Pollution restrictions and non-competition restrictions threatened by Chevron ruling

(Bloomberg) — The Supreme Court’s decision to limit the ability of administrative agencies to interpret unclear regulations is casting a long shadow over federal vehicle emissions limits, bans on noncompete agreements and efforts to regulate broadband internet.

Friday’s decision by a majority of 6 to 3, repealing the so-called Chevron Doctrine, may have the greatest impact on environmental, technology and health policy, where partisan gridlock has hampered Congressional lawmaking, forcing federal agencies to use old statutes to regulate newer issues such as climate change.

The dispute involves a doctrine established in 1984 when the Supreme Court held in Chevron USA v. Natural Resources Defense Council that when the law is ambiguous, judges should defer to the interpretation of the federal agency applying the law, if that interpretation is reasonable.

On Friday, a majority of Supreme Court justices ruled that discretion no longer applies.

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

In dissent, Justice Elena Kagan said the ruling “flips the script,” so that courts — not agencies — “will now exercise authority when Congress leaves room for interpretation,” with implications for climate change regulation, health care and the financial system. “Expect courts to take the lead in every area of current or future federal regulation.”

The consequences could be severe for federal agencies and executive branch regulations.

“Chevron’s compliance allowed more liberal administrations to use existing laws to better protect public health or the environment,” said David Doniger, a lawyer for the Natural Resources Defense Council Action Fund, who argued in the case that established the rule. The court’s ruling may make agencies “a little more cautious” in creating new regulations, he said before making the decision.

The ruling could also make it easier for potential GOP presidential nominee Donald Trump to undo Biden-era policies if he wins the election in November.

“The Trump administration could come in and say, ‘This is not consistent with what the Supreme Court just ruled,’” said Kathleen Sgamma, president of the Western Energy Alliance. “I think it would be quicker to roll back the regulations.”

The court said previous rulings based on the Chevron framework remain intact. These shares are legal and “continue to be subject to statutory determinations despite our change in interpretation methodology,” Roberts wrote.

Still, recent and future regulations that are not supported by clear, explicit congressional guidance could face new challenges in the wake of the court’s decision. Here are some of them:

Automatic pollution limits

The auto pollution standards that effectively force automakers to sell electric vehicles could be vulnerable to attack. The Environmental Protection Agency set the limits under the Clean Air Act, which Congress recently reauthorized long before the first Tesla Inc. models rolled off the assembly line. Oil and corn groups are already challenging the rule in court, arguing that it relies on a compliance program that averages limits across fleets of vehicles rather than setting levels that cars and trucks must meet individually. “That’s because of the silence of the statute,” said Michael Buschbacher, a partner at Boyden Gray PLLC who represents some of the rule’s opponents.

Emissions from power plants

The Biden administration’s recent order limiting greenhouse gas emissions from power plants has already sparked lawsuits from coal advocates, utility groups and rural electric cooperatives. The administration finalized the measure in April to help protect it from repeal by Congress, but former EPA Administrator Andrew Wheeler, now a partner at Holland and Hart LLP, said it would be wise to wait. “It will potentially undermine everything they are trying to do,” he said before the ruling.

Net neutrality

The Federal Communications Commission this year revived efforts to subject broadband services from companies like AT&T Inc., Verizon Communications Inc. and Comcast Corp. to regulatory oversight, using a 1934 communications law. The collapse of the Chevron deference puts the agency’s interpretation at risk. A Bloomberg Intelligence report on the business impact of the change predicts there’s an 80% chance the order will be blocked or overturned by the courts.

Approvals for ‘Breakthrough’ Drugs

The Food and Drug Administration’s ability to more quickly approve products or drugs for sale by labeling technologies as “breakthrough” may also be at risk. Since 1992, approximately 300 drug applications have undergone expedited review, according to the BI report. The FDA said it had the authority to do so under the Federal Food, Drug, and Cosmetic Act, passed in 1938. As of December 2023, FDA branches had granted 933 breakthrough device designations.

“We will see a flood of litigation challenges against FDA’s decision-making process,” said Chad Landmon, an FDA attorney at the law firm Axinn, Veltrop & Harkrider LLP. “The big question is: Are the courts going to step behind the curtain and evaluate the science behind these decisions, or will they continue to rely on the agency’s science?”

Prohibition of non-competition agreement

The Federal Trade Commission’s April vote to adopt a near-total ban on non-compete provisions that prohibit workers from changing jobs in a given industry could be challenged because of the legal authority it invokes – the power to enact unfair competition laws. The Chamber of Commerce and others say the FTC doesn’t have the authority to create rules that affect such a huge swath of the population. The FTC estimates that non-competes affect approximately one in five employees.

Internet Privacy Policy

The FTC is in the early stages of developing rules to prohibit companies from engaging in “harmful commercial surveillance and negligent data security,” a potentially sweeping effort to regulate data privacy rather than congressional action. The FTC said it had the authority to create regulations under the 1914 Act, which allows the commission to create rules defining business practices that are “unfair or deceptive.” Tech industry groups say such rulemaking could amount to an abuse of power by the government. Once the final regulations are published, it’s likely that tech companies or industry groups will sue the FTC, claiming it didn’t follow proper procedures in announcing the regulations, said Berin Szoka, a lawyer at the tech-industry-funded think tank TechFreedom. “It could happen faster than people think,” Szoka said.

Independent Contractor Policy

The Labor Department’s efforts to strengthen workers’ rights under the Biden administration include reducing the number of people classified as independent contractors, who are not protected by the same laws as employees. The rule was enacted under the Fair Labor Standards Act, but companies and independent contractors have challenged it, arguing that Congress did not authorize the department to issue regulations defining the relationship. “Most of the laws, regulations, rulings and doctrines that employment lawyers deal with on a daily basis are developed primarily by agencies,” said Alexander MacDonald, a partner at the employment law firm Littler Mendelson PC, where he is part of the Workplace Policy Institute.