High Court May Limit Federal Agency Regulatory Power

Federal agencies create many workplace laws

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High Court May Limit Federal Agency Regulatory Power

The U.S. Supreme Court recently heard oral arguments in a dispute over whether courts should defer to a federal regulatory agency's interpretation of ambiguities in its regulations. Employers should watch this case because the outcome may affect labor and employment regulations. 

"The case is significant for employers because much of employment law is impacted by—indeed created by—federal agencies," such as the Equal Employment Opportunity Commission and the National Labor Relations Board, said John Maley, an attorney with Barnes & Thornburg in Indianapolis.

[SHRM members-only toolkit: Managing Equal Employment Opportunity]

"Whenever an employer gets into a regulatory dispute with a federal agency, the agency has a very low bar to prevail on its interpretation," explained John Martin, an attorney with Ogletree Deakins in Washington, D.C.

Administrative interpretations during former President Barack Obama's administration were mostly employee-friendly, Maley noted. So if Supreme Court precedent is overruled, "employers are likely to challenge many prior interpretations."   

Background

Sometimes a regulation's language isn't clear and can be interpreted in more than one way. When such ambiguities are disputed in lawsuits, courts defer to an agency's interpretation of its own regulations if the interpretation is reasonable and consistent with the regulation. This is called Auer deference, after the Supreme Court's ruling in Auer v. Robbins, 519 U.S. 452 (1997).

In the current case before the Supreme Court, 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 offered a reasonable interpretation of the word, the court deferred to the agency's interpretation based on Supreme Court precedent. The high court was asked to decide whether Auer and other similar cases should be overturned or, alternatively, whether agency deference should be limited.

If the Supreme Court overturns Auer deference, "it would eliminate the heavy advantage federal agencies have in these disputes and reduce the incentive for agencies to create vague regulations that they can later interpret to their liking," Martin said.

The effect of reversing—or even substantially limiting—the interpretive deference that agencies have under Auer would create a significant rebalancing of power between the agencies and those opposing regulatory action, said Stuart Gerson, an attorney with Epstein Becker Green in New York City and Washington, D.C. "This would be particularly true in highly regulated industries like health care and labor and employment," he said, noting that the Department of Labor and other agencies "often avoid notice-and-comment rulemaking and issue a bevy of interpretive regulations and positions that suddenly appear in the midst of [legal] disputes and challenges."

The Department of Justice recently instructed government attorneys that they may not rely on agency interpretations as legal authority. That is a significant policy change, but it doesn't prevent courts from deferring to agency interpretations when statutes or regulations are ambiguous, Gerson explained.

Oral Argument

The oral argument was extremely active, with strong questioning from the traditionally liberal justices who were concerned about departing from Auer deference, Maley observed.

One of the concerns many justices had was the effect of overturning Auer on previous cases decided on Auer deference, Martin noted. "Would it open the floodgates on re-litigation of those cases?"

Justices Ruth Bader Ginsburg, Stephen Breyer, Elena Kagan and Sonia Sotomayor all defended the precedent. "So it would be no surprise if they vote to keep it," Martin said.

"The conservative justices were active as well, although it was less apparent where they stand on this issue," Maley said. "My review of oral argument left me uncertain about how the court will decide this interesting case," he added.

Comments by Justices Samuel Alito Jr. and Neil Gorsuch showed "they are very inclined to overturn Auer," Martin said, noting that Chief Justice John Roberts Jr. "asked questions that pleased and worried both sides." Martin predicts a 5-4 decision, with Roberts likely writing the opinion.

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