Last week featured a landmark decision by the Supreme Court of the United States to overturn Chevron deference. This SCOTUS opinion has the potential to rewrite the roadmap of enforcement on issues CFOs have spent many months, or even years, planning around.
This challenge to the 40-year “Chevron” precedent began from fishermen in New Jersey and Rhode Island in 2020, where federal regulators were aiming to force commercial fishermen to employ agents, determining their presence necessary to ensure fishing companies were adhering to environmental standards. The enforcement also had a catch — the regulators looked to charge the companies over $700 per agent, per day, for the enforcement.
With this recent ruling from Loper Bright Enterprises v. Raimondo, the federal courts no longer must give deference to federal enforcement agencies’ interpretation of statutes, as the “accidental” landmark case of Chevron U.S.A., Inc. v. Natural Resources Defense Council (NRDC) established back in 1984.
In essence, the overturn shifts the power of statute interpretation from unelected federal government agencies whose leaders are appointed by the President of the United States to elected representatives.
Where CFOs may notice a change
- The SEC’s Climate Disclosure Rule’s defeat, according to attorney Jon McGowan, “is almost certain,” he wrote in Forbes.
- The ruling could have significant ramifications for agencies such as the FTC and SEC that rely on old statutes to tackle modern policy issues such as cybersecurity, according to CFO Dive.
- Many environmental and social governance (ESG) initiatives, an area where a majority of leaders felt pressure to conform, will likely need to be reconsidered. For CFOs looking to cut costs, this case opens opportunities to trim ESG allocations.
- Federal regulators are now weaker. CFOs who were worried about changing regulations that can arrive with new presidential administrations completely upending their industry may now have a bit of breathing room.
- The Supreme Court’s Chevron deference decision will get its first lower court test on July 9, as a federal appeals court hears a challenge to the Department of Labor’s 401(k) rule that says retirement plan managers may consider ESG factors in preparing their investment lineups, according to Pension and Investments.
- Legal costs may rise, as CFOs who are operating in companies where future regulation is expected will likely need more legal resources to help prepare their business.
- For those who are in manufacturing, particularly the auto industry with climate and pollution regulations impacting procurement and production extensively, these initiatives are now all subject to new challenges and changes.
Statutes vs. regulations
The recently overturned decision of this case, colloquially known as Chevron deference, previously set forth a two-step analysis when an agency's interpretation of a statute comes into question.
The two elements courts would consider in a challenge of an agency's interpretation of a statute are:
- Congress's clear intent in passing a law;
- If the court found ambiguities in the law, whether an agency's rule was reasonably construed and not arbitrary, capricious, or manifestly contrary to the statute.
The determination of these ambiguities, from 1984 until now, was completely up to the discretion of the enforcing agency. With the overturn, individual courts and Congress will now have much more of a say on whether federal agencies are interpreting their statutes correctly.
How these agencies create, enforce and interpret laws was determined under the precedent of another case from 1947 — Bowles v. Seminole Rock & Sand Co. This case saw the Supreme Court establish the principle that courts should defer to an administrative agency's interpretation of its own regulations, as long as the interpretation is reasonable. This became alternately known as Seminole Rock deference.
Then there was Auer v. Robbins, a case from 1997 that argued about overtime wage requirements under the Department of Labor’s Fair Labor Standards Act. Some have called Auer v. Robbins the “twin” of Chevron U.S.A., Inc. v. NRDC.
The Auer case involved the interpretation of Department of Labor regulations concerning what constitutes an "executive" employee, and its decision set the basis for what soon became known as Auer deference. In 2019, in a case called Kisor v. Wilkie, involving the denial of military benefits to a former serviceman, Auer deference was notably challenged but ultimately upheld once again by the Supreme Court.
This overturn of Chevron deference presumably sets the stage for an upcoming case to again challenge Auer v. Robbins, which if overturned would strip federal agencies of their ability to create, enforce and interpret regulations at will.