It didn’t take long for federal courts to implement the Supreme Court’s landmark June 28 decision Loper Bright Enterprises v. Raimondo overturning the court’s Chevron deference standard.
In fact, the same day the high court ruled Loper Bright, Judge Sean Jordan cited the decision in his own analysis of the Labor Department’s overtime regulations under the Fair Labor Standards Act. Jordan found it DOL exceeded its statutory authority by issuing a wage level test in its final overtime rule that “effectively displaces” the FLSA exemption of employees with certain overtime pay obligations.
Jordan temporarily blocked the rule 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 may be the first agency regulation on which a federal appeals court will have the opportunity to conduct a post-Chevron analysis, said Littler Mendelson shareholder Alex MacDonald.
Chevron’s rollover has long-term implications
Before Loper Brightfederal courts, according to a 1974 Supreme Court decision Chevron v. National Resources Defense Council — Generally defers to agency interpretations of ambiguous statutes. “That’s not the focus anymore,” MacDonald said. “Ambiguity is no longer sufficient to elicit deference.”
Instead, the The Supreme Court held at the end of last month that courts must “exercise their independent judgment in deciding whether an agency has acted within its statutory powers” under the Administrative Procedure Act.
The decision could lead to the fall of a number of DOL regulations, according to Paul DeCamp, a member of the firm of Epstein Becker Green and former administrator of the DOL’s Wage and Hour Division, although employers may not see ‘n the effects for some time. That’s partly because the court didn’t overturn any decision made in line with its own Chevron holding on
“The long-term impact is that removing Chevron’s deference will likely force agencies, including the DOL, to be more thoughtful and cautious in the rules they issue.”
Paul DeCamp
Member of the firm, Epstein Becker Green and former administrator of the DOL’s Wage and Hour Division
Moreover, the court made it clear Loper Bright did not reverse its 1944 decision Skidmore v. Swift & Co., in which it held that courts could look to certain “interpretations and opinions” of a federal agency for guidance. That has since been recast as a form of agency deference by federal courts, MacDonald said, but what the court articulated in Skidmore it did not rise to the same level as the deference accorded to federal agencies Chevron.
And now that the government’s “heavy thumb on the scale” has been removed in the form of a reversal of Chevron’s deference, courts won’t grant special status to interpretations by agencies like DOL, DeCamp said.
“The long-term impact is that removing Chevron’s deference will likely force agencies, including the DOL, to be more thoughtful and cautious in the rules 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 this view and are concerned Loper Bright it could lead the courts to become more involved in policy making. 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 an important role in monitoring and inputting these regulations,” Townsend said. The idea that agencies deliberately ignore the intent of Congress when they make rules “is not true,” he added. “That’s not how it works.”
DOL rules may not fare well in federal courts
Another long-term effect that business owners should watch for is that the back-and-forth nature of regulatory actions between election cycles could be mitigated by Loper Bright governing to some degree, DeCamp said.
“Of course, when there’s a change of administration, there’s often a dramatic shift in political preferences that’s a normal part of the ebb and flow of the electoral process. I don’t think that’s going to change,” he added. “But the removal of Chevron and the pressure it puts on executive branch agencies to be more thoughtful will help mitigate that overhang effect that we get.”
Few DOL regulations incorporate this effect like the department’s independent contractor regulations, and DOL recently finalized a updated independent contractor rule which came into effect in March. MacDonald said he sees this rule as an example of the DOL interpreting a statutory term that could be considered ambiguous (the FLSA’s definition of “employee”) in a way that could exceed its authority and thus could be contested in a post-Chevron world.
DeCamp said courts will still have to consider the agency’s experience in deciding whether regulations are valid, especially when those regulations refer to highly technical or scientific terms. But he also said that many DOL regulations issued in recent years would not necessarily fall into that category.
“In light of what the court did, I’m hard-pressed to look at any of the regulations DOL has issued over the past few decades and find any that are based on technical expertise rather than political preference, especially the division of wages and hours,” DeCamp said.
DeCamp added that this does not necessarily mean that all or even most DOL regulations are invalid, nor will they be perceived as such by the courts. But in the end, “the framework for analyzing these 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 doesn’t mean HR should expect controversial regulations to be overturned overnight, and existing compliance obligations still need to be met. Instead of regulatory updates, future agencies may also decide to issue subregulatory guidance, such as opinion letters, he added.
“We’re not tipping the apple cart now,” MacDonald said. “All cases settled under Chevron they are still good. You can still rely on the federal code of regulations. It’s just that, in the future, there will be more scrutiny of regulations, and you may see less of them.”
DeCamp similarly noted that existing federal regulations remain in place, even if employers are given the opportunity to challenge particularly vulnerable regulations and submit public comments on proposed regulations; “Employers should not look Loper Bright as a license to go and break the law,” he said.
In the meantime, employers could also benefit from reaching out to lawmakers in Congress, and more specifically committee chairs and ranking members, to provide input on statutes as they work through the legislative process. Townsend said. He added that while it is not the sole responsibility of regulated parties to ensure a more stable regulatory environment, collaboration could help.
“The more dialogue there is with these communities […] more that a record can be established as to the meaning of the statutory terms and the connection between the statute and the regulation at issue,” Townsend said. “Otherwise, we have a vacuum.”
