The Demise of “Chevron Deference”: Who Will Fill the Regulatory Gaps?

The Supreme Court has overturned its 1984 ruling in Chevron v. NRDC. That case held that courts should defer to federal agencies’ interpretations of ambiguous federal laws so long as those interpretations are reasonable.

That doctrine, known as Chevron deference, rested on the notion that when Congress passes laws that require interpretation or leave regulatory gaps, these gaps are best filled by the expert federal agencies that administer and enforce them. The rationale was that expecting courts to become sufficiently expert in all the nuances of federal regulations needed to second-guess agencies’ decisions is unreasonable and impractical. 

But the Supreme Court found that argument could not be squared with the intent of the framers of the Constitution or with the Administrative Procedure Act, which call for the courts, not the executive branch, to interpret the law. And while agencies may offer their expert views for courts’ consideration, the Supreme Court noted, courts cannot be bound by them.

Conventional wisdom is that businesses are celebrating the demise of Chevron deference because it will increase courts’ leeway to check agencies’ discretion to impose burdensome regulations. But that view may be short-sighted. 

Whether one agrees with an agency’s interpretations or not, the interpretations do have the benefits of certainty and uniformity: everyone knows what the rules are, and everyone has to abide by them. 

The grass isn’t necessarily greener on the other side. Absent a defined and level playing field, potential outcomes could include:

1. Court challenges become more prevalent. This could lead to judges around the country reaching different decisions interpreting the same statute, along with the lengthy delays in reaching decisions inherent in litigation.
2. Statutory loopholes and ambiguities are exploited by less scrupulous actors engaging in harmful behavior, to the competitive disadvantage of businesses taking the high road.
3. Congress will backfill and amend statutes to provide greater clarity and enact more specific legislation going forward … or not.

So given the Court’s decision to overturn Chevron, where does that leave companies that want a level playing field and perhaps even to raise the bar, instead of racing to the bottom? 

The Alternative Route

Businesses looking for defined rules and a level playing field can engage in accountable, independent industry self-regulation. That does not just mean corporate self-governance efforts; those are necessary, but not sufficient. Instead, business can engage in the practice of “soft law.” Companies that share common challenges use their experience and expertise to develop standards, best practices, certifications, etc. to guide their actions and practices for the benefit of both themselves and consumers, coupled with an independent third party to monitor compliance. 

Independent compliance monitoring – though not the “hard law” of government regulation and enforcement – acts as an iron fist in a velvet glove, preventing a company from “marking its own homework” and providing the kind of transparency that can increase trust. 

Soft law has been hard at work, and successful, in the U.S. for more than 50 years. 

One example is the Children’s Food and Beverage Advertising Initiative (CFBAI), run by my organization, BBB National Programs. Created in 2007 in response to regulatory threats from the Federal Trade Commission and the Department of Health and Human Services over concerns about the poor nutritional quality of food marketed to children, CFBAI started with 10 food and beverage companies agreeing to limit their food advertising to children to improve the kids’ food advertising landscape.

At the time, acting on a desire to do the right thing, each participant pledged to either not advertise to children under 12 at all, or to advertise only foods meeting strict nutrition criteria. 

Over the years, the program has been strengthened in several ways: nutrition criteria were made uniform across the companies and were made stricter; the standards for which media were considered directed to children became stricter; the age limit was raised to children under 13; and more companies joined, so that today 21 companies participate. 

As a result of this initiative and its participants’ actions, overall food advertising to children has significantly decreased and the nutritional profile of many child-oriented foods has improved.

In the 1990’s, the video game industry established another good example: the video game rating system, now run by the Entertainment Software Rating Board. Under this system, video game producers agree to submit their games for rating; ratings reflect age appropriateness and include reasons for the ratings such as violence, gore, foul language, etc., to help parents assess the appropriateness of games for their children. 

Another example is the codes of practice issued by the beer, wine, and spirits industries, which include detailed limitations on marketing in order to avoid encouraging or celebrating over-indulgence or appealing to or engaging with consumers under the legal drinking age.

Business Can Fill the Gaps

Regardless of one’s views on whether the Supreme Court was correct to overturn Chevron deference, the ruling presents businesses with the opportunity to fill regulatory gaps themselves in a responsible manner that increases transparency and trust, without waiting for court decisions. 

This opportunity is even greater layered on top of the Court’s 2022 decision in West Virginia v. EPA, articulating the “major questions” doctrine that agencies are precluded from issuing regulations deciding “major questions” of political or economic significance unless Congress has specifically authorized or permitted them to do so.

Together, these Supreme Court decisions mean that federal agencies are less able to promulgate regulations and set standards regulating industry conduct. But the issues, problems, questions etc. that agency regulations are designed to address remain. 

This is the moment for businesses that criticize government regulation for being overly burdensome, inflexible, and out-of-touch with business realities to step in to problem-solve and create agile solutions that address these challenges through independent industry self-regulatory and accountability programs.