This month, the Supreme Court put an end to “Chevron deference,” the decades-long practice of judicial deference to federal agency interpretations of ambiguous statutory language. What does this mean for employers? Well, based on available data, it should make it easier for companies to defend against regulatory overreach. With Congress deadlocked, there has been an explosion in recent years of federal rulemaking in the labor and employment arena. Recent examples include new rules on joint employer status, noncompetition agreements, and higher minimum salaries for exempt employees, as well as a variety of changes governing unions. And these rules often change, with new administrations seeking to undo or alter rules enacted by prior administrations. The result has been a shifting compliance burden, forcing companies to constantly revise their policies and procedures. Hopefully with the end of Chevron deference, courts will be able to develop some lasting compliance standards.

What was Chevron deference?

Chevron was a “bedrock principle of administrative law that a reviewing court must defer to a federal agency's reasonable interpretation of an ambiguous statute it administers.” According to Kent Barnett and Christopher J. Walker in Chevron in the Circuit Courts (116 Mich. L. Rev. 1, 2 (2017)), Chevron was “one of the most cited Supreme Court decisions of all time.”

That ended this month with the Supreme Court’s decision in Loper Bright Enterprises v. Raimondo (144 S. Ct. 2244, 2254 (2024)). Under Chevron, courts would undertake a two-step process to interpret federal statutes. The court would first determine whether the statute clearly delineated the answer to a particular question. If it did, the analysis was over and the court would simply apply the statutory interpretation. But if the statute was “silent or ambiguous with respect to the specific issue” then the court would proceed to step two and defer to the interpretation of the federal agency charged with enforcing the statute if the agency’s interpretation was “based on a permissible construction of the statute.”

In Loper Bright, the Supreme Court held that such deference violated the Administrative Procedures Act (APA) because courts and judges were supposed to interpret statutes unless a statute specifically reflected Congressional delegation of discretionary power to the federal agency. Loper Bright did not invalidate any prior court decisions predicated on Chevron deference, and those decisions remain good precedent. And moving forward, Congress can still delegate discretionary authority to federal agencies when it passes legislation, and when it does the interpretations of those agencies will be entitled to deference. But deference will not be the default stance any time there is an actual or potential ambiguity. In the absence of a specific statutory directive to defer, courts will “exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires.”

So, what does this mean? To better ascertain the potential future impact of this change, it is helpful to review the impact that Chevron had on court decisions. But before we turn to the data, it is worth taking a look at the recent rise of regulatory action in the labor and employment arena. That is the area where Chevron deference typically came into play.

The explosion of federal agency regulation in the labor and employment arena

It is hard to get much done in Congress these days. Deadlock is the order of the day. As a result, administrations typically turn to rulemaking to enact changes and implement policy. Rulemaking by the Department of Labor (DOL) and National Labor Relations Board (NLRB) is common, and both agencies continue to remain active. In recent years, however, more non-traditional agencies have also exercised their rulemaking authority to make changes in the labor and employment arena. Examples include the Federal Trade Commission’s (FTC) rule on noncompete agreements and its focus on franchisor control over the wages and working conditions of its franchisees; the Securities and Exchange Commission’s plans to require disclosures on compensation and diversity initiatives; and announcements by the Consumer Financial Protection Bureau (CFPB) that it intends to investigate employee debt.

Many of these agencies have entered into memorandums of understanding to cooperate and share information with each other, so information that the FTC or CFPB gathers in an investigation could be shared with the Department of Justice (DOJ), Department of Labor (DOL), or the Equal Employment Opportunity Commission (EEOC).

It is also common for compliance standards to fluctuate with changes in administrations. Employers are quite familiar with, and frustrated by, the back-and-forth changes that have occurred in just the past few administrations where rules regarding salary levels and joint employer or contractor status have been passed, challenged, repealed, rewritten, and passed again.

The NLRB is a prime example. In 2022, the NLRB finally settled its long-standing and high-profile litigation with McDonalds over joint employer status (see Fast Food Workers Comm. v. NLRB, 31 F.4th 807, 810 (D.C. Cir. 2022)). Two unions challenged the settlement, objecting to the settlement’s failure to, among other things, determine whether McDonalds is a joint employer. The D.C. Circuit Court, however, affirmed the settlement. In its decision, the circuit court noted the historical swings by the board on the issue under different administrations:

As legal scholars have recognized, the Board's legal policies and objectives, including statutory interpretations, change rather dramatically under different administrations. And we have consistently affirmed the Board's policy shifts so long as they are explained and the relevant statute permits the change. This case represents such an example.

The NLRB announced its then new rule on September 7, 2022, which replaced the rule that took effect just two years prior on April 27, 2020. The final rule was issued earlier this year. While prior changes were affirmed — because they were based on a permissible potential interpretation of the statute and, under Chevron, entitled to deference — future changes may not have the same success rate.

The impact of ending Chevron deference

A 2017 study quantitative study determined that Chevron deference did not have much of an impact on decisions by the Supreme Court but did appear to have a large impact on decisions by federal appellate courts. According to the study of over 13,000 cases, federal agency win rates were significantly higher under Chevron as compared to when courts were engaging in de novo (i.e., independent) review. Some key findings from the study:

• Overall agency win rates were 77.4% under Chevron deference compared to just 38.5% under de novo review.
• Of the 30% of cases resolved at step one (clear congressional intent, no ambiguity), agencies prevailed only 39% of the time.
• Of the 70% of cases that made it to step two, agencies prevailed a whopping 93.8% of the time.
• Agency win rates can vary by circuit. In this study, the First Circuit was the most agency friendly (82.8% overall win rate) and the Ninth Circuit was the least friendly (65.8% win rate), but the large differential in win rates between when Chevron was employed or not confirmed that “agencies prevailed more in all circuits when Chevron”
• Win rates also varied by subject matter and agency, with the FCC posting the highest win rate (82.5%) and the EEOC posting the lowest (42.9%)

Kent Barnett & Christopher J. Walker, Chevron in the Circuit Courts, 116 Mich. L. Rev. 1, 6-8 (2017)

Based on the above data, it is reasonable to believe that future challenges to agency rulemaking should have more success without the deferential requirements of Chevron. It will also likely be more difficult for agencies to change their interpretation of statutes over time. New administrations will not be able to simply alter its view of a statute as judicial precedent will guide instead. Inconsistencies may arise — at least in the short term — as different jurisdictions face the same questions. A recent example is the different conclusions of federal courts in Texas and Pennsylvania with respect to the authority of the FTC to issue rules on noncompetition agreements. Another potential impact is even more gridlock and delay. Courts are already overburdened with extensive caseloads. Regardless of how you feel about deference, it certainly makes decision-making quicker and easier. It is reasonable to assume that the added burden of independent judicial review will require more time from courts and add to the already crowded and delayed litigation dockets.

If your company becomes involved in a federal investigation or is contemplating changes required by new rules or regulations, you should investigate options to minimize costs and exposure.