Industry Self-Regulation Will Shine Post-Chevron

In its landmark decision last week in Relentless Inc. v. U.S. Department of Commerce and Loper Bright Enterprises v. Raimondo, the U.S. Supreme Court did more than just curtail the principle of Chevron deference. The 6-3 majority ruling has fundamentally reshaped the landscape of regulatory governance in the U.S.

And in the wake of the ruling, the implications for industry self-regulation loom large.

This ruling came just a day after the Supreme Court pared back the power of the U.S. Securities and Exchange Commission, and potentially other administrative agencies, in SEC v. Jarkesy, holding that the commission cannot continue to use proceedings conducted by in-house administrative law judges to impose fines in securities fraud cases.

Chevron deference, established in the 1984 case Chevron U.S.A. Inc. v. Natural Resources Defense Council Inc., essentially directs courts to defer to reasonable regulatory interpretations of statutes by federal agencies.

In contrast, Chief Justice John Roberts, writing for the majority in Loper, noted that the Administrative Procedure Act directs courts to "decide legal questions by applying their own judgment," and therefore "makes clear that agency interpretations of statutes — like agency interpretations of the Constitution — are not entitled to deference." Under the Administrative Procedure Act, he concluded, "it thus remains the responsibility of the court to decide whether the law means what the agency says."

For most of the four decades since the Chevron case, the doctrine has been both lauded for its pragmatic approach to governance and criticized for potentially ceding too much regulatory authority to unelected agency officials.

No doubt there will be similar cheering — and jeering — from the sidelines in the wake of this decision that overruled Chevron. That is because there has always been sharp disagreement on the extent to which federal agencies can promulgate regulations not explicitly mandated by Congress and to what extent courts should defer to agency expertise.

Justice Elena Kagan in her strongly worded dissent predicted that the Loper ruling "will cause a massive shock to the legal system."

The court's decision came in a case involving a long-standing law that required trained, professional observers on regulated fishing vessels. The plaintiffs did not dispute whether the observers were required; they questioned why they, as shipowners, had to pay for the observers' presence.

The question before the court was: If Congress has not specifically addressed the question of who pays, should the court defer to the agency's view that Congress expected the fishing vessel owners to pay? The court's answer was that without specific congressional authorization, the agency had no power to order the fishermen to pay for their onboard observers.

The decision puts on full display a fundamental governmental tension — the balance between legislative intent and administrative discretion in crafting regulatory frameworks. And then the decision yanked the line in the direction of the need for clear congressional intent and reaffirmed the courts' authority to interpret under the Administrative Procedure Act.

The fishing industry has been around for centuries, of course, much longer than our nation, let alone the U.S. Department of Commerce. Yet for companies operating vessels in U.S. waters, the stakes related to this case were high.

And, for industries that will now look at this case as they navigate the complex terrain of compliance and innovation, the stakes are even higher.

While agencies may offer their expert views for courts' consideration, the Supreme Court noted, courts cannot be bound by them. On one hand, regulatory clarity and predictability are crucial for planning and investment. On the other hand, excessive regulatory burdens can stifle innovation and constrain growth.

The outcome of these cases decreases the scope of agency authority and increases the likelihood of more litigation and exacting judicial review. This could potentially empower industries to develop and implement their own standards and practices, guided by market forces and internal governance structures.

As an advocate for industry self-regulation, I view the recent Supreme Court decision as creating opportunities for this often misunderstood practice.

Industry self-regulation is a form of soft law that sits between a company's internal compliance efforts and the hard law of government regulation. It promotes ethical business operations, with transparency and accountability as key pillars, building consumer trust. Successful industry self-regulation systems create and deploy dynamic industry standards to reflect a market landscape that evolves faster than law and regulation.

The highly successful and workable concept of industry self-regulation has frankly been missing in the broader societal debates over the role of government in economic regulation.

Advocates for stringent agency oversight have been in their corner, arguing that centralized expertise and enforcement are essential safeguards against industry malpractice and environmental harm. Meanwhile, proponents of deregulation have occupied the other corner, contending that excessive bureaucratic intervention stifles entrepreneurship and burdens businesses with unnecessary red tape.

Amid these divergent perspectives, one thing remains clear: The outcomes of the Loper decision will shape the contours of industry self-regulation in the years to come. The work of constructing meaningful industry self-regulation programs is not done in a vacuum.

Industries must remain vigilant, not only in monitoring legal developments but also in engaging constructively with regulatory bodies to foster environments conducive to innovation while upholding compliance and enhancing public trust.

As the Supreme Court decision continues to be dissected, stakeholders across sectors would be wise to consider the broader implications of these rulings on their operational strategies and regulatory outlooks.

The intersection of law, policy and industry self-regulation is at a crossroads, and the steps taken in the aftermath of these decisions will undoubtedly leave a lasting imprint on the future of governance in America. The shape of that imprint will be defined by legal practitioners on both sides of the bench; policymakers at the federal, state and local levels; and most importantly, responsible business leaders.

The decision on Chevron deference will also shape the evolving narrative of governance in an increasingly interconnected and complex world. In navigating these complexities, one principle should guide us — a balanced approach that promotes both regulatory clarity and economic dynamism, ensuring that industry self-regulation evolves in tandem with public interest and statutory intent.

Originally published by Law360 on July 2.