Customer Alert: Supreme Court’s Chevron Decision Impacts Employers, Particularly in Healthcare and Higher Education

Authors: Brigid A. Harrington, Peter J. Martin, and Chelsie A. Vokes • July 3, 2024

On Friday, June 28, the Supreme Court overturned a 40-year-old legal precedent by recognizing the doctrine Chevron respect in your decision in Loper Bright Enterprises v. RaimondoThe Supreme Court’s decision will reverberate throughout the federal government, shifting power from federal agencies in the executive branch to the judiciary and creating uncertainty for employers in heavily regulated industries such as health care and higher education.

Established by the Supreme Court in its 1984 decision in Chevron USA v. Natural Resources Defense Council, Inc.this Chevron the doctrine required courts to defer to “reasonable” interpretations of the law by federal agencies when deciding cases involving the agency’s regulatory scope. This meant that the executive branch’s interpretations of legal requirements were generally binding, regardless of whether the court hearing the issue agreed.

As employers, institutions of higher education, and health care organizations well know, compliance requirements for a particular statute—for example, Title IX or the Food Drug and Cosmetics Act—are often established not by the statute itself but by regulations enacted by federal agencies such as the Equal Employment Opportunity Commission, the Department of Education, or the Food and Drug Administration. Agency regulations are often more detailed than the underlying statute, and changes to the regulations often impose significant compliance burdens on regulated businesses or institutions. Before Friday’s Supreme Court decision, Chevron deference meant that federal agencies’ regulations — their interpretation of the statute — typically had the force of law.

With the extermination Chevron respect, courts no longer have to honor an agency’s federal regulations as a correct interpretation of the law, and courts can invalidate an agency’s decision without first finding that it acted unreasonably. This means that federal courts will now have more authority to decide how to measure compliance with a particular statute, and federal agencies will have less. Because federal agencies are part of the executive branch, the impact of this change will likely be most visible in jurisdictions where judges in federal courts have different political persuasions than the agencies. For example, conservative lower courts now may be more likely to disagree with a Democratic administration’s interpretation of the law.

The Supreme Court’s decision creates uncertainty for regulated entities across the country, particularly employers, higher education institutions and health care organizations. These entities now have less guidance on how to comply with the federal laws to which they are subject.

How willing federal courts will be to deviate from federal agency interpretations remains to be seen. Some commentators have predicted a state of chaos, while others have downplayed the effect, noting that courts have sometimes failed to follow Chevron respect across the board even before Friday’s decision. Heavily regulated industries like health care and higher education could be hit first and most significantly, though all companies and industries could ultimately be affected. Here are some examples of regulations that Friday’s decision puts at risk:

Employers

Labor law is largely shaped by federal regulations. Federal employment agencies have been particularly active in the past year, issuing a range of regulations on topics ranging from pregnancy protections to restrictive covenants. Many of these regulations, including the Department of Labor’s independent contractor rule and the overtime rule under the Fair Labor Standards Act, the Federal Trade Commission’s rule prohibiting noncompetes, the EEOC’s Pregnant Workers Fairness Act rule, and the joint employer rule under the National Labor Relations Act, face active legal challenges. Repeal Chevron This estimate makes these challenges more likely to be successful and more likely to occur, introducing uncertainty into federal regulation of employers across the United States.

Higher education

In higher education, the Department of Education is primarily responsible for federal regulation, particularly in the areas of higher education policy, civil rights, and federal financial aid.

The newly enacted Title IX regulations, effective August 1, 2024, are already the subject of legal challenges for protecting transgender students and eliminating Chevron deference makes it more likely that these laws will be struck down in jurisdictions that currently have temporary injunctions in effect: Virginia, Kentucky, Tennessee, Indiana, Ohio, West Virginia, Louisiana, Mississippi, Montana, and Idaho. Challenges to other federal civil rights laws may be more likely, and the Supreme Court decision creates uncertainty about how these laws will be applied to higher education in the future.

The Biden administration’s focus on student loan forgiveness measures, including Borrower Defense claims, could also be in jeopardy after the Supreme Court decision. In particular, the decision has already been praised by for-profit educational institutions, which are likely to challenge student loan forgiveness efforts in conservative courts.

Healthcare

In health care, the federal regulatory landscape is dominated by the Department of Health and Human Services (HHS), particularly with respect to the Medicare program. The Supreme Court’s decision means that providers may be more likely to challenge HHS regulations on issues such as Medicare reimbursement. Such challenges would be based on general statutory language, such as the Social Security Act provision that only items and services qualify for Medicare coverage if they are “reasonable and necessary for the diagnosis or treatment of disease or injury.”

Similarly, the Food and Drug Administration enforces the Food, Drug, and Cosmetic Act, which prohibits the introduction into interstate commerce of any drug or device that is “adulterated or misbranded.” A massive regulatory mechanism builds on this statutory mandate, focusing on good manufacturing practices and the safety, quality, and purity of a vast array of drugs and devices—all of which can now be more easily challenged by drug manufacturers, retailers, and other businesses.

Customer Tip

Failure to respect agency regulations may not result in immediate changes to your compliance framework, but it may impact how your company or institution assesses compliance risk and may result in changes to compliance requirements based on court decisions. Contact your Bowditch attorney to stay current on risk management and compliance requirements in your jurisdiction.