June 28, 2024

What Does SCOTUS’ “Chevron” Ruling Mean for Employers?

Last week I gave two presentations at SHRM’s Annual Conference in Chicago. At the end of the second, “Employment Agreements Under Fire” a member of the audience came to a microphone in the aisle, read from a card, and asked me, “What impact do you think the Supreme Court’s Chevron ruling will have on the FTC’s noncompete rule?” – or words to that effect. I did not answer the question in real-time. I did invite the individual to contact me after the conference and I would be happy to share my thoughts. I have not heard from that person, but it was a good question. So, let’s consider that now.

The case to which the person referred is Loper Bright Enterprises et. al. v. Raimondo, Secretary of Commerce, et. al. Why is it referred to as the Chevron case? In 1984, SCOTUS ruled that if the Congressional intent behind a law is unclear then a federal court must give deference to the federal agency that enforces that law. For example, what is a plaintiff’s burden of proof in a Title VII case or a SOX whistleblower case or a defendant employer’s burden of proof to deny a reasonable accommodation for religious observance¬†under Title VII?

To the attendee’s question of how this ruling might impact the FTC’s noncompete rule, I think it might not be applicable. The FTC’s noncompete rule is not a law or statute. So, a federal court cannot consider any Congressional intent since none is required or involved. If it does apply, I think it will not impact whether the rule is implemented or blocked. The pending legal questions are challenging the FTC’s authority to issue the rule not how any part of the rule is to be interpreted or applied in a particular case. Here is how I can envision an impact.

The FTC’s rule suggests that other employment agreements could violate the non-compete rule if they are so broad as to deter or “chill” an employee’s consideration of other employment opportunities. For example, I can see claims filed by former employees alleging their no-solicitation agreement unreasonably interferes with their ability to get another job or start their own business. Moving forward, federal courts will not be able to simply defer to FTC guidance or opinion letters. As SCOTUS held, “The Administrative Procedure Act requires courts to exercise their independent judgment 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.”

What does this mean for employers? Like so many things, there are pros and cons. The federal agencies administer and enforce the laws under their jurisdiction on a regular basis. That likely makes them more of a subject matter expert than federal courts that are addressing myriad issues. Giving the federal agencies deference makes sense. Having said that, if the agency has a hand in working with Congress as they draft and pass legislation, they may be biased in their interpretation of a law they helped to create. The neutrality of a court could be beneficial. The best action has been and will continue to be preventive measures. Conduct periodic HR audits. Ensure your employment policies, practices, and programs comply with federal, state and local rules. When in doubt, work with your company’s legal counsel to help ensure you will not become a test case!

Stay tuned. The SCOTUS blog writes, “The Supreme Court is expected to rule on Monday on when the statute of limitations to challenge agency action begins to run.” A question of interest in light of the lawsuits currently pending and that may have yet to be filed challenging not just the FTC’s rule but (1) the DOL’s overtime rule; (2) the NLRB’s joint employer rule; (3) the DOL’s independent contractor rule; and more!