Demise of Chevron Deference Sends Shockwaves Through Labor and Employment Regulatory Landscape

It has been just a month since the U.S. Supreme Court issued its much anticipated decision whether to overturn its 1984 decision in Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 468 U.S. 837. The Court’s conservative majority, by a June 28 vote of 6-3, did indeed overturn Chevron deference, and as a result, curtailed the power of federal agencies to interpret the laws they administer and impose regulations to further the goals of those laws.

In her dissenting opinion, Justice Elena Kagan predicted that overturning Chevron “will cause a massive shock to the legal system.” In the past few weeks, Justice Kagan’s prediction has seemed to be on course. 

Since Chevron’s demise, several federal agency rules have already been blocked by federal courts. On June 28, the U.S. District Court for the Eastern District of Texas relied on Loper Bright in granting an injunction in favor of the State of Texas prohibiting the U.S. Department of Labor (DOL) from enforcing its new overtime rule against the State of Texas, based on the court's interpretation of the Fair Labor Standards Act (FLSA), for the State of Texas.

Only days later, on July 2, the U.S. District Court for the District of Kansas granted a preliminary injunction blocking a new Department of Education (DOE) rule interpreting the word “sex” in Title IX to prohibit discrimination based on gender identity and sexual orientation. The court cited to Loper Bright, refused to defer to the DOE’s interpretation of Title IX, and found that the DOE’s expansion of the statute’s definition of “sex” to include gender identity exceeded the DOE’s authority.

The court’s injunction applies to the states of Kansas, Alaska, Utah, and Wyoming, and all schools attended by the individual members of the Young America’s Foundation, Female Athletes United, and Moms for Liberty—the conservative organizations that filed suit against the DOE. In total, the Kansas court’s injunction will apply to over 400 K-12 schools and 670 higher education institutions located in 50 states and territories. A similar challenge to the DOE’s rule in Missouri is still pending before the court.

On July 3, the U.S. District Court for the Northern District of Texas enjoined the Federal Trade Commission (FTC) from implementing or enforcing its new rule banning most noncompete agreements against the named plaintiffs. The Texas court cited Loper Bright and declined to extend Chevron deference towards the FTC’s statutory interpretation. The court conducted its own interpretation of the FTC Act and found not only that the FTC had exceeded its authority in issuing the new noncompete rule, but also that the FTC lacks the authority to create any substantive rules with respect to unfair methods of competition. Then last week, a judge in the Eastern District of Pennsylvania issued a contrary ruling, declining to block the noncompete rule and finding that the FTC has authority to issue it. 

Also on July 3, the U.S. District Court for the Southern District of Mississippi blocked nationwide enforcement of a Department of Health and Human Services (HHS) new final rule interpreting the Affordable Care Act (ACA) health insurance law’s prohibition on sex discrimination to include discrimination against transgender people. The Mississippi court similarly cited to Loper Bright, specifically exercised its “independent judgment” regarding the proper interpretation of the ACA and Title IX, and determined that the HHS acted unreasonably in its interpretation and promulgation of the new rule.

On July 5, the U.S. Court of Appeals for the District of Columbia Circuit indicated that the Loper Bright decision may only have a limited impact on the National Labor Relations Board (NLRB) in Hospital de la Concepcion v. NLRB, No. 22-1272 (D.C. Cir. July 5, 2024). The court noted that federal courts “review [NLRB] decisions with a very high degree of deference” and only set aside an NLRB order “when it departs from established precedent without reasoned justification, or when the Board’s factual determinations are not supported by substantial evidence.” The NLRB may be afforded a higher degree of deference, notwithstanding the Loper Bright ruling, due to its primary reliance on Board decisions and precedent, as opposed to regulations and rulemaking.

Despite the District of Columbia Circuit decision, in a surprise move, the NLRB on July 19 voluntarily dismissed its appeal of an injunction by the U.S. District Court for the Eastern District of Texas blocking the NLRB’s new joint-employer rule. The NLRB initially appealed the district court’s decision to the Fifth Circuit. However, post-Loper Bright, the NLRB decided to withdraw its appeal. In its filing, the NLRB referenced other ongoing litigation challenging the joint-employer rule and stated that it was “keenly interested in receiving wisdom from multiple courts to help resolve the complex matters underlying this rulemaking.”

The NLRB’s decision, while not expressly influenced by the Loper Bright decision, was likely due to a realization that the “writing was on the wall” in the very conservative Fifth Circuit, which has rejected numerous federal agency rules and regulations, even before Loper Bright. Additional challenges regarding other federal agency regulations are awaiting decisions in district courts throughout the United States. 

Chevron Background

In Chevron, the Natural Resources Defense Council, a leading environmental group, sought to clarify the scope of the EPA’s authority to interpret and apply the Clean Air Act. A unanimous Supreme Court found that federal agencies are best positioned to interpret the statutes they administer and held that courts should uphold the agency’s interpretation of the statute, provided it is reasonable and Congress has not directly addressed the question at the center of the dispute. In other words, the Chevron doctrine stands for the proposition that courts should generally show deference to agencies’ statutory interpretations and regulations. This longstanding process effectively balanced executive and judicial branch authority. 

