On June 28, 2024, the U.S. Supreme Court issued a landmark decision in Loper Bright Enterprises v. Raimondo, eliminating a fundamental principle of administrative law. In a 6-3 decision, the Supreme Court overturned Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., which for over 40 years set a doctrine that required judicial deference to an agency's interpretation of a law it administers. The Court in Loper reasoned that Chevron deference is irreconcilable with the federal Administrative Procedure Act (APA), which commands that the reviewing court, not an agency, must decide all relevant questions of law by identifying and applying the "best reading."

We anticipate the Supreme Court's decision will have a broad impact on the rules and regulations affecting employers, including many significant ones implemented just this year, such as the Equal Employment Opportunity Commission's regulations implementing the Pregnant Workers Fairness Act, the Federal Trade Commission's Rule prohibiting non-competition agreements, and the National Labor Relation Board's new joint employer rule. Employers may also anticipate a slight downtick in the robust agency actions that have been taken under the current administration, at least in the immediate wake of the Court's decision. The full impact of the Court's decision has yet to be realized, though we can anticipate that the elimination of this 40-year precedent will have a notable effect on the agency's role in implementing and enforcing labor and employment laws around the county.

What Was the Chevron Doctrine?

In Chevron the Supreme Court created a two-part test to determine when a court should defer to an agency's interpretation of the law it administers. Pursuant to this test, applying what has since become known as the "Chevron Doctrine," a court was required to defer to an agency's interpretation of applicable law if (1) the law was ambiguous, and (2) the agency's interpretation was reasonable. This was true even if the reviewing court read the statute differently from the agency's interpretation, so long as its interpretation was "permissible."

Accordingly, with this standard, Chevron placed a relatively low burden on the agency to demonstrate that its interpretation was valid and reasonable and should be upheld. Agencies were thus able to rely on the Chevron deference when interpreting the scope of and enforcing labor and employment laws.

What Is Left in Chevron's Wake?

The Supreme Court's decision in Loper requires courts to exercise independent judgment in construing statutes administered by agencies and to determine the "best reading" of the law, using all relevant interpretive tools.

Notably, while the Supreme Court's decision in Loper has severely undercut the heightened deference previously afforded to agencies under Chevron, courts may still use an agency's interpretation of applicable law as guidance. In fact, the Supreme Court highlighted that an agency's interpretation may be "especially informative" to the extent that it relies on factual premises within the agency's expertise or was issued "roughly contemporaneously" with the statute and has "remained consistent over time." The Supreme Court has seemingly endorsed the level of deference afforded to agencies prior to Chevron, applying what is known as the Skidmore deference, which derives from the case Skidmore v. Swift & Co., 323 U.S. 134 (1944). That said, the Court has declined to expressly adopt that standard and has rejected use of "deference." Therefore, how this standard will be applied has yet to be determined.

What Does This New Chapter Mean for Employers?

Although the Court has overturned Chevron, it has made clear that prior decisions relying on Chevron have not been overturned. Accordingly, agency regulations upheld as a result of the Chevron deference will remain in full force and effect, and employers should continue to follow existing regulations and guidance. However, the Court's decision may impact agency action moving forward.

Over the past few years in particular, agencies have taken fairly robust actions, which they may ultimately shy away from, at least in the immediate future, while the implications and reach of the Court's decision are still in flux. Even if agencies do not refrain from them, such actions may be met by more legal challenges that have a greater chance of success. For example, a number of recent agency actions pertaining to labor and employment matters are pending and will now face greater scrutiny based upon the Loper decision. These include rules issued by the Department of Labor relating to independent contractor classification under the Fair Labor Standards Act (FLSA) and increasing the minimum salary threshold for employees to qualify as exemption under the FLSA; a "walkaround" rule issued by the Occupational Safety and Health Administration permitting union representatives to accompany inspectors during inspections; regulations from the Equal Employment Opportunity Commission implementing the Pregnant Workers Fairness Act; and a rule by the Federal Trade Commission voiding non-compete agreements.

Given this changing landscape, employers should continue to stay up to date on this developing area of the law and seek counsel to understand its implications.