Agencies’ Influence over Employers May Erode After Supreme Court Decision

Employers may have to follow fewer regulations and could be in a better position to challenge rules from federal agencies like the U.S. Department of Labor (DOL), now that the U.S. Supreme Court has overruled a 1984 decision that held courts should defer to federal agencies’ reasonable interpretations of ambiguous laws passed by Congress.

Chief Justice John Roberts Jr. wrote in the June 28 majority opinion that the 40-year-old Chevron decision that gave federal agencies the final say over how to interpret congressional statutes is misguided because agencies have no special competence in resolving statutory ambiguities, adding that “courts do.”

“The Supreme Court has made a monumental decision in Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce, overruling Chevron deference,” said Emily M. Dickens, chief of staff, head of government affairs, and corporate secretary for SHRM.

“This ruling overturns decades of established precedent, fundamentally changing how courts evaluate the boundaries of regulatory authority and executive actions,” Dickens added. “This decision sets a new precedent to guide lower courts to not give deference to a federal agency’s interpretation of laws when challenged.”

Expect More Employers to Challenge Rules

“Employers typically follow agency regulations and even nonbinding agency guidance so as to keep well within the bounds of permissible conduct,” said Timothy Taylor, an attorney with Holland & Knight in Tysons, Va. “What I think we’ll see is a new willingness to challenge regulations in court as inconsistent with their statutory text.”

The court’s overruling of Chevron deference is “a big deal,” he added. The assumption no longer holds that federal labor and employment rules are written in stone. The court’s decision gives employers new tools for pushing back when agency rulemakings are overly aggressive, Taylor said.

“Agencies will need to more carefully pick their battles,” he said. More aggressive rulemakings, especially when an agency attempts to assert new jurisdiction or to extend novel interpretations of the law, may be harder to justify, Taylor said. For example, the Federal Trade Commission ventured into new rulemaking territory when it banned most noncompete agreements, a rule that is being litigated.

“The practical effect for employers may be that rulemaking activity is dampened—but by no means ended—and that rulemaking challenges are supercharged by the decision,” he said.

Taylor said that many rules from the DOL have been sustained for years on the principle of Chevron deference. Those include rules on matters such as wage-and-hour issues, overtime, and the scope and requirements of the Employee Retirement Income Security Act, he said.

However, courts haven’t often been giving Chevron deference to the U.S. Equal Employment Opportunity Commission (EEOC), said Rachel See, an attorney with Seyfarth in Washington, D.C. Moreover, the EEOC hasn’t engaged in much formal notice-and-comment rulemaking, and its guidance and compliance manual for Title VII of the Civil Rights Act of 1964 wasn’t entitled to Chevron guidance, she added. “The sun will still rise tomorrow on the administrative state,” See said.

Roberts’ majority opinion did acknowledge that an agency’s interpretation of a statute “may be especially informative” to a reviewing court.

“I think many courts will be receptive to hearing out an agency’s arguments when the agency is speaking from a position of authority and technical expertise,” See cautioned.

More Modest Rulemaking Anticipated

Agencies may have to “regulate more modestly and litigate more often,” predicted Alex MacDonald, an attorney with the Workplace Policy Institute at Littler in Washington, D.C.

That takeaway applies even to agencies that didn’t rely explicitly on Chevron, such as the National Labor Relations Board (NLRB), MacDonald said. “The NLRB relies on another line of cases, starting with Hearst. But Hearst followed the same logic as Chevron. And now, Chevron is overruled. That means courts will have to interpret all federal laws—including the NLRA [National Labor Relations Act]—for themselves.”

Judges who may lack subject-matter expertise will be called on to decide technical and nuanced issues of statutory authority, said Allison Lange Garrison, an attorney with Nilan Johnson Lewis in Minneapolis. “Instead of following a uniform set of rules, employers will need to closely monitor judicial decisions on a nationwide basis and square conflicting case law across judicial circuits to chart a course toward compliance,” she said.

Courts must now interpret statutory text using traditional construction tools, including plain language and legislative intent, and not rely on one administration’s view of the law as reflected in its guidance, said Jocelyn Cuttino, an attorney with Morgan Lewis in Washington, D.C. “This will have a widespread impact on employers.”

She added that the Supreme Court’s ruling isn’t retroactive for existing judicial decisions.

Takeaway for employers: Agency rules now may be more susceptible to court challenges. As a result, employers may find themselves responding to court interpretations of agency rules more than ever. This may pose a particular challenge for multistate employers.