U.S. Supreme Court Overrules Chevron Doctrine – Implications for Employers

July 3, 2024

On June 28, 2024, the United States Supreme Court overruled its landmark 1984 decision in Chevron v. Natural Resources Defense Council, 467 U.S. 837 (creating what is known as the "Chevron Doctrine"), which called for judicial deference to agencies in situations where the law is unclear. Since 1984, the U.S. Supreme Court has relied on Chevron in 70 decisions; federal courts considering administrative authority have cited Chevron over 18,000 times. Specifically in the labor and employment context, agencies such as the U.S. Department of Labor, the Occupational Safety and Health Administration, the Federal Trade Commission, and the Equal Employment Opportunity Commission, have heavily relied on and regularly invoked the Chevron Doctrine. With Chevron overturned, courts moving forward will likely be less willing to defer to administrative agencies and more willing to question agency-driven rules.

The Chevron Doctrine

The Chevron Doctrine directed courts to resolve statutory ambiguities by deferring to an administering agency's reasonable interpretation of the statute in question. The Chevron analysis involved three steps. At Step Zero, the court considered whether "Congress delegated authority to the agency generally to make rules carrying the force of law," and whether the agency "interpretation claiming deference was promulgated in the exercise of that authority." United States v. Mead Corp., 533 U.S. 218, 226-27 (2001). At Step One, the court considered whether Congress directly spoke on the question at issue or whether the statute at issue was ambiguous. Chevron, 467 U.S. at 842. If the answer was "no," then the court and the agency would need to give effect to the "unambiguously expressed intent of Congress." Id. If the answer was "yes," the court would proceed to Step Two and consider whether the agency's answer was "based on a permissible construction of the statute." Id. If all three steps were satisfied, the court was directed to accept the agency's interpretation even if the court would have read the statute differently on its own.

The Supreme Court's Recent Decisions

In two separate cases, commercial fishing groups claimed that a federal agency, the National Marines Fisheries Service, exceeded its authority by forcing their fishing vessels to pay the salaries of observers on board. The lower federal courts upheld the agency regulation based on the Chevron Doctrine. The fishing companies then appealed to the Supreme Court and requested that the Court overrule or narrow the Chevron Doctrine.

On June 28, 2024, the Supreme Court overruled its 1984 decision in Chevron v. Natural Resources Defense Council, and held that courts must "exercise their independent judgment in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous." Loper Bright Enterprises et al. v. Raimondo, Secretary of Commerce, et al., 603 U.S. ___, 35 (2024). The Court explained that "Chevron's presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do." Id. at 5. The justices explained that by deferring to agency interpretation, the Chevron doctrine "depart[s]" from the understanding that the judiciary alone decides such questions because it requires courts to "ignore, not follow, 'the reading the court would have reached'" if it exercised independent judgment. Id. at 21.

Significantly, Justice Roberts opined that the Court's ruling "do[es] not call into question prior cases that relied on Chevron framework," and that "[t]he holdings of those cases that specific agency actions are lawful [] are still subject to statutory stare decisis despite [the] change in interpretive methodology." Id. at 34. Nevertheless, the Supreme Court's rulings leave the door wide open for ongoing litigation and new legal challenges to administrative authority.

Implications for Labor and Employment Matters

While neither of the cases here dealt with labor and employment law, the Supreme Court's decisions will undoubtedly cause a rippling effect in the labor and employment arena. Over the past several years, agencies, like the Federal Trade Commission and the Department of Labor, have heavily relied on Chevron Doctrine "authority" to issue new rules and regulations for employers to implement and abide by. With the Chevron Doctrine overruled, courts should yield less to administrative agencies' interpretations and start to examine in depth whether the statutes at issue give the administrative agencies authority to promulgate their regulations. With the Supreme Court's decision, we expect federal courts to issue some interesting decisions over the next year.

Significant Labor and Employment Cases to Watch:

• Ryan, LLC v. FTC, No. 3:24-CV-986 (N.D. Tex.) and ATS Tree Services, LLC v. FTC, No. 2:24-CV-01743 (E.D. Penn.). These two cases challenge the Federal Trade Commission's authority to promulgate the Non-Compete Clause Rule. Under the FTC's Non-Compete Clause Rule, employers subject to the purview of the FTC, would be prohibited from entering into, attempting to enter into, and enforcing non-competes with certain employees and independent contractors. 16 C.F.R. § 910.2(a). The Non-Compete Clause Rule is set to take effect on September 4, 2024.

• Texas v. DOL, No. 4:24-CV-499 (E.D. Tex.), Plano Chamber of Commerce v. U.S. Department of Labor, No. 4:24-CV-468 (E.D. Tex.) and Flint Avenue v. DOL, No. 5:24-CV-130 (N.D. Tex.): These three cases challenge the Department of Labor's authority in issuing its 2024 Overtime Rule increasing the minimum salary thresholds for executive, administrative, or professional ("EAP") employees to be classified as exempt from overtime pay under the Fair Labor Standards Act. The first phase of the 2024 Overtime Rule is scheduled to take effect on July 1, 2024.

• Texas v. Merrick Garland, No. 5:23-CV-034 (N.D. Tex.), Tennessee, et al. EEOC, No. 2:24-CV-84 (E.D. Ark.), Louisiana v. EEOC, No. 2:24-CV-00629 (W.D. La.), and U.S. Conference of Catholic Bishops, et al. v. EEOC, No. 2:24-CV-00691 (W.D. La.): All four cases are currently challenging the Equal Employment Opportunity Commission's authority in issuing its final rule the Pregnant Workers Fairness Act (the "PFWA"). The PWFA requires employers to offer reasonable accommodations to an employee or job applicant for "known limitations" tied to pregnancy, childbirth or related medical conditions unless it would create an undue hardship for the business.

• Restaurant Law Center v. DOL, No. 22-50145 (5th Cir.): This case, currently pending in the Fifth Circuit, challenges the Department of Labor's authority to issue the Final Rule as it relates to the tip credit. The Final Rule added additional criteria to the 80/20 rule, which provides that employers can utilize the tip credit only so long as 80 percent or more of the work is tip-producing, and not more than 20 percent is "directly supporting work." See 29 C.F.R. § 531.56. The Final Rule separates "tip-producing work" (work the employee performs directly providing services to customers for which the employee receives tips) from "directly supporting work" (work the employee performs in preparation of food or to otherwise assist tip-producing customer service work) and "non-tipped work" (preparing food or cleaning bathrooms). The Final Rule took effect on December 28, 2021.