It did not take long for federal courts to apply the Supreme Court’s landmark June 28 decision in Loper Bright Enterprises v. Raimondo overturning the court’s Chevron deference standard.
In fact, on the same day the high court handed down Loper Bright, Judge Sean Jordan cited the decision in his own analysis of the Department of Labor’s overtime regulations under the Fair Labor Standards Act. Jordan found that DOL exceeded its statutory authority by issuing a salary level test in its final overtime rule that “effectively displaces” the FLSA’s exemption of employees with certain duties from overtime pay.
Jordan temporarily blocked the rule insofar as it applies to state employees in Texas, but despite the limited applicability of his decision nationwide, the rule still faces a number of legal challenges. As such, it constitutes perhaps the first agency regulation on which a federal appellate court will have the chance to perform a post-Chevron analysis, said Alex MacDonald, shareholder at Littler Mendelson.
Chevron overturning has long-term implications
Prior to Loper Bright, federal courts — under the Supreme Court’s 1974 holding in Chevron v. National Resources Defense Council — generally deferred to agency interpretations of ambiguous statutes. “That’s no longer the approach,” MacDonald said. “Ambiguity is no longer enough to trigger deference.”
Instead, the Supreme Court held late last month that courts must “exercise their independent judgment in deciding whether an agency has acted within its statutory authority” in accordance with the Administrative Procedure Act.
The decision could cause a number of DOL’s regulations to fall, according to Paul DeCamp, member of the firm at Epstein Becker Green and former administrator of DOL’s wage and hour division, though employers may not see the effects for some time. That’s in part because the court did not overturn any decisions that were made in accordance with its Chevron holding.
“The longer-term impact is that the elimination of Chevron deference will probably force agencies, including the DOL, to be more thoughtful and judicious in the rules that they issue.”
Paul DeCamp
Member of the firm, Epstein Becker Green and former administrator of DOL's Wage and Hour Division
Additionally, the court clarified that Loper Bright did not strike down its 1944 decision in Skidmore v. Swift & Co., in which it held that courts could look to certain “interpretations and opinions” of a federal agency for guidance. This has since been rephrased as a form of deference to agencies by federal courts, MacDonald said, but what the court articulated in Skidmore did not rise to the same level as the deference granted to federal agencies in Chevron.
And now that the government’s “heavy thumb on the scale” has been removed in the form of nixing Chevron deference, courts will not afford special status to the interpretations of agencies like DOL, DeCamp said.
“The longer-term impact is that the elimination of Chevron deference will probably force agencies, including the DOL, to be more thoughtful and judicious in the rules that they issue,” DeCamp said. “In the long run, it will lead to better regulations that adhere more closely to the statutes that Congress enacts.”
Others disagree with that view and are concerned Loper Bright could lead courts to become more involved in policymaking. Jim Townsend, director of Wayne State University’s Levin Center for Oversight and Democracy, said the court’s decision constitutes a misunderstanding of the regulatory process.
“Congress often plays a significant role in monitoring and providing input into those regulations,” Townsend said. The idea that agencies deliberately ignore Congressional intent when making rules “is just not true,” he added. “That’s not the way it works.”
DOL rules may not fare well in federal courts
Another long-term effect for employers to watch is that the back-and-forth nature of regulatory actions between election cycles could be mitigated by the Loper Bright ruling to some extent, DeCamp said.
“Of course when there’s a change of administration, there’s oftentimes a dramatic shift in policy preferences that’s a normal part of the ebb and flow of the elections process. I don’t think that will change,” he added. “But the elimination of Chevron and the pressure it puts on the executive branch agencies to be more thoughtful will help to mitigate this see-sawing effect that we get.”
Few DOL regulations embody this effect quite like the department’s independent contractor regulations, and DOL recently finalized an updated independent contractor rule that took effect in March. MacDonald said he sees that rule as an example of DOL interpreting a statutory term that could be considered ambiguous — the FLSA’s definition of “employee” — in a manner that arguably exceeds its authority and therefore could be challenged in a post-Chevron world.
DeCamp said courts will still need to take into account agency expertise in deciding whether regulations are valid, especially when those regulations concern highly technical or scientific terms. But he also said many DOL regulations issued in recent years would not necessarily fall under this category.
“In light of what the court did, I find it hard to look at any of the regulations that DOL has issued in the past many decades and find any that are based on technical expertise as opposed to policy preference, particularly the Wage and Hour Division,” DeCamp said.
DeCamp added that this does not necessarily mean all or even most DOL regulations are invalid, nor will they be perceived as such by courts. But in the end, “the framework for analyzing those regulations will be much less deferential to the department than has been the case,” he said.
Employers can prepare — and participate
Still, MacDonald said, that does not mean HR should expect controversial regulations to be struck down overnight, and existing compliance obligations still must be met. Instead of regulatory updates, future agencies also may decide to issue subregulatory guidance such as opinion letters, he added.
“We’re not overturning the apple cart now,” MacDonald said. “All of the cases decided under Chevron are still good. You can still trust the federal code of regulations. It’s just that going forward, there’s going to be more close scrutiny over regulations, and you may see fewer of them.”
DeCamp similarly noted that existing federal regulations remain in place, even if employers have the opportunity to challenge particularly vulnerable regulations and submit public comments on proposed regulations; “Employers should not look at Loper Bright as a license to go violate the law,” he said.
Meanwhile, employers also might benefit from communicating with Congressional legislators and, more specifically, committee chairpersons and ranking members, to provide input on statutes as they work their way through the lawmaking process, Townsend said. He added that while it is not solely the responsibility of regulated parties to ensure a more stable regulatory environment, collaboration could help.
“The more that there is a dialogue with those communities [...] the more that a record can be established as to the meaning of the statutory terms and the connection between the statute and the regulation in question,” Townsend said. “Otherwise, we have a void.”
