Dalton and Tomich white logo
Dalton and Tomich white logo

Beyond Chevron: How the Supreme Court’s Ruling Reshapes Business Regulation

In a landmark decision on June 28, 2024, the U.S. Supreme Court overturned the long-standing Chevron doctrine, fundamentally altering the landscape of federal regulation. The ruling in Loper Bright Enterprises v. Raimondo marks the end of an era in which courts routinely deferred to federal agencies’ interpretations of ambiguous statutes, and almost certainly will lead to increased challenges against agency regulations.

The End of Chevron Deference

The Supreme Court’s decision marks a significant departure from nearly four decades of administrative law precedent. In a 6-3 ruling, the Court overturned Chevron USA, Inc. v. Natural Resources Defense Council, Inc., a 1984 case that established the principle of judicial deference to agency interpretations of ambiguous statutes.

Under the Chevron doctrine, when a law was silent or ambiguous on a specific issue, courts were required to defer to the relevant agency’s interpretation, provided it was reasonable. This approach gave federal agencies considerable latitude in interpreting and implementing regulations. However, the Supreme Court’s recent ruling fundamentally changes this dynamic.

The Court held that the Administrative Procedure Act requires courts to exercise independent judgment in determining whether an agency has acted within its statutory authority. This means that judges can no longer simply defer to an agency’s interpretation of an ambiguous law. Instead, they must scrutinize the agency’s actions more closely to ensure they align with Congressional intent.

This shift has several important implications:

  1. Increased judicial scrutiny: Federal regulations are now more likely to face rigorous examination in court, potentially leading to more frequent legal challenges.
  2. Reduced agency flexibility: Federal agencies may find it more difficult to adapt regulations to changing circumstances without explicit Congressional approval.
  3. Greater emphasis on statutory language: Agencies, businesses, and their legal counsel will need to pay closer attention to the precise wording of laws, as courts will be more likely to prioritize textual interpretation over agency expertise.
  4. Potential regulatory uncertainty: As courts begin to apply this new standard, there may be a period of uncertainty as new interpretations of existing regulations emerge.

The FTC’s Ban on Non-Compete Clauses: A Case Study

The Federal Trade Commission’s recent ban on non-compete clauses serves as a timely example of the type of significant agency rulemaking that may face increased scrutiny in the post-Chevron era. On April 23, 2024, the FTC issued a final rule prohibiting most non-compete clauses in employment agreements nationwide. This sweeping regulation, set to take effect on September 4, 2024, exemplifies the kind of broad agency action that could now be more vulnerable to legal challenges.

Recent legal developments surrounding the ban illustrate the changing landscape of regulatory enforcement. On July 3, 2024, a federal court in Texas issued a preliminary injunction partially blocking the FTC’s rule (although the ruling applies only to named plaintiffs in the case). In granting the injunction, the Texas federal court agreed with the plaintiffs that the FTC likely lacked the substantive rulemaking authority to implement such a broad ban. The court also held that the FTC’s rule appeared to be “arbitrary and capricious,” echoing language often used in challenges to agency actions. The Texas court is expected to rule on the plaintiffs’ request for a permanent injunction, which may have broader effect, by August 30, 2024.

The court’s decision, while not explicitly relying on the Supreme Court’s recent decision, may be a harbinger of lower court’s willingness moving forward to question the extent of agency authority that aligns with the Supreme Court’s recent ruling.

Conclusion

The Supreme Court’s decision to overturn the Chevron doctrine marks an important moment in administrative law, ushering in a new era of regulatory interpretation and enforcement. As exemplified by the ongoing challenges to the FTC’s non-compete ban and other federal agency rulemaking, this shift is likely to have far-reaching consequences across the business landscape. If you have any questions or require assistance, please contact Zana Tomich.

Attorney Advertising Disclaimer

Please note that this website may be considered attorney advertising in some states. Prior results described on this site do not guarantee similar outcomes in future cases or transactions.