In a decision turning on black-letter law, the United States Supreme Court (SCOTUS) reiterated Administrative Procedure Act (APA) precedent that an agency must explain its change in position and remanded Encino Motorcars, LLC v. Navarro for further proceedings in the court below. SCOTUS found that the Department of Labor (DOL) failed to adequately explain its 2011 regulations (reversing prior direction) and, therefore, those regulations were not entitled to Chevron deference.
Short History: The United States Court of Appeals for the Ninth Circuit concluded that Fair Labor Standards Act (FLSA) exemption for “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles” from overtime pay requirements was ambiguous and that DOL permissibly decided that automobile dealer “service advisors” do not fall within the exemption. The Ninth Circuit admitted that the result conflicted with other circuits. The question of regulatory efficacy was before the Ninth Circuit, but without the agency before it, the court summarily agreed to the regulation’s efficacy, and concluded that DOL did not change its position over time: “Because we consider here a regulation duly promulgated after a notice-and-comment period, Chevron’s “reasonableness” standard applies.”
Encino Motorcar’s petition for certiorari asked: “whether ‘service advisors’ at car dealerships are exempt under [the sales exemption] from the FLSA’s overtime-pay requirements.” The petition sought review of an intercircuit conflict, and suggested that DOL lacked statutory delegation for the regulation and thus the regulation was only an interpretation. Further, the petition argued that DOL’s interpretation was unreasonable and not entitled to deference as well as DOL’s “flimsy justification for reversing its interpretation.”
SCOTUS did not request the views of the United States, either before or after granting certiorari, and the United States entered the picture only after SCOTUS granted certiorari. The Solicitor General filed an unsolicited amicus curiae brief because “The United States has a significant interest in the resolution of that question because [DOL] is responsible for administering and enforcing the FLSA’s minimum-wage and overtime-pay provisions.” The Solicitor General asked also to participate in oral argument, which SCOTUS granted. What was once merely private litigation took on a new gloss with the Government’s late entry.
Decision: SCOTUS’s decision is more unanimous than it appears. Justice Kennedy, for six Justices, held that the “lack of reasoned explication for a regulation that is inconsistent with the [DOL]’s longstanding earlier position results in a rule that cannot carry the force of law. …. It follows that this regulation does not receive Chevron deference in the interpretation of the relevant statute.” Because the Ninth Circuit relied on Chevron deference, SCOTUS vacated and remanded for further proceedings consistent with its opinion.
Doctrinally, SCOTUS restates:
A premise of Chevron is that when Congress grants an agency the authority to administer a statute by issuing regulations with the force of law, it presumes the agency will use that authority to resolve ambiguities in the statutory scheme. …. When Congress authorizes an agency to proceed through notice-and-comment rulemaking, that “relatively formal administrative procedure” is a “very good indicator” that Congress intended the regulation to carry the force of law, so Chevron should apply. …. But Chevron deference is not warranted where the regulation is “procedurally defective” – that is, where the agency errs by failing to follow the correct procedures in issuing the regulation. ….
SCOTUS then reiterates black-letter regulatory precedent:
One of the basic procedural requirements of administrative rulemaking is that an agency must give adequate reasons for its decisions. The agency “must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made.” …. That requirement is satisfied when the agency’s explanation is clear enough that its “path may reasonably be discerned.” …. But where the agency has failed to provide even that minimal level of analysis, its action is arbitrary and capricious and so cannot carry the force of law. ….
Agencies are free to change their existing policies as long as they provide a reasoned explanation for the change. …. When an agency changes its existing position, it “need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate.” …. But the agency must at least “display awareness that it is changing position” and “show that there are good reasons for the new policy.” …. In explaining its changed position, an agency must also be cognizant that longstanding policies may have “engendered serious reliance interests that must be taken into account.” …. “In such cases it is not that further justification is demanded by the mere fact of policy change; but that a reasoned explanation is needed for disregarding facts and circumstances that underlay or were engendered by the prior policy.” …. It follows that an “[u]nexplained inconsistency” in agency policy is “a reason for holding an interpretation to be an arbitrary and capricious change from agency practice.” …. An arbitrary and capricious regulation of this sort is itself unlawful and receives no Chevron deference. ….
To summarize the application:
Applying those principles here, the unavoidable conclusion is that the 2011 regulation was issued without the reasoned explanation that was required in light of [DOL]’s change in position and the significant reliance interests involved. In promulgating the 2011 regulation, [DOL] offered barely any explanation.
Justice Ginsburg, concurring, sought to limit the majority holding to a reiteration of existing precedent, but, in doing so, may have expanded it. “I write separately to stress that nothing in today’s opinion disturbs well-established law. In particular, where an agency has departed from a prior position, there is no ‘heightened standard’ of arbitrary-and-capricious review.” If this be true, it need not be stated, and perhaps the Justice doth protest too much. The real point of the concurrence is to try to guide where SCOTUS itself will not: the substantive statutory interpretation.
Justice Thomas, with Justice Alito, dissenting, agrees that the courts owe no deference to DOL’s interpretation in a procedurally defective regulation, but argues that SCOTUS should have taken the next step and decided the proper statutory interpretation, rather than remanding to Ninth Circuit, already in conflict with other circuits. The dissent disagrees with the concurrence on the substantive statutory interpretation.
What is clear is that SCOTUS is unanimous on the point that courts owe no deference to a regulation that lacks sufficient reasoning. The composition here requires more diligence from agencies and adds to the quiver of arrows for attacking the efficacy of regulations – even when the agency is not a party. What is unclear may be how DOL must act in light of this decision.
Remand, but not Regulatory Remand: SCOTUS remanded to the Ninth Circuit to interpret the statute in the first instance: the statute “must be construed without placing controlling weight on the [DOL]’s 2011 regulation.” The Fourth Circuit and Fifth Circuit already have decided the statutory interpretation (albeit often pre-Chevron) and the Ninth Circuit now faces the question of engaging a somewhat different intercircuit conflict on purely statutory construction terms without Chevron deference to the agency. Joining the Fourth and Fifth Circuit would all but end the issue; disagreeing would surely return the issue to SCOTUS.
But DOL faces another problem: not being a party, DOL receives no opportunity from the remand to the Ninth Circuit. The Ninth Circuit cannot vacate the regulation nor remand to DOL because DOL is not a party before it. The litigation is not enforcement litigation or a direct challenge to the agency action – DOL has no direct option for responding. DOL might seek to intervene (on its own, without the United States as represented by the Department of Justice (DOJ)), but that seems rather awkward at this late stage and DOL’s interests in deference to its regulatory interpretation have already been decided. DOL might seek Auer deference to the statutory interpretation in its brief, but that tactic holds risks as well because such an interpretation at this late date is clearly little more (if any more) than a post-hoc rationalization.
DOL might consider “reopening” its rulemaking, but the reopening doctrine is limited and often a negative effect. The District of Columbia Circuit, at least, has held that an agency “reopens” a rulemaking and subjects the regulation to new opportunity for judicial review if it takes additional comments and responds to them or provides a new explanation. Reopening doctrine, however, developed in the negative – a result of agency action that the agency argues did not reopen a regulation and subject it to further judicial review. A deliberate reopening at this late stage might be unprecedented and likely requires a completely new APA advance notice and an opportunity for public comment on a proposed rule and a reasoned explanation of DOL’s position and review of comments in a final rule. In short, DOL may have no option at all other than to start a new rulemaking.
The warning to agencies should be clear – don’t be like DOL, reasonably explain your decisions.
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