Real World Implications: The pushback has already begun in the ERISA, employee benefits and executive/equity compensation arena following the Supreme Court’s overruling of the Chevron deference standard for review of federal agency interpretation of ambiguous statutes. For example, challenges have already been filed seeking to invalidate the DOL’s final fiduciary rule. Employers can also expect challenges to other federal agency rules, and we are likely to see some of these rules enjoined, at least until the challenges are resolved.
Background
The U.S. Supreme Court has overruled Chevron U.S.A. Inc. v. Natural Resources Defense Council (S. Ct 1984) ("Chevron"), the 40-year-old Supreme Court case establishing a two-step process for a federal court to undertake when reviewing a regulation (or sub-regulatory guidance) issued by a federal agency with subject matter expertise over the applicable issue(s): First, the court must determine whether Congress has directly spoken to the precise question at issue. If, and only if, congressional intent is clear, the inquiry is over. But if the statute is silent or ambiguous, the court must proceed to step two of the Chevron ruling, i.e., it must defer to the agency's interpretation if it is "based on a permissible construction of the statute."
In Loper Bright Enterprises v. Raimondo (S. Ct. 2024) ("Loper Bright"), the Supreme Court emphatically overruled Chevron, holding that Chevron deference violates the Administrative Procedure Act (the "APA"): "When the best reading of a statute is that it delegates discretionary authority to an agency, the role of the reviewing court under the APA is, as always, to independently interpret the statute and effectuate the will of Congress subject to Congressional limits." (Emphasis added.)
Coupled with, and following, the Court's 2022 decision in West Virginia v. EPA (S. Ct. 2022), which established/reaffirmed the "major questions" doctrine, under which major economic and political questions generally fall outside a regulatory agency's purview, Loper Bright promises to usher in multiple challenges to U.S. Department of Labor (“DOL”), IRS, SEC, Pension Benefit Guaranty Corporation (“PBGC”) and other federal agency rule-making on the following ground: the agency lacks statutory authority to issue the regulation, rule or sub-regulatory guidance. In the words of Chief Justice Roberts, writing for the majority: "Perhaps most fundamentally, Chevron’s presumption is misguided because agencies have no special competence in resolving statutory ambiguities. Courts do. The Framers, as noted, anticipated that courts would often confront statutory ambiguities and expected that courts would resolve them by exercising independent legal judgment. And even Chevron itself reaffirmed that ‘[t]he judiciary is the final authority on issues of statutory construction’ and recognized that ‘in the absence of an administrative interpretation,’ it is ‘necessary’ for a court to ‘impose its own construction on the statute.’. . . Chevron gravely erred, though, in concluding that the inquiry is fundamentally different just because an administrative interpretation is in play. The very point of the traditional tools of statutory construction—the tools courts use every day— is to resolve statutory ambiguities. That is no less true when the ambiguity is about the scope of an agency’s own power—perhaps the occasion on which abdication in favor of the agency is least appropriate." (Emphasis, in bold, added.)
Impact on ERISA, Employee Benefits and Executive/Equity Compensation Issues
As applied to ERISA, employee benefits and executive/equity compensation issues, the pushback already has begun. For instance, on the same day that Loper Bright was decided, June 28, 2024, Republican attorneys general sent a letter to the Fifth Circuit Court of Appeals asking the court to invalidate the DOL's final fiduciary rule, issued earlier this year, on the ground that the DOL lacks statutory authority to introduce nonpecuniary ESG factors into retirement plan investment decisions. Also on June 28th, two industry groups representing broker-dealers, the Financial Services Institute and the Securities Industry and Financial Markets Association, filed a motion to intervene in another federal case seeking to invalidate the DOL's final fiduciary rule, on the ground that such rule violates the APA.
Will the pushback be successful? Maybe yes, maybe no. It is worth emphasizing that Loper Bright does not overrule the so-called Skidmore deference doctrine. As noted by Chief Justice Roberts, "in Skidmore v. Swift & Co., 323 U. S. 134 (1944), the Court explained that the ‘interpretations and opinions’ of the relevant agency, ‘made in pursuance of official duty’ and ‘based upon . . . specialized experience,’ ‘constitute[d] a body of experience and informed judgment to which courts and litigants [could] properly resort for guidance,’ even on legal questions. . . . ‘The weight of such a judgment in a particular case,’ the Court observed, would ‘depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” Under Skidmore deference, "courts may—as they have from the start—seek aid from the interpretations of those responsible for implementing particular statutes. Such interpretations ‘constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance’ consistent with the APA." (Emphasis added.)