position is Appropriate

Text: The Secretary's appearance as amicus supporting Plaintiffs requires us to determine what, if any, deference we must accord to her view that PSRs do not meet the primary duties test for the outside sales exemption. The Secretary also advocated this construction of the regulations before the Second Circuit in Novartis. 611 F.3d at 149. Although the Novartis court held that Secretary's interpretation was owed Auer deference, 611 F.3d at 153, our review of the relevant authorities leads us to a different conclusion. We conclude that we owe no deference to the Secretary's current interpretation of the regulations, and, in any event, we respectfully disagree with that interpretation.
When a question arises as to the meaning of the FLSA or the Secretary's regulations, we apply traditional rules of construction and, where required, administrative deference. See, e.g., Webster v. Pub. Sch. Emp. of Wash., Inc., 247 F.3d 910, 915 (9th Cir.2001) (citing Auer, 519 U.S. at 457, 117 S.Ct. 905). Thus, if the language of a statute or regulation is unambiguous, we apply the terms as written. See Christensen v. Harris Cnty., 529 U.S. 576, 588, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000) ([D]eference is warranted only when the language of the regulation is ambiguous.); Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778 (If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.). By contrast, when Congress has not directly spoken to the precise question at issue, Auer, 519 U.S. at 457, 117 S.Ct. 905, we will defer to the Secretary's regulation so long as it is `based on a permissible construction of the statute.' Id. (citing Chevron, 467 U.S. at 842-43, 104 S.Ct. 2778). If the Secretary's regulations are themselves ambiguous, and the Secretary uses her rulemaking authority to provide clarity, we give controlling deference to the Secretary's view unless it is plainly erroneous or inconsistent with the regulation. Auer, 519 U.S. at 461, 117 S.Ct. 905 (citation and internal quotation mark omitted); see also Christensen, 529 U.S. at 586-87, 588, 120 S.Ct. 1655 ( Auer deference is warranted only when the language of the regulation is ambiguous.); cf. In re Farmers Ins. Exch., Claims Representatives' Overtime Pay Litig., 481 F.3d 1119, 1129 (9th Cir.2007) (We must give deference to the DOL's interpretation of its own regulations through, for example, Opinion Letters.). Lastly, if the Secretary interprets an unambiguous statute by way of an opinion letter, enforcement guidelines, or the like, her opinion is merely entitled to respect to the extent the interpretation has the power to persuade the court. See Christensen, 529 U.S. at 587, 120 S.Ct. 1655 (citing Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944)).
In Novartis, the Second Circuit held that PSRs did not meet the requirements of the outside sales exemption. As it has done here, the DOL took the position that when an employee promotes to a physician a pharmaceutical that may thereafter be purchased by a patient from a pharmacy. . . the employee does not in any sense make the sale. Novartis, 611 F.3d at 153. In reviewing the Secretary's position, the Second Circuit laid out the relevant statutory and regulatory history and focused its attention on the Secretary's regulations, and, in particular, the Preamble in the 2004 Rule which emphasized that no one could be considered a salesman within these regulations unless he in some sense made a sale. Id. at 152. The Novartis court highlighted a series of comment letters sent to the DOL by manufacturers' associations and industry trade groups that had requested the Department [ ] eliminate the emphasis upon an employee's `own' sales . . . because of team selling, customer control of order processing, and increasing computerization of sales and purchasing activities. . . . 69 Fed.Reg. at 22,162. The United States Chamber of Commerce emphasized that promotional activities, even when they do not culminate in an individual sale, are nonetheless an integral part of the sales process. Id. Based on these concerns, the DOL made a minor change to address commenter concerns that technological changes in how orders are taken and processed should not preclude the exemption for employees whose primary duty is making sales. Id. The 2004 Rule continues: [T]he Department does not intend to change any of the essential elements required for the outside sales exemption, including the requirement that the outside sales employee's primary duty must be to make sales or to obtain orders or contracts for services. An employer cannot meet this requirement unless it demonstrates objectively that the employee, in some sense, has made sales. Id. The Novartis court also quoted the Preamble's elaboration of the primary-duty standard:  Employees have a primary duty of making sales if they `obtain a commitment to buy' from the customer and are credited with the sale. 611 F.3d at 152 (quoting 69 Fed.Reg. at 22,162) (emphasis in original). The Secretary's interpretation is based on a 1949 DOL interpretation, which provided: In borderline cases the test is whether the person is actually engaged in activities directed toward the consummation of his own sales, at least to the extent of obtaining a commitment to buy from the person to whom he is selling. If his efforts are directed toward stimulating the sales of his company generally rather than the consummation of his own specific sales his activities are not exempt. 69 Fed.Reg. at 22,162-63 (citation omitted). The Second Circuit determined that the Secretary's regulations do far more than merely parrot the language of the FLSA. Novartis, 611 F.3d at 153. For that reason, the Secretary's interpretations of her regulations are [ ] entitled to `controlling' deference unless those interpretations are `plainly erroneous or inconsistent with the regulation.' Id. (quoting Auer, 519 U.S. at 461, 117 S.Ct. 905 (internal quotation omitted)). The Novartis court could find no inconsistencies or errors in the Secretary's amicus position. Id. The court stated it did not believe the distribution practices of the drug company constituted an other disposition, as that term is used in the FLSA. Rather, the court said that because other disposition followed a line of words which, apparently, emphasized a sale being consummated, other disposition was not intended as a catch-all category. Id. Ultimately, the Novartis court summarized its reasoning: [W]here the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale. Id. at 154.
