Labor Agency’s Rule Defense Pivots Ahead of High Court Action

The US Labor Department is abandoning a legal doctrine under which courts defer to agency interpretations of laws as a shield against challenges to some of its most high-profile rulemakings, a sign it’s attempting to head-off the US Supreme Court’s expected gutting of the Chevron standard.

Business groups have cited the 1984 ruling in Chevron Inc. v. Natural Res. Def. Council, Inc. in their arguments against DOL rules expanding overtime pay eligibility and limiting when employers can pay tipped workers a lower minimum wage. They argue that the regulations fail to carry out Congress’ clear direction on the law.

While US Justice Department attorneys representing the DOL initially responded that the agency’s rules should be granted Chevron deference, that defense was later dropped when the cases were appealed.

The agency says it doesn’t need to rely on Chevron because the rules were issued within its statutory authority. However, business groups are seizing on those omissions and arguing they provide evidence that the rules are illegal exercises of agency power.

“The Department’s brief does not mention Chevron even once,” the National Restaurant Association argued in its lawsuit challenging the DOL’s final tipped wages rule, issued in 2021. “Nowhere does the Department expressly contend that the Final Rule satisfies any of the specific steps of the Chevron analysis, much less all of them, as the Final Rule must in order to be valid.”

The shift in legal strategy comes as the Supreme Court will issue a ruling any day in a pair of cases—Loper Bright Enterprises v. Raimondo and Relentless, Inc. v. Department of Commerce—which are expected to gut or largely scale back Chevron. Attorneys say agencies’ silence on the deference standard have been growing in recent years amid increased skepticism of that doctrine, which directs courts to defer to an agency’s reasonable reading of an ambiguous statute. It’s caught even more traction following the high court’s decision last year to take up the issue.

Justice Neil Gorsuch, for example, has “not been shy” about his criticisms of Chevron, said Allison Balus of Baird Holm LLP.

“That probably started some of the reluctance to rely on it,” she said. “But then once Loper Bright was taken up, it became more clear that the doctrine is likely not going to be as persuasive or in use at all eventually. There was a change in strategy once that happened.”

The DOL didn’t respond to a request for comment.

Tip Credit

One case where the DOL cited Chevron—but later backtracked—involves a rule that limits when employers can use the “tip credit” under the Fair Labor Standards Act to pay workers as little as $2.13 an hour so long as they regularly earn at least $30 in tips a month.

When the Restaurant Law Center and the Texas Restaurant Association sued over the rule in 2021, the DOL initially argued in its motion for summary judgment that the rule should remain intact under Chevron because Congress clearly “delegated authority to the agency” when it passed the FLSA’s tip-credit provisions in 1966, and that its final rule “was promulgated in the exercise of that authority.”

But once the case was appealed to the US Court of Appeals for the Fifth Circuit, that argument has been absent from the agency’s briefs in defense of the rule—a move that the Restaurant Law Center says proves that the tipping rule shouldn’t survive under Chevron.

The groups suing over the rule “framed their entire argument in terms of the Final Rule failing Chevron,” their brief to the appeals court said, noting that the DOL’s reply failed to respond to their Chevron claims “even once.”

When the question came up during oral argument in April before the Fifth Circuit, the government’s lawyer said the court didn’t need to consider Chevron because the dispute wasn’t “a question of statutory interpretation.”

“I don’t think that we need Chevron,” DOJ attorney Jennifer Utrecht said. “Everyone seems to agree here that the department can draw limits. The question is whether the limits that were drawn were arbitrary.”

The appeals court hasn’t yet issued a decision in that case.

Overtime

Other cases where Chevron has disappeared from the DOL’s legal defense involve rules that set limits on exemptions to overtime pay for certain “executive, administrative, and professional” employees under the FLSA.

Business groups are challenging two different rules on the so-called “white collar” exemptions, both of which expand the share of workers who should be eligible for time-and-a-half pay when they work more than 40 hours a week.

In one lawsuit involving a 2019 rule issued during the Trump administration—which made certain salaried workers earning less than $35,568 automatically eligible for overtime pay—the DOL initially argued that it should be granted Chevron deference.

Because Congress granted the labor secretary the right to “define and delimit” who is a “bona fide executive, administrative, or professional” subject to the exemption, DOJ attorneys argued that it should be upheld under Chevron unless the rule is “arbitrary, capricious, or manifestly contrary to the statue.”

The Western District of Texas agreed with the government, finding in September 2023 that the rule “passes muster” under the Chevron framework.

But the legal doctrine is no longer cited in the DOL’s legal briefs now that the case has since been appealed to the Fifth Circuit.

Attorneys for the fast food operator that brought the lawsuit suggest in their appellate filings that the DOL’s argument fails to engage “in the serious textual analysis that Chevron requires.”

“Indeed, it refuses to even cite Chevron,” the April brief said.

And while the government hasn’t yet responded to the multiple lawsuits lodged against another, much broader overtime rule issued earlier this year, business groups have already argued that the agency shouldn’t be owed Chevron deference.

“This Court has already determined— twice—that the Department is entitled to no such deference here,” a coalition of business groups argued in their May complaint against the new Biden rule.

The Fifth Circuit has scheduled oral argument for the Trump overtime rule dispute in August.

DOJ Trend

Other agencies represented by Department of Justice are also pivoting away from Chevron deference as part of their their defense to rulemaking challenges.

Daniel Wolff, a partner at Crowell & Moring LLP in Washington, D.C., said the trend has been “a snowball effect over the last few years.”

“Like with other agencies, the very delicate handling of Chevron is in anticipation that if you’re anchoring a rule to Chevron deference, that’s like leading with your chin,” he said. But “without a doubt” the Supreme Court’s pending ruling on Chevron is likely “hanging over” the DOL, he added.

The agency’s reticence to raise Chevron could also be due to the venue hearing the appeals for the regulatory disputes: the conservative Fifth Circuit.

“When was the last time the Fifth Circuit Court of Appeals upheld something under Chevron?” James Goodwin, policy director at the Center for Progressive Reform, said. “Maybe they just sort of read the jurisprudence in the Fifth Circuit and sort of reached that determination that they were ice skating uphill with that argument.”