The Loper Bright Decision

The Supreme Court overruled the Chevron doctrine in its decision in Loper Bright Enterprises v. Raimondo, 603 U.S. ___ (2024), and its companion case, Relentless, Inc. v. Department of Commerce. These cases involve a group of commercial fishermen who argued that the Magnuson-Stevens Fishery Conservation and Management Act of 1976 did not authorize the National Marine Fisheries Service to require fishermen to fund at-sea observers or monitors. The Supreme Court took up the cases solely on the question of whether Chevron should be overruled or clarified.

Writing for the majority, Chief Justice John Roberts rejected the Chevron doctrine, calling it “fundamentally misguided.” Justice Roberts examined the Administrative Procedure Act (APA), which sets forth procedures for agency action and the instructions for federal courts to review such actions, and determined that Chevron cannot be harmonized with the APA. According to Justice Roberts, the APA commands courts to exercise independent judgment with regard to all relevant questions of law, including statutory interpretations. Justice Roberts further explained that Chevron deference “defies the command of the APA that ‘the reviewing court’—not the agency whose action it reviews—is to ‘decide all relevant questions of law’ and ‘interpret … statutory provisions.”

The majority opinion also rejected the idea that federal agencies, instead of the courts, are better positioned to determine ambiguities within their statutes, even where ambiguities relate to the agencies’ areas of technical expertise. Justice Roberts reasoned that courts may still rely on an agencies’ technical expertise during their exercise of “independent judgment” but agency expertise does not justify “delegating ultimate interpretive authority to agencies[.]”

Justice Kagan’s dissent, joined by Justices Sonia Sotomoyor and Ketanji Brown Jackson, noted that that in overturning Chevron, “[a] rule of judicial humility gives way to a rule of judicial hubris.” In her sharply worded dissent, Justice Kagan found the majority’s reasoning lacking in the “special justification” necessary for overruling precedent and criticized the “bald assertion of judicial authority” over administrative governance.

The Corner Post Decision

On July 1, days after issuing Loper Bright, the Supreme Court issued its 6-3 opinion in Corner Post v. Board of Governors of the Federal Reserve System. There, the Supreme Court sought to clarify the time within which a party may sue an agency under the APA for injury caused by the agency’s final actions, including the agency’s published rules and regulations. The case was brought in 2021 by a North Dakota convenience store merchant challenging the Federal Reserve Board’s 2011 rule which set the maximum fee that issuing banks could charge merchants for debit card transactions.

The district court dismissed the case based on the general six-year federal statute of limitations unanimously applied to APA claims, and the Eighth Circuit affirmed. The lower courts’ decisions joined the majority of circuit courts which have interpreted the statute of limitations period as beginning to run on the date that the agency action occurs or the regulation is issued. This rule effectively made most federal agency actions and regulations immune to challenge after six years.

In the Corner Post majority opinion, penned by Justice Amy Coney Barrett, the Court rejected the widely embraced position of six circuit courts. Indeed, the Court held that the six-year statute of limitations under the APA for challenging federal agency action does not begin to run until the plaintiff is injured by the challenged action. This means that agencies may soon be called on to defend well-established agency actions and regulations from new challenges, commenced many years after a regulation’s promulgation.

Implications for Employers

The Loper Bright and Corner Post decisions are a win for a conservative-led effort to diminish the power of administrative agencies.  In the wake of these rulings, it is likely that more federal rules and regulations will be challenged in the courts, and judges will now have much greater discretion to overrule agency actions and guidance.

Writing for the Corner Post dissent, Justice Jackson predicted that the majority decision would invite a “tsunami of lawsuits against agencies.” Justice Jackson warned that “from this day forward, administrative agencies can be sued in perpetuity over every final decision they make.”

While in Loper Bright, Justice Roberts insisted that prior decisions relying on Chevron are still subject to stare decisis despite its ruling, Corner Post’s extension of the APA statute of limitations is predicted to enable new challenges to long settled agency rules. Following Corner Post, a corporation may challenge an agency regulation which was upheld many years ago in a court applying Chevron deference, by bringing a new claim in a different court, provided that the corporation was first impacted by the regulation within the past six years. Post-Loper Bright, the agency defending the regulation would have to formulate arguments based on the regulation’s merits, instead of relying on the now defunct Chevron deference.

Chevron deference has been a foundation that employers have relied on for 40 years. Agencies, such as the Equal Employment Opportunity Commission (EEOC) and the NLRB, have relied on this doctrine to refine the statutes they enforce and sometimes even expand their scope. Recently, the EEOC issued a final rule under the Pregnant Workers Fairness Act (PWFA) requiring employers to provide accommodations for medical conditions related to abortion, although there is no such express provision in the PWFA. This interpretation is already being challenged in several states. Going forward, this and many other rules and statutory interpretations, old and new, are more vulnerable to challenge now that the courts have significantly more discretion whether to accept an agency’s statutory interpretation.

Increased discretion also increases the potential for conflicting rulings when courts in different jurisdictions do not agree, which could create a minefield of compliance issues for employers, especially multistate employers. Following the Loper Bright and Corner Post decisions, employers will need to monitor developing cases and conflicting court decisions in order to ensure compliance with the law.

Ballard Spahr’s Labor and Employment Group attorneys regularly track these and other legal developments and apply our decades of experience in order to provide employers with the best and most up-to-date counsel and advice on all labor and employment related matters. We are available to ensure that employers are compliant with federal, state, and local laws, even where there are conflicting decisions in different jurisdictions, and vigorously defend employers against legal and administrative action, if necessary. If you should have any questions regarding the recent legal developments described in this Advisory, or any labor and employment matter, please reach out to us at any time. 

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