Pollution Curbs, Non-Compete Bans at Risk by Chevron Ruling

(Bloomberg) -- The Supreme Court’s decision to undercut the ability of administrative agencies to interpret vague laws casts a long shadow over federal auto emission limits, bans on non-compete agreements and efforts to regulate broadband internet.

Most Read from Bloomberg

The 6-3 ruling Friday overturning the so-called Chevron doctrine could have its biggest impacts on environmental, tech and health policy, where partisan gridlock has stymied lawmaking by Congress, forcing federal agencies to use old statutes to regulate newer problems such as climate change.

At issue is a doctrine established in 1984, when the Supreme Court said in Chevron USA v. Natural Resources Defense Council that when a law is ambiguous, judges should defer to the interpretation of the federal agency applying the law, so long as that interpretation is reasonable.

On Friday, the high court majority said that discretion no longer applies.

“Courts may not defer to an agency interpretation of the law simply because a statute is ambiguous,” Chief Justice John Roberts wrote.

In a dissent, Justice Elena Kagan said the ruling “flips the script” so now courts — rather than agencies — “will wield power when Congress has left an area of interpretive discretion,” with implications for regulation of climate change, health care and financial systems. “In every sphere of current or future federal regulation, expect courts from now on to play a commanding role.”

The consequences could be sweeping. But for existing rules, they won’t be immediate, since agencies largely stopped explicitly invoking Chevron deference in regulations as conservatives stepped up a coordinated campaign to dismantle the doctrine and rein in federal bureaucrats.

“It will be some time before we see the effects of this decision on the lawmaking process, but going forward, agency action will be under even greater scrutiny and there will likely be more opportunities for the regulated community to challenge agency rules and adjudications,” said Varu Chilakamarri, a former Justice Department official who is now a partner at K&L Gates. “The decision could be viewed as putting regulated communities on a more equal footing with the agencies.”

The decision also could make it easier for the presumptive Republican presidential nominee, Donald Trump, to undo recent Biden-era policies, should he win election in November.

“Any regulation that hasn’t made its way all the way to the Supreme Court could, with a very reasonable argument, be pulled back and re-examined,” said former Environmental Protection Agency Administrator Andrew Wheeler, now a partner at Holland and Hart LLP. “The Biden administration is going to have to take a long hard look at their recent regulations and decide whether they want to reopen them or if they want to take a crapshoot with the courts to see if they are upheld or not.”

The Supreme Court said previous rulings relying on the Chevron framework remain intact and should be honored as precedent.

Even so, recent and future regulations that lack the backing of unambiguous, explicit direction from Congress may face new challenges in the wake of the court’s decision. Here are some of them:

Auto Pollution Limits

Auto pollution standards that effectively compel automakers to sell electric vehicles may be vulnerable. The EPA set the limits under the Clean Air Act, which Congress last reauthorized long before Tesla Inc.’s first models rolled off the assembly line. Oil and corn groups already are challenging the rule in court, arguing it relies on a compliance program that allows averaging limits across entire vehicle fleets, rather than setting levels cars and trucks must meet individually. That approach is “coming from a point of statutory silence,” said Michael Buschbacher, a partner at Boyden Gray PLLC representing the some of the rule’s challengers.

Power Plant Emissions

The Biden administration’s recent rule limiting greenhouse gas emissions from power plants already has drawn lawsuits from coal advocates, utility groups and rural electric co-ops. Congress sought to bolster EPA’s authority to regulate planet-warming greenhouse gas pollution in the 2022 Inflation Reduction Act, but opponents argue the measure’s embrace of carbon-capture technology still runs afoul of the Clean Air Act.

Federal Enforcement

The decision could immediately alter the course of federal enforcement actions, giving businesses leverage to push for more lenient settlements. Regulated businesses could be more willing to go to court to defend themselves on alleged environmental violations, rather than negotiating with agencies. “If I were counseling defendants who have regulatory actions before EPA or any agency, I would say weigh carefully whether you want a trial by jury,” Wheeler said. “If you’ve got an agency that levels a pretty hefty fine, you might be better off going to court.”

Net Neutrality

The Federal Communications Commission this year restored efforts to put broadband services offered by such companies as AT&T Inc., Verizon Communications Inc. and Comcast Corp. under regulatory oversight using a 1934 communications law. The demise of the Chevron deference puts that agency interpretation at risk. Bloomberg Intelligence forecasts there is an 80% chance the order will be blocked or overturned by the courts.

Approvals of ‘Breakthrough’ Drugs

The Food and Drug Administration’s ability to authorize devices or drugs to market more quickly by designating technologies as “breakthroughs” may also be at risk. Since 1992, about 300 drug applications have been given accelerated review, according to the BI report. The FDA has said it has the authority to do so under the Federal Food, Drug, and Cosmetic Act, which was passed in 1938. As of December 2023, divisions of the FDA have granted 933 breakthrough device designations.

“We’re going to see a flood of litigation challenges against FDA decisionmaking,” said Chad Landmon, an FDA lawyer with law firm Axinn, Veltrop & Harkrider LLP. “The big question will be: Are courts going to go behind the curtain and evaluate the science of these decisions, or are courts going to continue to defer to the scientific expertise of the agency?”

Non-Compete Agreement Ban

The Federal Trade Commission’s April vote to adopt a near-total ban on non-compete provisions that prohibit workers from switching jobs within industries is ripe for challenge because of the legal authority it invokes — the power to issue unfair competition rules. The Chamber of Commerce and other businesses contend the FTC does not have the authority to create rules affecting such a huge portion of the population. The FTC has estimated about one in five workers are impacted by non-competes.

Online Privacy

The FTC is in the beginning stages of writing a regulation limiting companies from engaging in “harmful commercial surveillance and lax data security,” a potentially sweeping effort to regulate data privacy in lieu of congressional action. The FTC said it has the authority under a 1914 statute, which allows the commission to write regulations addressing business practices that are “unfair or deceptive.” But tech trade groups have claimed such rulemaking could amount to government overreach. And in future challenges, opponents could argue the FTC didn’t follow proper procedures when announcing the measure, said Berin Szoka, a lawyer with tech-funded think tank TechFreedom.

Worker Rights

The Labor Department’s actions to shore up worker rights during the Biden administration include reducing the number of those classified as independent contractors who are not protected by the same statutes as employees. Business and independent contractors are challenging the rule enacted under the Fair Labor Standards Act, arguing Congress did not empower the department to define the relationship. “Most of the rules, regulations, decisions and doctrines employment lawyers deal with on a day-to-day basis are developed in the first instance by agencies,” said Alexander MacDonald, a shareholder at labor law firm Littler Mendelson PC.

(Updates with more details on ruling effects, from sixth paragraph)

Most Read from Bloomberg Businessweek

©2024 Bloomberg L.P.