For the last 40 years, U.S. regulatory agencies have been empowered to interpret legislation and make specific concrete rules to enforce the aims of laws passed by Congress. With the Supreme Court’s 6-3 ruling against agency’s rule-making ability last week, the U.S. government’s vehicle for enforcing regulations concerning the environment, worker safety, and other consumer protections diminish, explains UGA Terry College of Business economist David B. Mustard, who teaches Law and Economics and does research on the impacts of laws and regulation.
On June 28, the U.S. Supreme Court ruled in favor of a group of Atlantic Herring fishermen who sued the Department of Commerce and the National Oceanic and Atmospheric Administration (NOAA) over a federal rule requiring companies to pay for monitors to ride along on their trawlers. Attorneys for fishermen argued the Administrative Procedure Act of 1946 says courts and not agencies should be responsible for interpreting any vagueness in legislation that Congress passes into law.
The law’s background states fishery-management plans “may require that one or more observers be carried on board a vessel … for the purpose of collecting data necessary for the conversation and management of the fishery.” The National Marine Fisheries Service subsequently passed a rule requiring the herring industry to pay for the costs, about $710 per day.
I’ve heard references to this case as the “Chevron deference” case. What does that mean?
The Chevron deference emerged from Chevron USA v. Natural Resources Defense Council (1984), in which the U.S. Supreme Court, with a quorum of just six judges, established the legal test for when U.S. federal courts must defer to a government agency’s interpretation of a law. When Congress writes vague regulator legislation, the courts must uphold the agency’s interpretation of the law if it is reasonable.
The Court overruled Chevron in Loper Bright Enterprises v. Raimondo, Secretary of Commerce (2024), because “the Administrative Procedure Act (APA) (1946), which Congress enacted “as a check upon administrators whose zeal might otherwise have carried them to excesses not contemplated in the legislation.” The majority opinion in Loper argues that the Chevron ruling “triggered a marked departure from the traditional judicial approach of independently examining each statute to determine its meaning” and states, “the APA specifies that courts, not agencies, will decide ‘all relevant questions of law’ arising on review of agency action.”
Why doesn’t the U.S. Congress include rules in their legislation?
Sometimes, Congress is deliberately vague because it may not have the support to pass a law that is explicitly clear. Congress may be able to pass a vague statute when it cannot pass a clearly written statute.
Other times, the ambiguity is accidental or unanticipated. For example, the central legal issue in the Chevron case involved how to interpret the word “source,” which was not clearly defined in the Clean Air Act of 1963. In 1963, the U.S. Environmental Protection Agency defined “source” but changed the definition of “source” in 1981, which led to the Chevron case.
What happens now? Can businesses stop following the rules? How do we know which regulations will be impacted by this case?
This decision will not allow firms to completely ignore federal regulatory policy. In most cases, Congress passes clearly defined laws that are not ambiguous that firms must obey. In situations where the law is vague, courts will make a ruling which will be legally enforceable. But firms will likely issue more challenges where regulatory agencies go beyond or provide more specificity than Congress does in the legislation. The Loper ruling gives Congress more incentive to write clearer laws.
The dissenting opinion in Loper contends that this majority ruling will give firms a large incentive to challenge agency rules and thereby create a massive backlog because courts cannot hear many cases and judges do not have the requisite expertise to expeditiously rule. It will take some time for this decision to play out before its full impact will be known.
How will this impact the business environment moving forward? Is this a sign businesses will have more freedom or operate in more uncertainty?
Reducing uncertainty is very important to firms. Will this decision increase or decrease uncertainty? The majority and minority opinions take different stands on this point. The majority argues that overturning Chevron will reduce uncertainty because Congress will write clearer laws, and regulatory agencies will have less power to enact and change rules, either on their own or when one administration replaces another. The dissenting opinion asserts that the overturning of Chevron will increase uncertainty because there will be a large increase in the number of cases in the courts. Hundreds of federal judges with varying levels of expertise and experience will have different opinions about what rules are consistent with Congressional legislation and the appropriate level of deference to show to the regulatory agencies implementing the laws.