Manufacturers considering operations in Texas may be surprised to discover that, despite the state’s desired reputation as a “light regulation” and “free market” environment, comprehensive regulatory statutes exist for most fields of business and commerce.  Layered on top of these laws are an often voluminous set of regulations promulgated and enforced by multiple state agencies to which the legislature has usually delegated broad regulatory authority.  When a Texas state agency overreaches with rules or statutory interpretations that stretch the boundaries of the authority delegated to them by the legislature, often the only recourse for a regulated entity is to challenge the agency’s rule or interpretation in court.  Traditionally, Texas courts have given significant deference to an agency’s application of its authority.  However, in the past decade, a series of Texas Supreme Court cases have reduced the scope of deference given to state agencies.

Court opinions citing deference to agency interpretation go back as far as the 1940s.  See Stanford v. Butler, 142 Tex. 692, 181 S.W.2d 269, 273 (1944).  The Texas Supreme Court refined its interpretation of appropriate deference standards in 1991, ruling that if there is vagueness, ambiguity, or room for policy determinations in a statute or rule, the court normally defers to the agency’s interpretation unless it is “plainly erroneous or inconsistent with the language” of the law or rule.  See Pub. Util. Comm’n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 (Tex.1991).

In a 2011 tax assessment case, the Court rejected the agency’s interpretation of law and its own regulation regarding intellectual property assets, noting that “no deference is due where an agency’s interpretation fails to follow the clear, unambiguous language of its own regulations.” TGS-NOPEC Geophysical Co. v. Combs, 340 S.W.3d 432, 438–39 (Tex. 2011).

In an environmental enforcement case the same year, the Court further refined the circumstances in which it would give deference to state agencies as only occurring when statutory or rule language is ambiguous, such that a term could be subject to multiple interpretations.  R.R. Comm’n of Tex. v. Tex. Citizens for a Safe Future and Clean Water, 336 S.W.3d 619, 628 (Tex. 2011).  The Court noted that Texas had never expressly adopted the federal Chevron standard for consideration of agency interpretations of statute, and that while Texas jurisprudence on deference was similar in some respects to Chevron, it was not identical and in many cases narrower.

The Texas Supreme Court reaffirmed its narrowed circumstances for agency deference in 2016, ruling in a case regarding manufacturing tax exemptions that it had “long recognized that an agency’s construction of a statute may be taken into consideration by courts when interpreting statutes, but deferring to an agency’s construction is appropriate only when the statutory language is ambiguous.  Sw. Royalties, Inc. v. Hegar, 500 S.W.3d 400, 404-05 (Tex. 1016).  The court did not mention deference to agency interpretation when “room for policy determinations” exist, in contrast with the Court’s ruling in Gulf States twenty-five years earlier.

Unlike the federal Chevron standard, Texas does not defer to state agencies when an interpretation involves questions of “deep economic and political significance.”  Texas gives no deference to informal opinions issued by agencies, and can broadly interpret whether a statute or rule is “ambiguous” or not such that deference can fairly easily be avoided.  Texas appellate courts may be more willing to defer to agencies when an interpretation is long-standing or if it involves a matter of technical expertise within an agency to which the legislature has conferred powers in “clear and express language.”  See Liberty Mutual Ins. Co. v. Adcock, 412 S.W.3d 492 (Tex. 2013).  However, given the narrowed scope of circumstances in which the Texas Supreme Court has shown willingness to defer to agency interpretations, manufacturers unsatisfied with the application of agency regulations should strongly consider challenging the agency in court as their chances of persuading the courts to overturn agency interpretations are somewhat stronger in Texas than in other jurisdictions.