Whether a court must defer to an administrative agency’s interpretation of a statute has recently become a hot-button topic in a wide variety of legal circles ranging from political campaigns to cases heard before the United States Supreme Court.  The Supreme Court of Ohio has now joined with its recent decision in TWISM Ents., L.L.C. v. State Bd. of Registration for Professional Engineers & Surveyors,^[1] which appears to be similar to to a lump of coal in the stockings of state administrative agencies that have long enjoyed judicial deference to matters involving statutory interpretation.

The TWISM decision arose from the Ohio Board of Registration for Professional Engineers and Surveyors’ (“the Board”) denial of TWISM’s application for a certificate of authorization to provide engineering services.  In accordance with R.C. 4733.16(D), engineering firms that wish to do business in Ohio “shall designate one or more full-time partners, managers, members, officers, or directors as being responsible for, and in responsible charge of, the professional engineering or professional surveying activities and decisions.”  TWISM, a small start-up firm, applied to the Board for a certificate of authorization and designated a full-time engineer as its manager.  However, the proposed manager was employed by TWISM on a per-project basis and the firm reported his income to the IRS as an independent contractor on a form 1099, rather than withholding and reporting his income as an employee under a W-2 tax form.

The Board denied TWISM’s application on the basis that TWISM “failed to designate one or more full-time partners, managers, members, officers, or directors as being responsible for and in charge of professional engineering activities and decisions for the firm.”  In the Board’s view, a manager had to be a W-2 employee rather than a form-1099 independent contractor. 

TWISM appealed the Board’s denial and the case eventually was heard by Ohio’s First District Court of Appeals, which upheld the Board’s denial of TWISM’s application.  In rendering its decision, the First District relied on the United States Supreme Court’s decision in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,^[2] which held that a court must defer to the interpretation of a statute by an administrative agency only if the court first finds the statute to be ambiguous.  Consequently, the First District determined that R.C. 4733.16(D) was ambiguous since the statute “could” be read as requiring the manager to be “directly affiliated with the entity” or alternatively “could” be read as allowing the manager to be an independent contractor.  The First District then concluded that “[b]ecause there are different, reasonable readings of ‘full-time manager,’ we find that the term is ambiguous. As such, this court must defer to the Board’s interpretation.”

The Supreme Court of Ohio accepted TWISM’s appeal and used the matter as an attempt clarify the Court’s “(admittedly muddled) precedent on deference.”  In doing so, the Court relied on centuries-old standards, such as the Ohio Constitution and The Federalist Papers, to outline a separation-of-powers rationale that resulted in the Court concluding that the ultimate authority to render definitive interpretations of the law has long been understood as resting exclusively in the judicial branch.  As stated by the Court: “[w]hen a court defers to an agency’s interpretation of the law, it hands to the executive branch the judicial authority ‘to say what the law is[.]’”

As a result, the Court specifically rejected all forms of so-called “mandatory deference” that require courts to automatically defer to the judgment of administrative agencies in regards to statutory interpretation.  Instead, courts may consider an administrative agency’s construction of a statute or regulation only in those situations where the text is “truly ambiguous.”  Even then, judges should consider “the persuasive power of the agency’s interpretation” and not rely “on the mere fact that [the interpretation] is being offered by an administrative agency.”

Using this logic, the Court conducted its own independent review of the record and found there was nothing in the plain language of R.C. 4733.16(D)’s definition of “manager” that requires an individual to be classified as a W-2 employee instead of an independent contractor.  As a result, TWISM was entitled to a certificate of authorization to practice engineering in the State of Ohio.

Ohio is not alone as numerous other states such as Wisconsin, Arkansas, Delaware, Kansas, Michigan, and Mississippi have revisited the topic of agency deference and similarly imposed standards that do not require deference to an agency’s statutory interpretation.  Moving forward, licensees and prospective licensees whose practices or business are regulated by any administrative agency in the State of Ohio should be aware of the varying implications of the TWISM decision and whether such agencies have changed any investigative or disciplinary strategies in light of TWISM’s new precedent.

FOOTNOTES

[1] Slip Opinion No. 2022-Ohio-4677.

[2] 467 U.S. 837, 842-843, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984).