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What Would Overruling Chevron Mean for Employers?

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On January 17, 2024, the U.S. Supreme Court will hear oral arguments in two cases asking whether to overturn Chevron USA, Inc. v. Natural Resources Defense Council. Chevron is a landmark decision which requires courts to defer to the legal views of federal agencies — including the agencies that enforce labor and employment laws.

The Supreme Court of the United States
The Supreme Court of the United States

The exact results will depend on whether the Court overrules Chevron or merely adjusts it. But it seems unlikely that the Court will stick with the status quo. It will almost surely change something. And that change will likely influence labor and employment law.

What is Chevron about?

Decided in 1985, Chevron instructed courts how to handle certain agency interpretations. When Congress passes a statute, it often assigns responsibility to enforce the statute to an agency. But the statute is not always clear. So, the agency has to explain how the statute applies in practice. The agency can do that in several ways: it can publish informal guidance; it can resolve a dispute with a quasi-judicial opinion; or it can issue a formal regulation. It can even do all three. But no matter what method it chooses, it is supposed to make the statute clearer by being more specific. That is, it is supposed to cover "gaps" in the statute's language.

In Chevron, the Supreme Court directed lower courts to defer to these gap-filling interpretations under two conditions. First, the statute must be ambiguous. Second, the agency's interpretation must be reasonable. These conditions are sometimes called the "Chevron two-step." If both steps are satisfied, the court should accept the agency's interpretation even if the court would have read the statute differently on its own.

How does Chevron affect labor and employment law today?

Chevron has grown to be one of the most influential decisions of all time. By one count, it has been cited in more than 15,000 judicial opinions. Courts rely on it reflexively. And as a result, it has influenced nearly every part of federal law, including labor and employment law.

In fact, every major federal employment agency has relied on Chevron. The Equal Employment Opportunity Commission (EEOC), Occupational Health and Safety Administration (OSHA), and U.S. Department of Labor (DOL) all regularly invoke Chevron in court. And the National Labor Relations Board (NLRB) uses similar deference principles to defend its regulations and decisions in unfair labor practice cases.

Chevron has made these agencies' interpretations harder to challenge. When a person wants to challenge an agency's legal views, the person must beat the agency at either step one or step two of Chevron. That is, the person has to show either that the statute is "unambiguous" or that the agency's interpretation is "unreasonable." Both are easier said than done.

First, at step one, federal labor and employment statutes are rarely clear in practice. Many were written decades ago, when workplaces were very different. Title VII of the Civil Rights Act (Title VII) was passed in the 1960s, decades before e-mail or the internet. And the NLRA and FLSA were passed in the 1930s, when fewer than half of workers had phones, much less smartphones. So the statutory language rarely maps perfectly onto the modern workplace — leaving room for interpretation.

Second, at step two, courts often hesitate to say that an agency's interpretation is unreasonable. By definition, an ambiguous statute can be read more than one way. So as long as the agency's reading is plausible, a court will usually accept it. That's not always true, of course; courts sometimes reject agency rules as unreasonable. But that result is rare. At step two, the agency almost always wins.

Agencies therefore go into court with a leg up. And some scholars think that this advantage has made them more adventurous. That is, agencies have been more willing to stretch statutory language because they know they will get deference in court. But stretching thin language leads to questionable results, prompting more people to challenge agency rules. In other words, deference has led to more litigation.

That dynamic has been visible nowhere more than in labor and employment law. In recent years, nearly every high-profile labor or employment regulation has been challenged in court. To cite only a few examples, lawsuits were filed against OSHA's mask-or-vaccine rule, the EEOC's EEO-1 reporting requirements, the NLRB's joint-employer rules, and a variety of DOL rules, including overtime, persuader, and independent-contractor rules.

The exact relationship between this litigation and Chevron is hard to quantify. But the data suggests that Chevron has at least boosted agency activity. Using one simple metric, the number of pages in the Federal Register — where agencies are required to publish their proposed and final rules — grew from fewer than 50,000 in 1985 to more than 97,000 by 2016. In other words, since Chevron was decided, agencies have nearly doubled their output. It should be no surprise, then, that litigation has increased apace.

What will happen if Chevron is overruled?

These trends likely owe to more than just Chevron. Reversing them would require more than reversing one decision. But still, overruling Chevron would doubtless have immediate effects.

For one, it would immediately affect ongoing litigation. Lawsuits have been filed to challenge the DOL's independent-contractor rule, Davis-Bacon Act reform rule, and ESG-investing rule. A challenge has also been filed against the NLRB's most recent joint-employer rule. And still more challenges are expected to the DOL's proposed "white collar" salary rules. In each case, agencies are either relying or likely will rely on Chevron. But if Chevron is overruled, they will have to look elsewhere for support. Rather than relying on deference, they will have to defend their rules on the merits.

The agencies might also have to defend rules that have been around for a while. Much of modern labor and employment law stems from administrative interpretations. Labor law is especially heavy with them: for almost one hundred years, the NLRB has built on the NLRA's often-sparse language with its own rules and doctrines. Those doctrines have typically been given Chevron-style deference. But if Chevron is overturned, courts might be less willing to defer — and more willing to question longstanding rules.

The same could be said for wage-and-hour law. The DOL's Wage and Hour Division enjoys Chevron deference on several important questions, including how to define the FLSA's white-collar exemptions. But if Chevron is abolished, courts might be more willing to define those exemptions for themselves. In fact, Justice Brett Kavanaugh has already suggested that he would be willing to reconsider some of the Division's interpretations. And in a world without Chevron, other judges might be similarly inclined.

Chevron's demise might also make agencies rethink the kinds of regulations they issue in the first place. If agencies know that courts will review their regulations without deference, they may hew more closely to the underlying statute. Instead of stretching old statutes to fit new policies, they may adopt more modest, incremental interpretations. That approach would lead to less "gap filling" by regulation. But it might also reduce litigation over borderline rules. And it might even spur Congress to fill the gaps itself by passing more laws.

All of this will depend on whether (and how) the Court overrules Chevron. The Court may only tweak Chevron — or even leave the decision untouched. But that result seems unlikely. The Court probably did not take up the issue now only to affirm the status quo. It will almost surely change something. And that change will doubtless reverberate through labor and employment law.

Posted In: National Labor Relations Act (NLRA); National Labor Relations Board (NLRB); Title VII of the Civil Rights Act of 1964 (Title VII); U.S. Supreme Court; Wage and Hour Laws; Employee Retirement Income Security Act (ERISA); Equal Employment Opportunity Commission (EEOC); Department of Labor (DOL); Fair Labor Standards Act (FLSA)

Want to know more? Read the full article by at Littler Mendelson

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