Chevron No More: Sweeping Impacts To Federal Regulatory Scheme By Two Recent Supreme Court Decisions

On Friday, June 28, 2024, the U.S. Supreme Court overturned the decades-old Chevron doctrine which had established a broad rule of judicial deference to a federal agency's interpretation of the statutes it implements through the adoption of regulations. Loper Bright Enters. v. Raimondo, No. 22-451, and Relentless, Inc. v. Department of Commerce, No. 22-1219 (June 28, 2024). In Loper Bright, two commercial fishing vessel operators challenged federal regulations requiring on-board fishery management observers. The Court's decision to overrule Chevron will have sweeping impacts on nearly every aspect of establishing federal regulations and administrative governance. In addition, the court held on July 1, 2024, in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No 22-1008 (July 1, 2024) that a claim challenging a regulation under the Administrative Procedure Act accrues for purposes of the statute of limitations until the challenging party is injured, rather than when the regulation was first adopted. Taken together, the overturning of Chevron in LoperBright and the clarification of the statute of limitations in Corner Post throws existing and future regulations into question. In this Legal Alert attorneys from Kronick's major practices discuss the case and its impacts on the regulatory landscape.

Chevron Doctrine

Under the Chevron doctrine, courts used a multi-step framework when reviewing an agency regulation. As a preliminary step in the Chevron analysis, or what has routinely been referred to as "step zero," courts were tasked with determining whether Congress had intended the federal agencies to have delegated rulemaking authority. At "step one" of the Chevron analysis, the court looked at the statute the agency was implementing by regulation to determine whether the statutory provision at issue was unambiguous. If the statute was unambiguous, the analysis ended. However, if the provision was ambiguous, or the statute was silent on the particular issue, courts went to "step two" to consider whether the agency's regulatory interpretation of the statute was "permissible." If a court determined the interpretation was permissible, the court was required to defer to the agency's interpretation, even if the court might conclude a different interpretation of the statute was better. In addition, even after a court interpreted a statute, an agency could adopt an alternative interpretation based on its expertise and be granted deference for that alternative interpretation. However, within the last decade, the Supreme Court, and particularly Chief Justice John Roberts, began to be skeptical that courts should defer to agency interpretations of statutes, especially when those interpretations involved major questions of federal law and policy.

The Loper Bright and Corner Post Decisions

In Loper Bright, the Court's majority held that a court must exercise independent judgment in interpreting a statute and may not defer to an agency's interpretation. The Administrative Procedure Act (APA), which Congress enacted to regulate agency rulemaking, prescribes how courts are to review such agency actions. The Court held the APA makes clear that agencies are not entitled to deference when interpreting statutes.

While the Court rejected broad deference given to agencies under Chevron, an agency's interpretation, as reflected in a regulation or other agency action, may be persuasive. The Court returned to the standard of respect for agency expertise that was articulated in Skidmore v. Swift. A court may look to the agency charged with enforcing a statute for guidance in interpreting its meaning. An agency's interpretation may be "especially useful" if it was issued concurrently with the statute itself and has "remained consistent over time." Further, if Congress expressly authorized an agency to exercise discretion in interpreting a statute, courts must respect that delegation of authority, but the court must ensure the agency acted within the limits of the Constitution. Therefore, the court returned judicial review of agency interpretations of congressional enactments to the less permissive deference standard laid out in Skidmore v. Swift or Skidmore deference.

Importantly, another Supreme Court decision - handed down on July 1, 2024 - leniently interprets the statute of limitations for actions challenging federal agency decisions under the APA (Corner Post, Inc. v. Board of Governors (22-1008).). Under Corner Post, the statute of limitations under the APA does not begin to run until the regulation is applied to the plaintiff, i.e., when the plaintiff is first injured. This decision creates the opportunity to challenge the legality of existing regulations (adopted pre-Loper Bright) under the less-deferential standard created by Loper Bright by establishing that the six-year statute of limitations for challenging a regulation under the APA begins to run after the cause of action accrues not when the regulation is first adopted. As a result, given the significant role that federal regulations play in the practice of employment law, environmental and natural resources law, and many other areas, Loper Bright is one of the most-significant developments at the Supreme Court in recent decades.

Impact on Labor and Employment Law

Chevron deference has been a foundational precedent for more than 40 years. In that time, courts have deferred on a broad swath of regulations issued by federal agencies. This deference has allowed agencies to shape the contours of employment laws with minimal judicial review.

Through this period of rulemaking, agencies have refined the meaning of the statutes they enforce and, in some cases, have broadly expanded the scope of those statutes. For example, the Department of Labor (DOL) imposed a minimum salary requirement for application of the executive, administrative, and professional exemptions, even though the Fair Labor Standards Act (FLSA) does not describe such a requirement. As another example, the Equal Employment Opportunity Commission (EEOC) expanded the scope of the Pregnant Workers Fairness Act (PWFA) to require accommodations for conditions related to abortion. The Occupational Health and Safety Administration (OSHA) also regularly relied on deference to defend workplace regulations in court. The National Labor Relations Board (NLRB) used similar deference principles to defend its regulations and decisions in unfair labor practice cases. Chevron made it difficult for those seeking to challenge the rules. Now, litigants will have new opportunities to challenge labor regulations in court.

While the Loper Bright decision did not deal with any employment laws, the decision will impact how employment agencies will draft and defend rules moving forward. Every major federal employment agency has relied on Chevron to some extent in challenges to its rules interpreting federal labor and employment laws. The immediate impact Loper Bright will have on the workplace is how current pending regulations will now be reviewed by lower courts and intermediate appellate courts.

