US District Courts Start Applying Kisor v. Wilkie; Is Auer Deference Now a “Paper Tiger”?

Our colleague Brent Owen at the FrESH Law Blog (which covers perspectives on Environmental, Safety, and Health law) recently provided an update to his prior post addressing the US Supreme Court’s then-pending decision in Kisor v. Wilkie.  In that case, decided in late June 2019, the Court addressed the Auer standard of deference that is applied by courts to administrative agencies’ interpretations of their regulations.  Although Kisor did not involve an employment dispute per se, the decision has broad implications for agency action, including those taken by agencies that regulate employment matters, i.e., the U.S. Department of Labor, Equal Employment Opportunity Commission, and National Labor Relations Board.  Since the Court’s decision, district courts have begun applying the Auer standard post-Kisor, including in employment cases, as discussed in Brent’s insightful post, which appears below.

 

________________________________________  

US District Courts Start Applying Kisor v. Wilkie; Is Auer Deference Now a “Paper Tiger”?

As we’ve covered extensively on this blog, the administrative state responsible for implementing environmental, health, and safety policy in the United States is in flux. A few months ago in Kisor v. Wilkie the US Supreme Court upheld but significantly narrowed Auer deference. Auer instructs that courts must defer to an agency’s construction of its own regulation unless that interpretation is “plainly erroneous or inconsistent with the regulation.”

After Kisor though, lower courts reviewing an agency’s interpretation of its own regulations should only defer if there is a genuine ambiguity, the regulatory guidance comes from the appropriate source, and the rationale for the agency’s interpretation is not litigation driven. The Kisor Court also instructed that interpretive issues that fall into a “judge’s bailiwick” are not entitled to deference. Judge Gorsuch concurring in the judgment predicted that Kisor’s guideposts would leave the Auer doctrine “zombified.” Two initial decisions applying Kisor reflect Kisor’s tension. Namely, while courts scrutinize agency interpretations, Auer deference remains intact.

Court Rejects DOL’s “Reinterpretation” of Longstanding “Dual Jobs” Regulation

A federal judge in the Pennsylvania Eastern District Court recently applied Kisor in the context of a class action lawsuit brought by servers who worked at P.F. Chang’s China Bistro. The servers argued that the restaurant misclassified them as tipped-wage employees ($2.13/hour) because their “dual jobs” performing tipped and not-tipped work entitled them to full minimum wage ($7.25/hour). Under decades-old regulatory guidance interpreting the Dual Jobs regulation, the servers could state a claim because they had worked more than 20% of the time in non-tipped jobs.

The restaurant countered, however, that recent Department of Labor (“DOL”) guidance “reinterpreting” the Dual Jobs regulation defeated the servers’ claims. The court rejected that argument, concluding that the DOL’s revised interpretation of the Dual Jobs regulation should not receive Auer deference. The court explained that the DOL’s revised interpretation “contradicts itself” and contradicts “the text of the Dual Jobs regulation” and thus was “unreasonable.” Applying another lesson from Kisor, the court also explained that the revised regulation did not reflect the DOL’s “fair and considered judgment” because the DOL changed course without any articulated reason or explanation. The court repeated Kisor’s instruction that “an agency’s change in policy position will rarely warrant Auer deference.”

Because it rejected the DOL’s reinterpretation of the Dual Jobs regulation, the court allowed the servers’ claims to proceed.

Court Affirms Deference to SEC’s Interpretation of “Suspicious Activity” Regulation

In a case from the Southern District of New York applying Kisor, the SEC successfully received Auer deference for its interpretation of “Rule 17a-8.” That regulation requires broker-dealers to file suspicious activity reports for any number of transactions that may involve “illegal activity.” The broker-dealer argued that the SEC’s interpretation of its own Suspicious Activity regulation was “unreasonable” because it impermissibly expanded the regulation as written. In an opinion issued before Kisor, the court rejected that argument, repeating the then-settled rule that an agency’s interpretation of its own regulation should receive deference unless it is “plainly erroneous or inconsistent with the regulation.” Applying that deference, the court reasoned that the SEC’s broad interpretation of the Suspicious Activity regulation as advanced in its formal adjudication over the years was “reasonable.”

After Kisor, the broker-dealer asked the court to reconsider its earlier deference. Despite its deferential earlier opinion, the court declined to reverse its decision upholding the SEC’s interpretation. The court repeated Kisor’s holding that “Auer deference retains an important role in construing agency regulations,” and thus concluded that because Kisor affirmed Auer, it would not reverse its earlier opinion. Most notably, the court’s analysis denying the motion to reconsider emphasized that its earlier decision rested “principally” on the regulation’s plain text, and thus its earlier opinion squared with Kisor.

What Does this Mean for Agency Deference?

These early opinions applying Kisor provide two important takeaways. First, Kisor’s guideposts remain just that—limits on Auer deference but not reason to think Auer is extinct. Second, careful litigants hoping to defend agency action will frame their arguments for Auer deference within the narrow considerations emphasized by the opinion in Kisor.

Squire Patton Boggs will continue to monitor developments in this area and provide updates.