Supreme Court’s Chevron Decision Will Impact Philadelphia-Area Small Businesses

New overtime rules went into effect Monday, requiring businesses of all sizes to pay overtime to workers who earn less than $43,888 a year, up from the previous limit of $35,568.

The Labor Department’s rules cover any employee who meets other requirements, such as job titles, supervisory roles and job responsibilities. Starting Jan. 1, 2025, the salary limit will increase again to $58,656.

Or maybe not.

That’s because last week the Supreme Court overturned a 40-year-old ruling known as the Chevron Doctrine, which gave federal agencies the authority to interpret congressional legislation. The new decision now directs courts, not agencies, to interpret how those laws are implemented, especially when there are ambiguities.

Chevron Doctrine supporters argue that government agencies are better prepared and have more experience interpreting the rules and resolving ambiguities. Opponents say that regulatory agencies have become politicized and have too much power because they simply follow the orders of those in the White House. The Supreme Court, in striking down the 1984 law, agrees and now says that courts, not government agencies, are better qualified to make such decisions.

“The agencies have no special authority to resolve statutory ambiguities,” Chief Justice John Roberts wrote in the Supreme Court ruling. “The courts do.”

Claude Schoenberg, an employment lawyer from Bala Cynwyd, agrees.

“Under Chevron, federal agencies like the Department of Labor have had the freedom to credibly exercise the authority to define scope, then redefine scope, then redefine scope of exemptions — all depending on who the president is,” he said.

Texas blocks new overtime law

For example, overtime pay is part of the Fair Labor Standards Act, a 1938 law that established a national minimum wage, ended child labor, and set regulations for overtime pay. However, there was confusion about how much overtime pay was required by law and who should be entitled to it. The Department of Labor has historically issued regulations to clarify issues such as job descriptions and who is and is not exempt under the law, and has also periodically increased the amount of overtime pay that employers should pay.

Citing the new overtime rules as an example, Schoenberg said that if the president wanted to narrow the scope of exemptions, such as changing some of the tests that help determine who can be exempt from compliance, the Labor Department would follow his orders.

“The Chevron Doctrine allowed agencies to make, implement and enforce these changes, and courts would approve those changes as long as the Labor Department’s approach was based on a permissible interpretation of the Fair Labor Standards Act,” he said. “But as administrations changed, companies subject to the law were forced to constantly change course to avoid the wrath of investigators and prosecutors.”

In the immediate aftermath of the Supreme Court’s decision, a Texas judge ruled to block the Labor Department’s new overtime rule from taking effect because of concerns about the definition of exceptions, the rule’s constitutionality and whether it amounts to another form of “regulatory overreach,” which has been the position of the state’s attorney general. The Texas case applies only to Texas businesses—for now—but it is certain to be challenged.

How might this impact business in the Philadelphia area?

So what should employers in the Delaware Valley do?

“We continue to urge our clients to continue to prepare their payroll practices to comply with the new rule,” said Alex Nemiroff, an attorney at Gordon Rees Scully Mansukhani in Philadelphia. “You still have to assume that the regulation is moving forward.”

In the past few years, businesses have been subjected to a series of new and updated federal agency regulations. The Department of Labor has changed its employee classification rules, the Equal Employment Opportunity Commission has expanded the definitions of workplace harassment and discrimination, the National Labor Relations Board has relaxed many restrictions on union activity, and the Occupational Safety and Health Administration has added more safety requirements (and fines). With Chevron repealed, these regulations—and many others—will be easier to challenge.

The decision is sure to open the door to more litigation, particularly from business groups like the National Federation of Businesses and the U.S. Chamber of Commerce, which have already expressed their intention to “continue to urge courts to faithfully interpret the statutes governing federal agencies and to ensure that federal agencies act in a reasonable and lawful manner.”

“I think these rules will face a lot of challenges,” Nemiroff said.

Some say the Chevron case being overturned will create more uncertainty for businesses, and that’s probably true. But others think it will bring more clarity and consistency.

“The pendulum of government agencies interpreting the law this way and that to suit ideological agendas will swing less and less wildly in the post-Chevron era,” Schoenberg said. “I think there will ultimately be less litigation because the rules — like the wage laws — will be clearer to everyone.”