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

The US Supreme Court in Washington. The high court majority said that discretion no longer applies.

(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.

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 implications could be sweeping for federal agencies and executive branch regulations.

“Chevron deference has allowed more liberal administrations to use existing laws to better protect public health or the environment,” said David Doniger, the Natural Resources Defense Council Action Fund attorney who argued the case that established the principle. The court ruling may make agencies “a little more gun shy” in making new regulations, he said ahead of the decision.

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

“The Trump administration could come in and go, ‘This doesn’t follow what the Supreme Court just ruled,’” said Kathleen Sgamma, president of the Western Energy Alliance. “I think the rollback rulemaking will be quicker.”

The court said previous rulings relying on the Chevron framework remain intact. Those holdings are lawful and “still subject to statutory stare decisis despite our change in interpretive methodology,” Roberts wrote.

Even so, recent and future regulations that aren’t backed by 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 Environmental Protection Agency 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. It’s “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. The administration finalized the measure in April to help protect it against congressional repeal but former EPA Administrator Andrew Wheeler, now a partner at Holland and Hart LLP, said it would have been prudent to wait. “It’s going to potentially undermine everything they’re trying to do,” he said before the ruling.

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. A Bloomberg Intelligence report on the impact of the change on business 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 an industry 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 impacting such a huge portion of the population. The FTC has estimated about one in five workers are impacted by non-competes.

Online Privacy Rules 

The FTC is in the beginning stages of writing rules to bar 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 to make the rules under a 1914 statute, which allows the commission to create rules specifying business practices that are “unfair or deceptive.” Tech trade groups have claimed such rulemaking could amount to government overreach. When the final rule is published, it’s likely tech companies or trade groups would sue to claim the FTC did not follow proper procedures when announcing the rule, said Berin Szoka, a lawyer with tech-funded think tank TechFreedom. “That could happen sooner than people are thinking,” Szoka said.

Independent Contractor Rules 

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. The rule was enacted under the Fair Labor Standards Act but businesses and independent contractors are challenging it, arguing Congress did not empower the department to issue rules defining 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, where he is a part of the Workplace Policy Institute.

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