In 1984, the Supreme Court established the doctrine known as “Chevron deference” when they ruled that the courts should defer to Federal agency interpretations of ambiguous U.S. laws.[1] Last week, the Supreme Court overturned this long-standing legal precedent, turning the page to a new chapter in the evolution of the Federal regulatory environment.

What is Chevron Deference?

Often, the purpose of Federal regulations is to fill in gaps in the statutory language that require a level of detail beyond what Congress included when drafting the legislation. Chevron deference is predicated on the principle that Federal administrative agencies have greater expertise in their specific areas of jurisdiction than do the courts. Under Chevron, the agencies’ “gap filling” regulations are given deference over the subject of the regulation if:

• The statute is ambiguous and requires further clarification or definition, and
• The agency’s interpretation is reasonable.

Chevron deference forces those who challenge Federal regulations to prove that either the statute is not ambiguous, or the interpretation made by the agency is not reasonable.

Why is this Important?

The end of Chevron deference opens myriad Federal regulations across all areas of the government to reconsideration, either by the courts, the agencies themselves, or Congress. With Federal judges further empowered to interpret laws in place of agency experts, litigants will “forum shop”, selecting in which court to file suit based on how sympathetic they believe that court will be to their arguments. As a result, Federal laws may have starkly different interpretations in different parts of the country.

The repeal of Chevron deference does not mean that Federal agencies are rendered powerless or their regulations unenforceable. Rather, it provides instruction to the Federal courts that deference to a Federal agency interpretation requires more than ambiguity in the law as enacted. In their recent decision, the Supreme Court noted that one factor to consider in evaluating the level of deference to an agency regulation is the period between passage of the law and issuance of interpretive guidance. The longer it takes an agency to issue a regulation, the less reliance the courts might place on that regulation.

It will take time to see how the new paradigm unfolds. Some predict that ending Chevron deference will introduce significant regulatory uncertainty as the courts hear litigation challenging existing regulations. Opponents of Chevron deference have argued that eliminating the potential for changing regulatory interpretation from one Presidential Administration to the next will stabilize the regulatory environment and provide increased certainty.

Issues to Watch in HR and Benefits Post-Chevron

We highlight below several areas that may come under review in the next few years.

Healthcare

Much of the Federal legislation related to healthcare in recent years has relied heavily upon regulations issued by DOL, CMS, HHS, and Treasury for their implementation as the agencies can respond to changing circumstances faster and more effectively than Congress. Areas that may be the focus of legal challenge include:

• Rulings implementing the Affordable Care Act, Consolidated Appropriations Act, and No Surprises Act.
• The Transparency in Coverage rule was jointly developed by DOL, HHS, and Treasury.
• Medicare and Medicaid policymaking including definitions established by CMS related to Medicare drug negotiation or policies in the Medicaid drug rebate program.

As evidence that healthcare issues may face legal challenges post-Chevron, the same day the Supreme Court issued it’s ruling a lawsuit was filed against the Secretary of Health and Human Services by Hackensack Meridian Health, asking the U.S. District Court to rule on Congressional intent with respect to the calculation of hospital care reimbursements for low-income patients.

Retirement

The rules governing retirement plans are very technical and the DOL, IRS, and PBGC have had the responsibility of filling in how plan sponsors manage their programs. Key areas that we are watching include:

• The Special Financial Assistance (SFA) program for Taft-Hartley pension plans, where regulations on determining the need for and usage of the proceeds of the program have included provisions not explicitly stated in the legislative language.
• SECURE 1.0 and SECURE 2.0 Acts where, as newer legislation, the myriad of provisions could be ripe for challenges as regulations are issued.

Investments

The two biggest regulatory developments in the fiduciary and investment area in recent years are both undergoing current legal challenges that may be affected by the Supreme Court’s decision on Chevron deference.

• The Retirement Security Rule and prohibited transaction exemptions for investment advice fiduciaries (aka, the Fiduciary Rule).
• The Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights (aka ESG investing) rule.

Employment

Two hot topics in employment law of late that could face further scrutiny in a post-Chevron environment include:

• The FTC’s recent rule banned most non-compete agreements between employers and Union members, which is already facing legal challenges in several states. The challenges to the non-compete ban include the question of whether the FTC has jurisdiction to rule on matters related to unfair competition.
• The DOL’s Independent Contractor rule, which was reissued in February 2024, where the approach to determining independent contract status was shifted from the prior tiered-factor analysis back to a “totality of circumstances” approach that was reflected in earlier iterations of the rule.

Compensation

In the area of compensation, agencies such as the DOL, EEOC, OFCCP, and IRS have all relied on Chevron in defending challenges to various agency regulations. The NLRB, an independent federal agency (separate from the Executive branch) also applies similar rules in their defense of decisions in cases involving unfair labor practices.

As time passes, there are a myriad of issues that may come under renewed scrutiny across a number of agencies. Brief examples include:

• FLSA exemption guidelines;
• Pay equity and disparate impact regulations;
• DCAA and federal contract compliance; and
• Recent intermediate sanctions and private inurement determinations.

It will take time to sort out how much the end to Chevron deference will change the future of regulation at the Federal level. Bolton consultants continue to monitor legislative and regulatory developments such as this to ensure our clients remain informed about the latest trends that affect Unions and their members.

[1] Chevron v. Natural Resources Defense Council, 467 U.S. 837 (1984).