No More Stopping at Chevron: Courts Will Review Agency Regulations More Closely

By: HUB’s EB Compliance Team

At the end of its most recent term, the U.S. Supreme Court ruled in Loper Bright Enterprises v. Raimondo that so-called Chevron deference to certain agency interpretations of statutes no longer applies. While this will not result in a wholesale turnover of employee benefits regulations, it will mean that many of them will receive greater scrutiny by Federal Courts.

Background

In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984), the Supreme Court ruled that courts should defer to "permissible" agency interpretations of ambiguous statutes those agencies administer. The Court said that this rule applies even if a reviewing court reads the statute differently from the agency interpretation. Under the Chevron analysis, the Court must first determine that Congress had not: (1) addressed the matter in the statute; or (2) expressly delegated authority to an agency to define a term in a statute. If Congress had addressed it, then a reviewing court would properly give priority to Congress’s statutory language. If Congress had, as it sometimes does, expressly said the agency will define a certain term, then a reviewing court would generally respect that delegation and the agency’s definition.

Therefore, Chevron’s chief application was where there was a lack of clarity in the statute on a particular point. In cases where there is no agency interpretation (or, as is sometimes the case in other laws, no applicable agency to even offer an interpretation), courts would apply their various rules for statutory analysis. Chevron changed that approach only in cases where an agency had spoken. As a result of Chevron, agencies offered their own interpretation of various statutes, sometimes including determining the scope of their power.

The Current Case

The Loper Bright case was not about benefits. The case involved challenges by some fishing vessel owners to a rule promulgated by the National Marine Fisheries Service. The Service had required fishing boats going out to sea to pay for the costs, estimated at $710 per day, associated with carrying observers on board their vessels to collect data about their catches and monitor for overfishing. The relevant statute at issue expressly allowed the Service to pass the costs of certain other monitors on to fishers, but did not address these observers. However, the Service interpreted the law as allowing them to pass the costs onto the fishers. This interpretation by the Service was the issue in the case. Did the agency have the authority to interpret the regulation in this manner and require the fishing boats to pay these costs?

The Ruling

In short, the Court held that the Administrative Procedure Act (the “APA”) requires courts, not agencies, to interpret matters of law. The APA effectively lays out the ground rules for how agencies are to issue regulations. The Court held that Chevron was at odds with a clear statement in the APA that courts make legal determinations. The Court noted that this particular APA issue had not been raised with the Court since Chevron was decided.

The Court also suggested that this analysis is consistent with the constitutional separation of powers. Article III of the Constitution and the framers consistently envisioned that the final legal interpretations would be made by the courts. 

This means, in part, that courts may not defer to an agency interpretation of the law simply because a statute is ambiguous. Factual findings of an agency are still generally entitled to deference. Additionally, the agency’s legal interpretation can be influential in a court’s determination; it just cannot win the argument by default due to Chevron.

The Effect

From a regulatory perspective, this decision means federal agencies (for example, the EEOC, IRS, DOL, and HHS) will need to adhere more closely to the plain language of applicable legislation. Efforts to interpret ambiguous (or allegedly ambiguous) statutory language aggressively will face a greater risk of being struck down by the courts. This will likely require agencies to be more circumspect in their regulation and perhaps reduce the risk of whipsawing regulations back-and-forth as Presidential administrations change their political affiliations.

The Loper Bright decision is not retroactive, so statutory interpretations previously upheld under Chevron remain in place. However, not all regulations have been challenged or reviewed by a court, so in the short term, there could be an increase in litigation challenging various agency rules, including rules governing benefits. As one example, some courts are already reconsidering holdings under the Affordable Care Act Section 1557 nondiscrimination rules in light of Loper Bright. Additionally, a separate case, known as Corner Post, allows challenges to agency regulations within six years after the regulation first has an effect on a company (instead of six years after the regulation is final). This could mean that agency regulations that have been in existence for a while could be challenged by new employers that come into existence.

All of that said, given that many agency regulations are already subject to legal challenges, the litigation increase may or may not be noticeable. Over time, as agencies hopefully observe their statutory mandates more closely, any increased litigation should subside.

Hopefully, the more significant impact will be on Congress. With Chevron now largely in the dustbin of history, Congress may now need to draft laws with greater precision and more express delegations to agencies to ensure that its intent is clearly understood. In times before Chevron, Congress held hearings garnering input from experts and generated extensive records on a multitude of legislative issues. These exercises resulted in generally more thoughtful and comprehensive legislation as well as participation by a broader cross-section of congressional members. It also led to clearer understanding of Congress’s intent which gave agencies in turn more guidance on the scope of their regulatory authority. Whether Congress can restore its proverbial muscle memory for those legislative activities remains to be seen.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

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Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.