Chevron Explained

On June 28, the U.S. Supreme Court issued its decision in Loper Bright Enterprises v. Raimondo. The court overruled its own 1984 holding in Chevron v. Natural Resources Defense Council Inc., in which it stated that the federal courts, in many cases, should defer to agency interpretations of ambiguous federal statutes.

The decision in Loper Bright is a strong statement by the Supreme Court that it is the federal courts’ responsibility, not that of federal agencies, to interpret laws passed by Congress. This decision undoubtedly will have an impact on the interpretation and application of federal law, including the Employee Retirement Income Security Act and the Internal Revenue Code. We will have to wait to see what the extent of that impact will be. But as of now, we do know that courts will have a greater role in shaping regulations, including those governing ERISA-covered employee benefits.

Overturning the 1984 Decision

Loper Bright and Chevron focus on one core issue: the role of the U.S. federal courts as compared with the role of federal agencies such as the Department of Labor and Department of the Treasury. In the 1984 Chevron decision, the Supreme Court held that federal courts should defer to an agency interpretation of a statute when the statutory language at question or Congress’ intent in respect of such language is ambiguous. This would be the case even if the federal court in question would have interpreted—or in the past did interpret—the statute differently than the agency. An exception to this general rule of deference is if the court determines that the agency’s interpretation is not reasonable.

David C. Kaleda

Since 1984, many courts have struggled with how to apply Chevron. The decision appeared to be contrary to the premise that the courts are ultimately responsible for interpreting the law. Additionally, the Chevron opinion appeared to be contrary to a 1964 federal law called the Administrative Procedure Act. Congress enacted the APA in order to, among other things, reaffirm the respective roles of the federal agencies and the courts so as to assure that agencies do not legislate via the regulatory process. To that end, the APA outlined an administrative process that must be followed by the agency. The Chevron opinion did not address the APA.

In Loper Bright, the Supreme Court overruled Chevron and held that an agency is never entitled to deference. Rather, the federal courts under the U.S. Constitution are solely responsible for interpreting the meaning of federal statutes.

The court also stated that the APA accurately states the roles of the federal agencies and the courts. The Supreme Court resoundingly rejected the federal government’s arguments in favor of Chevron deference: federal agencies have unique technical expertise that make them better-suited to interpret ambiguous federal law; it would assure equal application of federal law throughout the country; it would prohibit courts from getting involved in “policymaking.” Finally, the court noted that the “legal fiction” created in Chevron created an unworkable standard that courts had difficulty applying and, in fact, often did not apply.  

The Loper Bright opinion noted, however, that courts can give weight to federal agency interpretations of federal statutes. In particular, the Supreme Court noted such weight may be given when the regulation is promulgated near the time Congress enacts the statute and the agency is consistent in its interpretations of the statute over time. The court also suggested that weight may be given to the agency when Congress specifically states in a statute that the agency address issues not addressed in the statute.

Potential Effect on ERISA-Covered Benefits

Loper Bright is notable in that the courts must now independently determine the meaning of the language in federal statutes and clarify any ambiguities in such language. The agencies will no longer get the benefit of deference. The courts will also require that agencies follow the requirements of the APA throughout the rulemaking process. Whether Loper Bright will result in fewer DOL and Treasury regulations or will result in more successful challenges to such regulations remains to be seen.

One would expect the DOL and Treasury are of the view that every regulation they issue meets the APA requirements, regardless of Loper Bright. Therefore, agencies will not stop issuing regulations and will continue to apply the APA process just as they do today. However, agencies presumably will consider their rulemaking activities in light of Loper Bright, particularly when they substantially deviate from prior positions or broadly read into statutory language or Congressional intent. Courts may be more inclined to strike down such regulations under these circumstances.

On the other hand, we will have to wait and see whether litigation against the DOL, Treasury and other federal agencies will increase and whether suits to vacate such regulations will be successful. Undoubtedly, some plaintiffs will be emboldened by the Loper Bright decision. They will bring legal challenges against federal agencies, particularly if the regulation will have a substantial financial impact on the litigant or involves an issue in which the litigant is especially interested.

The Loper Bright decision, however, does not mean such litigants will always win. Courts will read Loper Bright differently when determining what, if any, weight should be given to a regulator’s views on the implementation of a federal statute. Additionally, some courts will interpret the statute in a way that is consistent with the regulation, and others will not. There certainly is no guarantee of success, and that will have to be considered when deciding to bring a suit against a federal agency and in what court.

David C. Kaleda, principal, Groom Law Group, Chartered.