Encino Motorcars LLC v. Navarro

In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. 467 US 837 (1984), the Supreme Court of the United States established a framework for assessing an agency’s interpretation of statutory provisions. First, a reviewing court must ask whether Congress “delegated authority to the agency generally to make rules carrying the force of law,” and whether the agency’s interpretation was promulgated under that authority. United States v. Mead Corporation, 533 US 218, 226–27 (2001). Delegation may be shown in a variety of ways, including “an agency’s power to engage in adjudication or notice-and-comment rulemaking, or by some other indication of a comparable congressional intent.” Id. at 227. If an agency has been delegated the requisite authority, the analysis is segmented into two steps.

Under step one, the reviewing court asks whether Congress has clearly spoken on the precise question at issue. See Chevron, 467 US at 842. If so, both the court and agency must follow the “unambiguously expressed intent of Congress,” and the inquiry ends. Id. at 842–43.

If the statute under review is ambiguous or silent, the reviewing court moves to step two: whether the agency’s interpretation is based on “a permissible construction of the statute.” Id. at 842. This inquiry asks whether the interpretation is reasonable and not “arbitrary, capricious, or manifestly contrary to the statute.” Chevron, 467 US at 843; see also Judulang v. Holder, 565 US 42, 53 n.7 (2011); Encino Motorcars, LLC v. Navarro, 579 US ____, 136 S. Ct. 2117, 2125 (2016). If the agency’s interpretation passes muster, then the agency’s interpretation is given Chevron deference, and afforded the force of law. The Chevron two-part analysis applies to tax regulations issued by the United States Department of the Treasury and the Internal Revenue Service. Mayo Foundation for Medical Education & Research v. United States, 562 US 44, 55 (2011). Continue Reading Senate Attempts to Repeal Chevron Deference

In Encino Motorcars, LLC v. Navarro, Sup. Ct. No. 15-415 (June 20, 2016), the Supreme Court of the United States invalidated a regulation issued by the US Department of Labor (DOL) under the Fair Labor Standards Act (FLSA). In doing so, it affirmed long-standing precedent regarding the procedural requirements of the Administrative Procedures Act (APA) and addressed the effect of noncompliance with those requirements on the deference, if any, courts must afford agency pronouncements. Thus, even though it is not a tax case, it is likely to have an effect on cases in which taxpayers argue that a treasury regulation is invalid.

The Court’s holding here is based upon an agency’s unexplained change in a long-standing position. The FLSA requires employers to pay overtime compensation to covered employees who work more than 40 hours in a given week. It exempts from this requirement “any salesman, partman, or mechanic primarily engaged in selling or servicing automobiles” at a covered dealership. From 1978 to 2011, the DOL’s position was that such employees were exempt from the overtime-pay rule. This position was set forth in a number of published pronouncements, including proposed regulations in 2008. However, when the regulations were finalized in 2011, the DOL took the opposite position. In a suit brought by a number of service advisors against a dealership for overtime pay, the US Court of Appeals for the Ninth Circuit resolved the matter by giving Chevron deference to the DOL’s interpretation embodied in the 2011 regulations, holding for the plaintiff employees. The Supreme Court majority denied Chevron deference and remanded the case to the Ninth Circuit for further proceedings on the meaning of the underlying statutory language. Continue Reading Supreme Court Issues Opinion Addressing Interplay between APA Procedural Compliance and Chevron Difference