Federal Agency Power to Interpret Regulations Remains Mostly Intact

When interpreting vague regulations, courts should continue deferring to a federal agency's view of its own rules, so long as the interpretation is reasonable and consistent with the regulation, the U.S. Supreme Court recently ruled.

However, the court reinforced the limits on agency deference and identified when it is and is not appropriate.

Although the underlying case was not employment-related, the decision could have a far-reaching impact on employers and workplace law compliance, said Joshua Nadreau, an attorney with Fisher Phillips in Boston. Agencies such as the Department of Labor, the Equal Employment Opportunity Commission (EEOC), the National Labor Relations Board (NLRB), and the Occupational Safety and Health Administration all create regulations that affect the workplace.

Auer Deference

The power given to agencies to interpret their own regulations is called Auer deference, named after the Supreme Court's ruling in Auer v. Robbins, 519 U.S. 452 (1997).

Those who support deference say the agency that created the regulation is in the best position to interpret its meaning. However, critics argue that Auer deference gives agencies too much power by allowing them to create, interpret and enforce a regulation.

In the current case, Kisor v. Wilkie, a Marine who served in the Vietnam War disagreed with the Department of Veterans Affairs about his entitlement to benefits for post-traumatic stress disorder. The department's decision to deny retroactive benefits was based on the meaning of the word "relevant." Although each party in the case offered a reasonable interpretation of the word, the U.S. Court of Appeals for the Federal Circuit said courts should defer to the agency's interpretation based on Supreme Court precedent.

Ultimately, the high court was asked to decide whether Auer and other similar cases should be overturned or whether agency deference should be limited.

The high court unanimously ruled on June 26 that Auer should not be overturned. The deference doctrine "is rooted in a presumption that Congress would generally want the agency to play the primary role in resolving regulatory ambiguities," the court said.

But, Nadreau explained, the high court also said that "the Federal Circuit assumed too quickly that Auer deference should apply in the event of genuine ambi­guity. Instead, a court must assess whether the interpretation is of the sort that Congress would want to receive deference." Therefore, the high court vacated the Federal Circuit's opinion and remanded the case for further proceedings.

Employer Takeaway

For employers, the Kisor ruling means that in most situations, interpretations by the EEOC, NLRB and other agencies that impact employment issues will receive deference as they have for decades, said John Maley, an attorney with Barnes & Thornburg in Indianapolis and Columbus, Ohio.

In the vast majority of situations, agency deference will continue as before, but there might be disagreement on whether deference is required, with lawyers nitpicking from the Kisor opinion, he added.

That's because the court reinforced the limits to Auer deference, noting that sometimes it's important and sometimes it's not. "A court must carefully consider the text, structure, history and purpose of a regulation, in all the ways it would if it had no agency to fall back on," Justice Elena Kagan wrote for the court. "Doing so will resolve many seeming ambiguities out of the box, without resort to Auer deference."

However, if a genuine ambiguity remains, she wrote, "the agency's reading must still be reasonable," and "not every reasonable agency reading of a genuinely ambiguous rule should receive Auer deference." So courts should consider the "character and context" of the interpretation, according to the high court.

This clarification means that employers now have a chance to increase their participation in regulatory guidance to shape policy, Nadreau said.

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Some attorneys think Auer deference may no longer have teeth. "If Kisor v. Wilkie hasn't actually sounded the death knell to the agency regulatory deference rule of Auer … it might as well have done so," said Stuart Gerson, an attorney with Epstein Becker Green in New York and Washington, D.C.

The majority of the high court acknowledged that agencies have considerable subject matter expertise but quickly noted that Auer deference has a number of prerequisites that must be satisfied before its doctrine may be applied, he noted.

So what started as a rule stipulating virtually automatic deference to agency interpretations of ambiguous regulations is now one of a number of interpretive tools and the last to be applied, Gerson said.

What's Next?

Although the justices unanimously agreed to vacate the Federal Circuit's ruling and remand the case, Chief Justice John Roberts Jr. and the other conservative justices—Samuel Alito Jr., Neil Gorsuch, Brett Kavanaugh and Clarence Thomas—all wrote or joined separate concurring opinions.

"The concurrences are significantly more interesting than the majority opinion, and it is clear that while Auer might still be breathing, [some of the conservative justices] have their foot on the air hose," Gerson said. "The net of the case is that those who challenge agency actions are now better situated to do so."

The Federal Circuit was criticized for "jumping the gun" by applying Auer deference without first turning to other interpretive tools, Gerson said.

Increased judicial scrutiny over federal regulations will likely create one of two paths, Nadreau said: "It will either incentivize agencies to promulgate regulations with more precision and to issue guidance following formal rulemaking standards, or it will expose agencies to increased challenges and correction through federal courts."