Our view of the level of deference we owe to the Secretary in this matter is best captured by the Supreme Court's instruction in Gonzales v. Oregon : An agency does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language. 546 U.S. 243, 257, 126 S.Ct. 904, 163 L.Ed.2d 748 (2006); see also Chase Bank USA, N.A. v. McCoy, 562 U.S. ___, ___, 131 S.Ct. 871, 882, 178 L.Ed.2d 716 (2011) (Accordingly, no deference was warranted to an agency interpretation of what were, in fact, Congress' words.); N. Cal. River Watch v. Wilcox, 620 F.3d 1075, 1088 (9th Cir.2010) (Here, the three rules cited by the United States essentially parrot the statutory language.). The parroting with which the Gonzales Court took issue is present in the Secretary's interpretation of Section 3(k). According to the Secretary's regulations, a salesman is someone who either mak[es] sales within the meaning of section 3(k) of the Act or someone who obtain[s] orders or contracts. 29 C.F.R. 541.500(a)(1). Since there is no dispute that PSRs do not obtain orders for anything, only the sales element is relevant here. To define sales within the meaning of section 3(k), we look to 29 C.F.R. § 541.501(b), which provides that [s]ales within the meaning of section 3(k) of the Act include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. Section 3(k) of the Act states that `[s]ale' or `sell' includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. 29 U.S.C. § 203(k). Thus, the Secretary has given us two meanings with which to set the boundaries of the sales exemption. First, in 29 C.F.R. § 541.501(b), the Secretary provides an open-ended definition that sales, unsurprisingly, include the transfer of title to tangible property. In the next sentence, the Secretary cross-references back to the language of Section 3(k) of the Actthe very language purportedly being defined. Accordingly, the Secretary's regulations define sale or sell by statutory renvoithat is, a sale means a sale. This clarifies nothing about the meaning of Section 3(k); it merely incorporates the very undefined, very un-delimited term the Secretary seeks to clarify. A definition dependent almost entirely on Congress's seventy-two-year old statutory language is not an example of the DOL employing its expertise to elucidate meaning to which we owe Auer deference. See N. Cal. River Watch, 620 F.3d at 1085-87. In Gonzales v. Oregon, the Supreme Court confronted an analogous situation when it rejected the Attorney General's regulatory attempt to frustrate the implementation of Oregon's Death with Dignity Act. In that case, Oregon statutory law exempted licensed physicians from liability when they prescribed medication to hasten death for terminally ill individuals. 546 U.S. at 249-54, 126 S.Ct. 904. In 2001, shortly after a change of presidential administration, the Attorney General promulgated a new interpretive rule that restricted the use of controlled substances in physician-assisted suicides. Id. at 254, 126 S.Ct. 904. In defending that rule, the government contended in its appeal that the judiciary was required to give considerable deference to the Attorney General's interpretive rule as it was an elaboration of one of [his] own regulations. Id. at 256, 126 S.Ct. 904. In rejecting that contention, the Supreme Court drew meaningful distinctions with its decision in Auer : In Auer, the underlying regulations gave specificity to a statutory scheme the Secretary was charged with enforcing and reflected the considerable experience and expertise the [DOL] had acquired over time. . . . Here, on the other hand, the underlying regulation does little more than restate the terms of the statute itself. The language the Interpretive Rule addresses comes from Congress, not the Attorney General, and the near equivalence of the statute and regulation belies the Government's argument for Auer deference. Id. at 256-57, 126 S.Ct. 904 (emphasis added). The failure to add specificity to the statutory scheme that troubled the Gonzales Court, indeed the parroting of statutory language, is present in the Secretary's outside sales regulations. Rather than setting forth a particular test for sale or instructing employers to look for indicia of sales, the Secretary's regulations direct employers, employees, and this court back to the language of the FLSA. Given the admonition in Gonzales, we are unable to accord Auer deference to a regulation written in this manner. Thus, when we look to the Secretary's brief for her application of the regulations, we see only a reinterpretation of Section 3(k). Rather than applying the regulation to the facts presented, the Secretary has used her appearance as amicus to draft a new interpretation of the FLSA's language. Were we to accept the Secretary's offer, and give controlling deference even where there exists no meaningful regulatory language to interpret, we would unduly expand Auer's applicability to interpretations of statutes expressed for the first time in case-by-case amicus filings. See N. Cal. River Watch, 620 F.3d at 1088 (In this case, the amicus brief purports to interpret statutory, not regulatory, language.). In essence, we would sanction bypassing of the Administrative Procedures Act and notice-and-comment rulemaking. Cf. Christensen v. Harris Cnty., 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000) (Here, however, we confront an interpretation contained in an opinion letter, not one arrived at after, for example, a formal adjudication or notice-and-comment rulemaking.). Accordingly, we hold that we need not give controlling deference to the Secretary's interpretations in this matter. [7] Furthermore, even if Auer applied, deference is not warranted because the Secretary's position is both plainly erroneous and inconsistent with her own regulations and practices, as demonstrated in the analysis that follows.