In the United States, anyone who has ever driven a car knows Chevron, the oil and gas company. But for legal professionals, the name Chevron is synonymous with an important legal doctrine – the Chevron deference doctrine. The US Supreme Court recently overturned the longstanding Chevron doctrine, a decision that could dramatically reshape how US government agencies operate and how businesses are regulated.
This article delves into the origins and impact of the Chevron doctrine, explores the significant changes brought about by its recent demise, and outlines the potential legal and business implications that businesses must now navigate in a rapidly evolving regulatory landscape.
The Chevron deference doctrine originated from the landmark Supreme Court decision, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984). The decision established a legal principle that courts should defer to administrative agencies’ interpretations of ambiguous statutes they are tasked with enforcing.
This doctrine was built on the idea that agencies possess specialized expertise in their regulatory areas, making them better suited than courts to interpret the complexities of certain laws. Under Chevron, if a statute was ambiguous, courts would defer to the agency’s interpretation so long as it was reasonable. This approach allowed agencies significant leeway in interpreting and implementing laws, shaping the modern administrative state in the United States.
In a significant shift, the recent Supreme Court decision in Loper Bright Enterprises v. Raimondo, 144 S. Ct. 2244 (2024) overruled Chevron, declaring that courts, not agencies, should interpret ambiguous laws unless Congress explicitly grants that power to an agency.
The Loper Bright case involved a group of Atlantic herring fishing companies challenging the National Marine Fisheries Service’s authority to require them to pay for federal observers on their vessels. The Supreme Court ruled that courts must exercise independent judgment to determine whether an agency has acted within its statutory authority, marking a strict return to judicial oversight of agency interpretations.
Administrative agencies, like the Environmental Protection Agency and the Securities and Exchange Commission, enforce laws in specific areas such as environmental protection and securities regulation. These agencies are granted authority by Congress to create and enforce rules that carry the force of law, often navigating complex technical issues that exceed the expertise of Congress.
Chevron historically provided these agencies with the flexibility to interpret ambiguous statutes, reinforcing their significant role in shaping policy through regulations. However, the overturning of the doctrine means that courts will now have a greater say in interpreting these statutes, potentially leading to more legal challenges and a shift in how agencies operate.
Business implications of overturning Chevron
The decision to overturn Chevron could have profound implications for businesses. With increased judicial scrutiny, there will likely be more legal challenges to agency regulations, leading to greater uncertainty in the regulatory environment. In this uncertain environment, business interests might find it easier to challenge the government’s attempts to regulate business.
As a recent example, in August of this year, a federal district court in Texas set aside the Federal Trade Commission’s Noncompete Rule that sought to ban the use of noncompete clauses nationwide with few exceptions. The district court cited the Loper Bright decision in the first paragraph of its analysis and ruled that the FTC exceeded its authority, concluding that the agency lacked the statutory power to implement a non-compete ban of this scope.
Although the court’s decision is likely to be appealed, and the case could very well reach the Supreme Court, it raises doubt about the ban’s future while highlighting the uncertainty government agencies and businesses face in the latest regulatory environment following the decision in Loper Bright.
What is next for businesses?
The Supreme Court’s overturning of Chevron may lead to a more complex and contested regulatory environment, making it imperative for businesses to closely monitor judicial interpretations of agency actions and adjust their compliance strategies accordingly.
Here are some common-sense next steps businesses can take post-Chevron:
Monitor legal developments: Businesses (and their counsel) should more closely monitor court decisions that could impact regulatory interpretations in their industry.
Engage with legal counsel: Maintain close communication with legal experts to assess how changes in judicial review might affect your operations. Legal counsel can also provide guidance on navigating new regulatory challenges.
Advocate for clarity: Consider participating in industry groups or coalitions that advocate for clear regulatory guidelines. By actively participating in industry associations, engaging with regulatory bodies, and collaborating with other businesses for unified advocacy, you can contribute to shaping clear and stable regulatory environments.
Guy Milhalter is a partner, and Austin Ochoa is an associate attorney, in the New York office of Pearl Cohen Zedek Latzer Baratz LLP, where they are members of the firm’s US Corporate Practice Group.