Let the Delegation Continue: Supreme Court Reaffirms Deference to Administrative Agencies in Regulatory “Interpretation” of Statutes

On January 11th the Supreme Court handed down its decision in Mayo v. U.S. The decision reaffirmed the Court’s use of the Chevron standard, under which government agencies are given broad authority to make any “reasonable interpretations” of statutes so long as Congress does not specifically and clearly address the issue in the relevant legislation. The decision is significant because lower courts had previously spliton whether the Treasury Department, in implementing the Internal Revenue Code (IRC), was subject to the more exacting standard found in National Muffler. Under the National Muffler standard, government agencies’ only had the latitude to make interpretations that “harmonize with the plain language of a statute, its origin, and its purpose.”

In Mayo v. U.S. the plaintiff, Mayo Foundation for Medical Education and Research, was challenging a Treasury Department regulation that would classify medical residents (individuals that have recently graduated from medical school and seek additional instruction in a specialization) as employees. The Treasury Department implemented this regulation pursuant to a statutepassed by Congress, which exempted from consideration as employees individuals whose “services performed in the employ of… a school, college, or university… if such service is performed by a student that is enrolled and regularly attending classes at [the school].” Dating back to 1951 the Treasury Department had exempted students (including medical residents) from being classified as employees of schools, colleges, and universities, if their work was “incident to and for the purpose of pursuing a course of study.” However in 2004 the Treasury Department passed a regulationthat eliminated this exemption for “students” that worked 40 hours per week or more. Utilizing the Chevron standard, the Court in Mayo concluded that it was reasonable for the Treasury Department to change course and consider individuals working 40 hours or more per week as not “regularly attending classes.”

Some individuals have voiced concerns that the Chevron standard allows government agencies to act as quasi-legislatures and exercise undue power in our society. Others respond by noting that government agencies are still substantially constrained by legislation that clearly addresses an issue, as well as the reasonableness of their interpretation (where ambiguity exists).

The complexities of modern society require that legislatures delegate some amount of authority and discretion to “agents” in order to deal with unforeseen (as well as unforeseeable) circumstances. However it would be a usurpation of the system of republican government if the legislature delegated so much authority to agencies that the agencies effectively became the legislatures of the nation while remaining wholly unaccountable to the electorate. The efficacy of popular sovereignty becomes seriously endangered when a system of governance becomes so complex that the ultimate decision makers can hide behind the bureaucracy of the government.

These same issues underlie the debate surrounding the Dodd Frank Act, in which any observer would readily admit that Congress delegated the bulk of the power (and the work) of passing substantive regulations to government agencies (such as the SEC, CFPB, and CFTC, to name a few). It is open to debate whether the broad mandates that Congress enacted through the Dodd Frank Act surpassed the amount of authority that is proper for an “agent” of the legislature to exercise in a republican form of government. As already alluded to, delegation was somewhat of a practical necessity, given the tremendous complexity and level of expertise (as well as time) necessary to properly address all of the details involved in the requisite regulatory reform needed post-financial crisis.

Disgruntled actors that will be hampered by the regulations being proposed and passed under the banner of Dodd Frank will undoubtedly contest the validity of these regulations. Mayo leaves open the possibility of challenges for these actors where it can be argued that the interpretation of the legislation was not “reasonable.” The decision also leaves open challenges where there was not sufficient notice, as well as hearings, regarding the proposed rule making. Given the break-neck pace that government agencies are operating at, it is very possible (if not likely) that these agencies may fail to take proper care to meet these standards for every single regulation.