The Case
The U.S. Supreme Court’s decision in Loper Bright Enterprises v. Raimondo, Secretary of Commerce, No. 22-451, June 28, 2024, overruled long-standing precedent under which courts were to provide substantial deference to federal agency interpretations of federal statutes. The result was not surprising—most commentators and scholars tracking the case expected it. That said, the decision actually coming down drives home the fact that the ruling’s impact may create a sea change in the way our federal administrative state operates.
Sometimes Supreme Court decisions directly impact employers prompting immediate changes in practices—think last year’s decision about the standard for religious accommodations. Here, while employers aren’t directly impacted by the decision (as it was about environmental regulations) employers will probably see federal agency regulations that govern operations, policies, and processes be challenged. These challenges may create significant uncertainty in some compliance areas, resulting in a need to pivot quickly to reduce legal risks, or take advantage of opportunities to implement preferred policies, all depending on the regulation in question.
The Ruling
The Loper decision is dense. For practical purposes, what human resources professionals should understand is that federal agencies like the Department of Labor (DOL) and the Equal Employment Opportunity Commission (EEOC) have historically had a fair amount of leeway when developing regulations to implement laws like the Fair Labor Standards Act (FLSA) and Title VII of the Civil Rights Act of 1964. This made it difficult for organizations to effectively challenge regulations. It was not impossible, though. For example, remember that in 2016 a court issued a nationwide injunction concerning FLSA’s minimum salary level for exempt employees (the same basic issue is in front of courts now based on regulations revised and reissued in 2019). Nevertheless, at the end of the day most regulations were upheld, arguably because of Chevron.
It remains to be seen whether there will be substantial rejections of long-standing regulations. Instead of deference, Loper instructs courts to “exercise independent judgment in determining” whether a statute authorizes a regulation. Courts “may . . . seek aid from the interpretations of those responsible for implementing particular statutes,” namely the agencies, but they do not simply evaluate if the agency’s determination is a permissible interpretation of the authorizing statute. Rather, courts are to use their independent judgment to determine whether an agency’s regulation is the correct interpretation of the authorizing statute. The Supreme Court did rule that prior decisions upholding regulations remain good law. It may be that agencies will be successful in defending challenges under the new standard. We can anticipate there will be litigation challenging various regulations that are opposed by interest groups and others. That litigation will often involve parties seeking injunctions that could effectively void regulations, at least for some period of time.
The Potential Impact
The DOL and EEOC regulate many aspects of an employer’s relationship with employees. Of course, other agencies also regulate the relationship and employment practices, like the Occupational Safety and Health Administration (OSHA), the National Labor Relations Board (NLRB), and even recently the Federal Trade Commission (FTC) and its rule effectively banning noncompetition agreements. Over the coming months, expect to see challenges to rules by these agencies. The FTC’s noncompete rule is already subject to litigation. Indeed, on July 3, 2024, the United States District Court for the Northern District of Texas stayed enforcement of the rule for the parties in the case and found the FTC’s rule unlikely to survive. The decision in Loper makes it even more likely that the FTC’s noncompete rule will not stand. Employers subject to the NLRB’s jurisdiction are used to rules changing Board to Board, but without Chevron deference, courts are likely to be more exacting in their review of whether the NLRB is properly interpreting the National Labor Relations Act.
While Loper may impact many federal regulations, it is important for employers to remember Loper has no impact on state regulations. Many states may have rules similar to those of the federal agency that employers will still be required to abide by even if Loper results in federal regulations being overturned.
Additionally, Congress is free to pass statutes in the future that either explicitly adopt an agency’s regulations and interpretations, or that include a broader grant of authority that would encompass an agency’s existing or future regulations and interpretations. So it may be that the impact of the Loper decision is not as wide as some are currently predicting.
Key Takeaways
Employers are wise not to overreact and make any assumptions when litigation is first filed. But employers will need to pay attention to information about litigation against agency rules, especially if courts issue nationwide injunctions or injunctions in an applicable jurisdiction. Then, employers will need to decide how to act and how to communicate about any policy impacts. Often, that assessment will include making sure there is not an overreaction. For example, rejection of a federal regulation and corresponding injunction may prompt a need or ability to change a practice. But it may not be due to state regulations or other considerations.
In sum, while no one can predict the specific impact of Loper, employers will almost certainly need to be particularly attentive to what rules are challenged, where they are challenged, and be thoughtful with respect to adjusting in light of the results of litigation challenging employment regulations.
The legal issues impacting this topic are and will continue to be ever-changing (Employment Law in Motion!), and since publication of this blog post, new or additional information not referenced in this blog post may be available.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
