In a highly anticipated Supreme Court decision, Loper Bright Enterprises v. Raimondo, the Court overruled its longstanding Chevron, U.S.A. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), holding that had previously directed courts to defer to an agency's interpretation of the law when a statute was ambiguous. When Chevron was decided President Reagan's Administration had taken a major shift in environmental and safety regulations by implementing a policy of deregulation. As part of the Government-wide regulatory reexamination, the Environmental Protection Agency (EPA) reevaluated the definition of the term "source" under the Clean Air Act and revised its regulations to provide a more consistent and flexible definition of the term. Id. at 857-58. The Supreme Court upheld the EPA's interpretation of the statutory term "source" through a two-step analysis: (1) determine whether Congress has expressly spoken to the question at issue and apply the unambiguous intent of Congress; and (2) if the statute is ambiguous, then the court defers to the agency's interpretation if it is based on a "permissible construction of the statute." Id. at 842-43, 860-66. The Court held that EPA's definition of "source" was a "permissible construction of the statute which seeks to accommodate progress in reducing air pollution with economic growth." Id. at 866.
Now over 40 years later and in a time when the Biden Administration is pushing for more regulations and environmental protections, the Supreme Court has overruled Chevron and moved away from agency deference when resolving statutory ambiguities. The Loper case involved two separate challenges to the National Marine Fisheries Service's (NMFS) rule that required Atlantic herring fisherman to pay for observers on their vessels to monitor fishing activity, similar to the express list of vessels that must cover such costs under the Magnuson-Stevens Fishery Conservation and Management Act (MSA). 2024 WL 3208360 at *6-8. Petitioners challenged the rule on the basis that NMFS did not have the statutory authority to add another category of vessels that must pay for an observer under the MSA. Id. at *7-8. Both the Court of Appeals for the D.C. Circuit and the First Circuit upheld the rule based on Chevron's step two deference to NMFS's permissible interpretation of the statute. Id.
The Supreme Court granted certiorari to consider whether the Chevron doctrine should be overruled or clarified. The Court held that "Chevron defies the command of the [Administrative Procedure Act] that 'the reviewing court' – not the agency whose action it reviews – is to 'decide all relevant questions of law' and 'interpret . . . statutory provisions.'" Id. at *15 (quoting 5 U.S.C. § 706). It is the job of the courts and not federal agencies to interpret statutes based on the traditional tools of statutory construction and determine the best reading, not just a "permissible" reading, of a statute to resolve any ambiguity. Id. at *16-17. The Court further held that stare decisis does not prevent it from overruling Chevron because the two-step framework is unworkable, has required constant revision and limitations to its application, and has prevented the courts from determining what the law is. Id. at *19-21. The Supreme Court overruled Chevron thus requiring courts to "exercise their independent judgment in deciding whether an agency has acted within its statutory authority, as the APA requires." Id. at *22.
This decision will apply across the spectrum of administrative regulations and rulemaking, and it is likely to have an impact on a recent case challenging rules promulgated by the Federal Trade Commission (FTC), which would limit the enforceability of non-compete agreements.
As discussed in our June 24, 2024, blog post here, the FTC issued a new rule which would prohibit most future non-compete agreements (non-compete agreements related to the purchase and sale of a business would not be prohibited by the rule) and existing non-compete agreements except those applicable to "senior executives" (i.e. those making more than $151,164 and who are in policy making positions). The rule's effect on non-solicitation agreements and other restrictive covenants is not clear.
The U.S. Chamber of Commerce and others filed a lawsuit arguing that the new rule is invalid for several reasons, including that the FTC exceeded its statutory authority. In light of the Loper decision, the plaintiffs' burden of proving their case will be lighter.
As discussed above, the court is no longer to give deference to an agency's (here, the FTC) interpretations of the law, as it would have under Chevron. This will make it more difficult for the FTC to argue that the rule is appropriate, and, conversely, less difficult for the plaintiffs to convince the court that the FTC overstepped its authority. This is particularly important in this case because there is no clear authorization from Congress for the FTC to regulate non-compete agreements. The FTC is arguing that it has implied authority by its interpretation of the Federal Trade Commission Act.
It remains to be seen how the court will decide this case, but it is clear that it will be more difficult for the FTC to prevail in light of Loper. The same will be true for other federal agencies, including the Environmental Protection Agency and Department of Interior, who are currently in litigation over recently proposed revisions to their own regulations, and any future agency rulemaking.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.