Navigating Workplace Compliance & Regulations following Supreme Court Chevron Reversal

Welcome to SMB Matters, I’m Spring Taylor, Counsel, Employment at TriNet. This podcast series takes a close look at the latest news and trends on a variety of topics related to running a successful small or medium sized business.

On June 28, 2024, the Supreme Court of the United States overturned the 40-year-old Chevron v. Natural Resources Defense Council holding, that required courts to defer to federal agencies’ interpretations of ambiguous statutes. The Supreme Court’s new ruling in the case of Loper Bright Enterprises v. Raimondo mandates that courts must now exercise independent judgment when interpreting statutes, without giving Chevron deference to federal agencies’ interpretation.

You might be thinking, okay, but what does this have to do with my business? Well, for the past 40 years, federal agencies have exercised considerable power over the workplace by issuing rules and regulations based on their interpretations of the law.

To understand more about the importance of this one-eighty change, we need a small civics lesson first. When Congress passes a law, the laws themselves can’t include every detail necessary to effectively implement it. Congress also grants federal agencies the authority to enforce the law and develop regulations to achieve the law’s purpose. For instance, Congress gave the U.S. Department of Labor the authority to enforce laws like the Fair Labor Standards Act.

But in addition to the law not containing every detail, often, the language used by Congress just isn’t that clear in the first place. Thus, federal agencies interpret the statute’s language and issue guidance or regulations to clarify how the law should be applied and function in practice. Each agency’s role is to close any gaps in the statutory language and provide practical guidance on how to comply with the statute’s requirements.

Some legal scholars have called the Chevron deference one of the most influential precedents of all time. It has certainly had an impact on the workplace. Since 1984, every major federal employment agency has relied on Chevron’s holding when issuing workplace requirements.

For employers, and specifically SMBs, many of the key workplace laws — such as the Fair Labor Standards Act and the National Labor Relations Act — were passed before individuals had easy access to a telephone and before workplaces were transformed by technology. Since the Chevron decision, federal agencies have been expanding what’s within their scope under laws they enforce, and thus their authority, when it comes to the workplace.

With the Loper Bright decision, judges are now required to exercise their independent judgment when deciding if an agency has acted within its statutory authority when issuing a rule or regulation. In addition, courts may not defer to an agency’s interpretation of the law simply because the statute was ambiguous even if the agency’s interpretation is reasonable and consistent with Congressional intent.

Part of the support for the Court’s decision in Loper Bright is rooted in our system of three branches of government — legislative, executive, and judicial — where traditionally, it’s always been the role of the judicial branch to resolve statutory ambiguities. Essentially, the Court said that Chevron improperly transferred the power to interpret the law from the judiciary to the executive branch’s agencies. Moving forward, when an agency’s actions, rules, or regulations are challenged, courts will apply traditional judicial standards of statutory interpretation to laws. Without Chevron, agencies have lost a powerful tool. For employers, challenging agency overreach may have become a lot easier.

One of the immediate impacts of overturning Chevron is the impact on litigation waiting to be decided. Pending cases in the courts must now apply the Supreme Court’s new test of the judiciary’s statutory interpretation principles. Examples of pending workplace litigation impacted by this abrupt change include the Department of Labor’s independent contractor rule, as well as its recent increases to exempt employees’ salary levels. Another example is the National Labor Relations Board’s joint employer rule. There’s also the pending litigation challenging the Federal Trade Commission’s recent rule banning all non-compete agreements in the workplace.

Moving forward, instead of relying on Chevron deference, courts will directly determine how much authority was given to the agency by Congress to issue a particular rule or regulation. If your company is currently engaged in litigation with a federal agency, now is the time to consult with your counsel to determine if modifications to the litigation strategy are appropriate.

What should SMBs expect? Anticipate some instability. As agency rules and regulations may be challenged, judges reviewing cases about the same agency action in different states or circuits may likely issue different opinions. This patchwork approach may result in different employment compliance rules and regulations across states, even if the statute itself is unchanged. As SMBs navigate a post-Chevron world, expect potential changes to the regulations and rules that may impact your workplace. Make sure you have a good team on your side helping you navigate so you can stay informed and on top of the HR compliance landscape that will likely shift more than ever.

Also team up with your industry’s trade groups or associations. Associations often advocate on behalf of their members when agencies’ rules and regulations impact their members. Work with these groups to provide feedback or comments when agencies propose new rules or regulations.

In short, the Supreme Court’s decision to overturn Chevron deference is likely going to have significant impacts on the workplace, so SMBs should stay informed and ready to adjust their current policies and procedures to comply with any new or updated regulatory requirements.

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