US Supreme Court decision limits federal power over business regulations

    The U.S. Supreme Court on Wednesday upheld a decades-old doctrine giving federal agencies broad power to interpret their own ambiguous regulations, but the court did scale back that power in a partial win for business groups who have long called for the precedent to be overruled. 

    In a 5-4 decision, the court reaffirmed rulings from 1945 and 1997 that require judges to defer to a federal agency on the meaning of their regulations. Business and conservative groups have long criticized the precedent, often referred to as “Auer deference,” and thought there was a chance of eliminating it with the new conservative majority on the Supreme Court.

    While that didn’t happen Wednesday, the court did chip away at the broad scope in which Auer is applied. Writing for the majority, liberal Justice Elena Kagan said deference retains an important role, but only in limited instances, and judges should interpret regulations themselves and only defer to agencies when their interpretations are reasonable.

    The decision will have a “real impact” on major industries across south Louisiana, especially the heavily regulated oil and gas sector, says Jones Walker attorney Jonathan Hunter, who advises energy companies. 

    “What the court has done here is agreed to take up a case on whether to overrule that line of precedence because it’s been criticized heavily,” Hunter says. “Those of us who represent industry thought there was a good chance the court would overrule. We’re a little surprised they did not explicitly do that.”

    The decision does, however, place narrow boundaries on how to apply the doctrine of deference.

    “The decision makes it clear federal courts can no longer just rubber stamp an agency’s interpretation of regulations,” Hunter adds, “which makes for a much more even playing field for industry.”

    Moving forward, industry will be much more likely to challenge an agency’s decisions, he says, whether it be the Environmental Protection Agency, the Department of Labor or the IRS. In the oil and gas sector, companies could have a better chance of challenging the billions of dollars required to be paid in royalties—where this decision might have the most impact. 

    “In the Gulf of Mexico alone, for oil and gas, this could have billions of dollars of impact,” Hunter says. “It could affect fines imposed by the EPA, penalties imposed by OSHA. The decision applies to all federally regulated industries.” 

    Even the conservative judges on the Supreme Court, who have been critical of Auer and wanted it overturned, noted the significance of the limitations implied by the court decision, which could go a long way in limiting the power of federal agencies. 

    “So the doctrine emerges maimed and enfeebled—in truth, zombified,” wrote conservative Justice Neil Gorsuch.

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