The DOL is currently defending a new rule setting new minimum salaries for the FLSA's "white collar" exemptions. It is also defending a prevailing-wage rule under the Davis-Bacon Act and an FLSA rule defining independent contractors. Similarly, the NLRB is defending a rule defining "joint employers." OSHA is defending a rule that allows union representatives to accompany OSHA inspectors in both unionized and non-union workplaces. In all these cases, the agencies are defending their rules based on broad deference principles either explicitly or implicitly rejected in the Loper Bright case. These cases will have major implications for employers and the outcomes of the case have become harder to predict. Employers and industry groups will need to be mindful of new regulations and the outcomes of challenges to these regulations. The Loper Bright decision creates a potential for instability and uncertainty in labor and employment law.

Impact on Federal Environmental and Natural Resource Regulations

The 40-year period during which Chevron was the law of the land coincided with an expansion of federal environmental regulations on topics that were previously the sole domain of state and local government. During this time, federal agencies could enact regulations based on novel interpretations of federal statutes, such as the Clean Air Act and Clean Water Act, with some assurance that those regulations would not be overturned by federal courts required to defer to agency interpretations of federal statutes.

A notable example of a novel interpretation of an existing statute is the regulations implementing Section 404 of the Clean Water Act, which expanded the geographical scope of the "waters of the United States" in a manner that ushered in new federal permitting requirements for development activities. These regulations were overturned by the Supreme Court in a series of decisions, including Rapanos (2006) and Sackett (2023), and have been stuck in rulemaking limbo since - flip flopping between an expansive or limited interpretation of the statute as successive administrations repeal the rules enacted by the prior administration.

The expansive volumes of federal regulations that were enacted while Chevron was in effect were used to fill the void left by Congress' inability and unwillingness to enact legislative clarifications or new laws regarding emerging issues. Federal agencies were left to their own devices to interpret the scope of their authority, and used environmental laws adopted in the 1960s and 70s to address environmental problems caused decades after those laws were drafted. Now, the Supreme Court has held that federal courts must be at the center of that decision making and has injected massive uncertainty into the federal rulemaking process.

The decision in Loper Bright commands the federal judiciary to retake its role as the final authority for statutory interpretation and creates uncertainty for federal agencies that rely upon novel interpretations of existing statutes for authority to enact regulations that address emerging issues. The ruling in Corner Post enhances the effect of Loper Bright by expanding the statute of limitations under the APA and exposing existing environmental regulations to review under the Loper Bright standard if they have been formally applied against a regulated party.

These rulings will have significant effects on a number of areas, such as climate policy (the Clean Air Act does not specifically address greenhouse gas emissions or climate policy), mining activities on federal lands (the use of federal lands for mining activities is governed in part by the 1872 Mining Law, which did not envision the scale and intensity of existing mining practices), land development (the Environmental Protection Agency recently enacted new regulations defining the scope of the "waters of the United States" post-Sackett), and endangered species (regulations determining what is a "distinct population segment" of a species eligible for listing). In short, the federal agencies in the process of enacting or enforcing regulations on these topics and other emerging issues will be wading into uncertain waters unless the governing statute explicitly provides them with the authority to regulate the issue in question.

Takeaways

The greatest takeaway for any regulated industry or group is that we are in a period of flux when it comes to federal regulations and administrative governance. More so than ever, experienced legal counsel is needed to navigate these new standards and keep abreast of judicial developments in the law.

In Loper Bright, the Court declared that all prior cases which relied on Chevron continue to be valid law unless an opponent could overcome the stare decisis hurdles and cause another court to overrule its predecessor. That means that well-settled (i.e., judicially reviewed) areas of regulation or decades-old agency rules are not immediately upended. The decision will affect how courts will review agency interpretations of congressional enactments moving forward. However, given the Supreme Court's holding in Corner Post, existing regulations that have not yet been challenged and upheld by courts may be challenged if a party can show that they were injured by the final agency action within the preceding six years.

A court's broader discretion to decide what the "best" interpretation of a statute is does not necessarily mean the agency's interpretation will be rejected. However, with greater judicial discretion, a rule may be upheld in one court and invalidated in another. This could lead to a spate of inconsistent rulings throughout the country, creating jurisdictional conflicts that empower the Supreme Court.

The Loper Bright decision signals continued skepticism from the Supreme Court on the authority of administrative agencies. Administrative authority has been curbed in recent decisions regarding "major questions," and other deference standards may be further limited in future decisions. One deference standard to watch in future litigation is Auer deference, a corollary rule requiring judicial deference to an agency's interpretation of its own regulations which the Supreme Court limited, but did not entirely overrule in the recent decision in Kisor v. Wilkie.

The end of Chevron will likely make agencies rethink the kinds of regulations they issue in the first place. If agencies know that courts will review their regulations under a less permissive deference, they may be less likely to push the boundaries of statutory interpretation to affect changes in policy. More importantly, once a court decides the "best" interpretation the barrier for an agency to change that interpretation to meet emerging conditions or changes in leadership is high. The end of Chevron could even motivate Congress to fill the gaps, a task left to agencies under Chevron's broad deference standard, by passing more laws with more detailed instructions on their implementation.

Questions

For more information regarding this legal alert and its discussion of Labor and Employment issues, please contact Alec D. Tyra or any one of Kronick's Labor and Employment Attorneys.

For more information regarding this legal alert and its discussion of Environmental and Natural Resource law, please contact Russell Frink or any one of Kronick's Environmental and Natural Resource Attorneys.

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