This client alert was co-authored by Bruce Thompson, Jonathan Crotty, and Tory Summey of Parker Poe.

Forty years ago, the Supreme Court adopted a doctrine that has allowed federal agencies to make the final call on interpreting ambiguous laws. Today, the court overruled that doctrine and held that courts, not agencies, are responsible for independently interpreting ambiguous laws.

In a 6-3 decision, the justices upended the decades-long regulatory framework known as the Chevron doctrine. What started out as a complaint over a National Marine Fisheries Service rule requiring fishing companies to pay for observers aboard their vessels will now have sweeping impacts across a number of highly regulated industries such as health care, finance, energy, and education.

Organizations may now have a powerful new tool to challenge federal rule interpretations with which they disagree. The opinion may also provide a strong additional defense against government enforcement actions, although such actions would also involve considerable cost. Finally, the court’s decision will certainly increase the importance of federal lobbying strategy, as getting clear language into a law is the easiest way to sidestep later disputes about interpretation.

Background on the Doctrine, Oral Arguments

Chevron found that when a certain part of a federal law is determined to be ambiguous, the courts should defer to the agency. The only exception to this deference is when the agency did not make a "reasonable" interpretation in the court’s eyes.

During oral argument in January, some justices argued that the Chevron doctrine should be kept in place, stating that federal agencies have the scientific and technical expertise to resolve ambiguous aspects of a statute.

On the flip side, according to the U.S. Chamber of Commerce, which represents the interests of businesses and wrote an amicus brief, Chevron has contributed to an "unpredictable, unstable regulatory environment" and leads to a "reflexive form of deference on judicial review." The balance of power should be shifted back to Congress, the Chamber wrote.

Key Points from the Ruling

The court’s opinion relates to two cases, Loper Bright Enterprises v. Raimondo and Relentless Inc. v. Department of Commerce. In overruling Chevron, the court held that the Administrative Procedure Act requires "courts to exercise their independent judgement in deciding whether an agency has acted within its statutory authority, and courts may not defer to an agency interpretation of the law simply because a statute is ambiguous."

As a result, the power of federal agencies to make policy changes now shifts to Congress and the courts. This shift in balance could cause agencies to take a more limited role as they may only act as much as the statutes spell out and are accorded no deference in interpreting relevant law.

Importantly, in his opinion, the chief justice wrote that Friday’s decision does "not call into question prior cases that relied on the Chevron framework." The holdings of those cases that specific agency actions are lawful are still subject to stare decisis despite the court’s change in interpretative methodology, the chief wrote. Stare decisis is the legal principle that courts should follow precedent. The impact of this caveat on the myriad prior cases upholding federal regulatory action waits to be seen.

Companies that are heavily regulated by various agencies should be aware that changes are on the horizon from a regulatory framework perspective. They should work with outside counsel on navigating this big shift in how regulations may be viewed moving forward.

Another implication of Friday’s decision is how the ruling could impact both future and existing regulations. Companies should look to have a voice in Washington representing their interests with respect to future legislative or regulatory action.

Impacts Moving Forward

There will be much uncertainty around what legal challenges could arise out of the justice’s decision to overturn Chevron.

In health care, for example, the overturning of the doctrine has the potential to significantly impact how Medicare and Medicaid policy is made at the Congressional level.

Consider how the Department of Health and Human Services creates policy changes for health plans. The department has changed rules around prior authorization, stating that certain Medicare plans have three days to approve prior authorization requests from a doctor whereas before they had a week. Nowhere in the law does it say plans have seven days to respond to these requests — this was the department’s interpretation of how to run the Medicare program.

This is just one example of how regulations could be ignored by courts moving forward and companies will be forced to decide whether to comply with a regulation or take their chances that a court may see the issue differently. And when Medicare or Medicaid policy is impacted, there are a number of stakeholders who could feel the result, including doctors, hospitals, and patients.

Final Takeaway

Federal agencies and the courts have operated for decades under the Chevron doctrine. This week’s Supreme Court decision marks a momentous shift in the authority of the federal government’s non-elected workers to function in industries that are bound by regulations.

Policy-making at the federal level can be complex and intertwined so it remains to be seen how much is impacted with the doctrine’s overturning. Navigating this new regulatory framework will be a challenge for companies in impacted industries as they faced an added layer of uncertainty coming in the form of legal interpretation shifting to courts. There is an opportunity, however, for companies to achieve their public policy priorities by pushing forward their strategic plans as legislation and regulation is written at the federal level.