U.S. Supreme Court Undermines Federal Agency Authority, With Impact on the Workplace

By Eric Hemmendinger - Shawe Rosenthal LLP

June 28, 2024

On June 28, 2024, the Supreme Court overruled its 1984 Chevron decision, which required federal courts to defer to administrative agencies’ interpretations of ambiguous statutes. Under the new rule, announced in Loper Bright Enterprises v. Raimondo, courts reviewing an agency action must independently decide whether an agency’s interpretation of an ambiguous statute is correct. However, when a statute delegates discretionary authority to an agency, courts must respect that delegation, while making sure that the agency acts within its delegated authority. The Loper Bright decision is a big win for businesses and other organizations who believe that federal agencies – including workplace agencies like the Department of Labor, the National Labor Relations Board, and the Equal Employment Opportunity Commission – have too much power.

Administrative Agency Regulations. The decision is important because Congress often passes statutes to establish general principles and delegates responsibility to administrative agencies to issue regulations spelling out the law in more detail. Most agencies issue regulations via publication in the Federal Register, a recent example being the DOL’s new regulations increasing the salary test for overtime exemptions. Other agencies, most notably the NLRB, make rules via published decisions in enforcement cases.

Federal courts review the validity of regulations, in the form of pre-enforcement challenges to the regulation or in enforcement actions brought by agencies. In such judicial review, the Chevron doctrine held that when a statute is ambiguous, the court should defer to the agency’ regulation, if it is reasonable, even if the court believes the regulation misapplies the governing statute. The theory behind Chevron deference was that agencies have more expertise than courts in the various specialized areas of regulation. This was criticized on the grounds that it gave too much power to agencies and undermined the federal court’s authority to decide the law.

Background of the Case. The case arose from a dispute concerning regulation of the New England herring fishery. The National Marine Fisheries Service adopted a regulation requiring fishing boats to pay the cost of observers monitoring the catch. The statute was silent on this issue, but two federal appellate courts held that it was a reasonable interpretation of the statute. The cast of characters—struggling New England fishing captains versus federal bureaucrats—made the case an attractive vehicle for advocacy groups to attack the Chevron doctrine. It attracted amicus briefs from many advocacy groups taking both sides of the issue including the AFL-CIO (supporting the NLRB’s decision-making power) and the National Right to Work Committee (taking the opposite view). The fishing captains won.

Impact of the Ruling. How the decision affects the DOL (including the Wage-Hour Division and OSHA), NLRB and EEOC remains to be seen. The laws governing those agencies delegate discretionary responsibility to issue rules and regulations in many areas, but in other areas, such as the definition of working time or the computation of overtime, the DOL’s publications are interpretations, not regulations. However, the Loper Bright decision is not intended to open the door for reconsideration of existing precedents that relied on Chevron. The Supreme Court expressly stated that reliance on Chevron is not a justification for overruling precedent.

But Wait – There’s More. The Loper Bright decision came a day after another decision also limiting the power of an administrative agency. In Securities and Exchange Commission v. Jarkesy, the Court ruled that securities fraud claims brought by the SEC are subject to the right, protected by the Seventh Amendment to the Constitution, to a jury trial. Prior to the decision, the SEC had the ability to bring fraud claims in court or before an agency administrative law judge.

Notably, NLRB unfair labor practice cases are also tried before administrative law judges, but the Supreme Court held in 1937 that the Seventh Amendment does not apply to NLRB cases. The Jarkesy decision could restrain the NLRB’s recent inclination to order, in addition to backpay and reinstatement, compensation for financial harm to employees such as out-of-pocket medical expenses or credit card debt. This additional compensation is similar to remedies in breach of contract or tort claims, which are subject to the Seventh Amendment.

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