Plenty of decisions from the U.S. Supreme Court make headlines and become widely known for their historical impact: Brown v. Board of Education, Roe v. Wade, Citizens United v. FEC, to name a few. But rulings involving administrative law and approaches to statutory interpretation rarely rise to such a level.
This past Supreme Court term, however, included an exception to that rule.
The Court’s decision earlier this year in Loper Bright Enterprises v. Raimondo, which ostensibly involved a statute that required fishing companies to pay for government-mandated observers on their boats, will have profound implications for businesses in almost every industry, including distributors and the supply chains in which they are a critical link.
By overturning a 40-year-old principle of statutory construction known as “Chevron deference,” under which courts are to defer to reasonable agency interpretations of ambiguous statutes, this ruling could bring undesired instability and uncertainty to supply chains and reshape how distributors navigate regulatory landscapes, compliance requirements and litigation risks.
What Is “Chevron Deference”?
Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. was a landmark 1984 Supreme Court decision that established its eponymous deference. Under Chevron, when a statute is ambiguous, courts defer to a reasonable interpretation by the agency charged with enforcing the law.
Over the years, this deference has empowered federal agencies to interpret and enforce regulations with significant latitude. However, critics argued that it has led to regulatory overreach, with agencies extending their power beyond what Congress intended. In Loper Bright, the Supreme Court agreed with those critics, threw out Chevron deference, and shifted the power to interpret and enforce regulations from agencies to the courts.
Uncertainty and Inconsistency In Regulations Governing Supply Chains
From manufacturers to transportation companies, from distributors to retailers, every participant in the supply chain wants two things: consistency and predictability. Unfortunately, the end of Chevron deference will likely be antithetical to those desired characteristics by introducing a host of unknowns relating to the myriad regulations that govern supply chains.
Distributors and their upstream and downstream partners all operate under a complex web of regulations that cover everything from transportation to employment practices to environmental protection to workplace health and safety. These regulations are often enforced by agencies like the Equal Opportunity Employment Commission, the Occupational Safety and Health Administration, the Department of Transportation, and the Federal Motor Carrier Safety Administration.
With Chevron deference governing the promulgation, interpretation and enforcement of regulations, distributors and other supply chain participants could largely count on consistency from coast to coast. A judge in Maine would defer to an agency’s interpretation of a statute and regulations just as one in California would, leading to the same result. Without the doctrine, however, courts will take a more active role in interpreting statutes and the regulations issued thereunder, potentially leading to a patchwork of interpretations that differ across jurisdictions. This uncertainty can make it difficult for companies to anticipate compliance requirements, forcing them to spend more on legal counsel and compliance measures.
For supply chains, this could be particularly problematic. For example, environmental regulations affecting the production, transportation and disposal of goods could become more unpredictable. Companies might need to alter their supply chains to comply with varying interpretations of the law, which could involve switching suppliers, rerouting shipments or investing in new technologies to meet different regulatory standards. These changes would likely increase operational costs, which could be passed down the supply chain, ultimately affecting end consumers.
Delays in Decision-Making
Chevron deference has traditionally allowed agencies to act swiftly in interpreting and enforcing regulations. Without it, the decision-making process may slow down as courts become more involved in interpreting statutes. This could lead to delays in the implementation of new regulations or changes to existing ones.
For industries with complex and global supply chains, such delays could be costly. For instance, if new trade regulations are introduced but become mired in legal battles, companies may be uncertain about how to proceed with their international supply chains. This could result in delayed shipments, disrupted production schedules and increased storage costs. Furthermore, the uncertainty could discourage investment in new supply chain technologies or infrastructure improvements, as companies may wait for clearer regulatory guidance before committing resources.
Negative Impact on Innovation and Flexibility
Chevron deference has also given agencies the flexibility to interpret laws in ways that accommodate new technologies and business models. This flexibility has been crucial in rapidly evolving industries, such as those involving e-commerce, autonomous vehicles and renewable energy. Without Chevron deference, the ability of agencies to adapt regulations to new developments could be hampered.
For supply chains, this could stifle innovation. Companies that are developing new technologies or business models may find it more difficult to navigate a regulatory environment that is less adaptable and more prone to judicial intervention. For example, the rollout of autonomous delivery vehicles or drones could be delayed if the relevant regulations are subject to more frequent and unpredictable legal challenges. This could slow down the adoption of technologies that could otherwise make supply chains more efficient and responsive.
Additional Cost Implications
Now that regulatory agencies are less able to enforce or interpret rules flexibly, distribution companies and their partners may face increased compliance costs. For example, changes in the interpretation of transportation safety regulations could require significant adjustments in operations, training and equipment. Additionally, if legal challenges to agency interpretations become more common, companies may need to spend more on legal fees and compliance audits to ensure they are adhering to the correct standards.
If you have questions or concerns about how the Loper Bright decision and the end of Chevron deference may impact your business, please contact me at 312-840-7004 or [email protected].
The information contained in this article is provided for informational purposes only, and should not be construed as legal advice on any subject matter. The author expressly disclaims all liability in respect to actions taken or not taken based on any or all the contents of this article.