The Rise of the Regulator | Commentary

Posted April 8, 2015 at 10:00am

By Patrick Forrest This month, the Supreme Court unanimously missed an opportunity to check the rising regulatory state. Its decision in Perez v. Mortgage Bankers Association marks the culmination of a long journey in American jurisprudence to transfer immense influence to federal regulators. Undoubtedly, Congress has been complicit in this handover by producing vague laws that leave the door open to a bounty of agency interpretations. However, until now, the Supreme Court stood as the only safeguard against this tide of legislative laziness and federal overreach. This judicial abdication marks the rise of the regulator.  

So long as a regulator does not stray beyond the broadest parameters of congressional statutes, courts are now likely to rule that the statute intends whatever the regulator says it does. The result is a vast expansion of the administrative state. Regulators can magnify their influence by writing general substantive rules and then issue interpretive rules, changeable at will, wholly outside of public comment and review.  

The decision gives federal agencies authority to step up reinterpretations of their own regulations through unreviewable administrative action. This means an agency can change a significant policy without even publishing it on its website. This is something regulators have already begun in practice without providing the public notice and ability to comment.  

One important example was found in a letter of interpretation last year sent to the United Steelworkers union. In the letter, the Occupational Safety and Health Administration stated that, during inspections of nonunion workplaces, union officials or community organizers can accompany OSHA agents. Previously, OSHA consistently interpreted this regulation to limit labor union participation in an inspection only where such a union was certified or recognized as representing the employees under procedures established by the National Labor Relations Board. Not only does this rule change threaten to disrupt OSHA’s primary mission by embroiling the agency in organization and community disputes, but it also unfairly changes the rules for employers without giving them proper notice the rules have been changed.  

The Supreme Court’s decision in Perez puts a judicial stamp of approval on this type of regulatory uncertainty. Granted, the problem is largely of Congress’ making.  

The implications for the private sector will be profound as businesses will now be required to comply with unknown or uncertain rules that can change abruptly without notice. Clearly this is a catch-22 for the industry. A business, even in good faith, that attempts to comply with the law can now be penalized for violating an administrative interpretation when the governing statute does not explicitly provide safe-harbor liability protection. This bait-and-switch practice will most profoundly impact small and medium-sized businesses that lack the large in-house legal teams necessary to identify these sudden and underreported changes to the rules.  

The actions by the Supreme Court in Perez will further exacerbate a decade-long trajectory of regulatory empowerment, with the NLRB leading the way.  

On April 14 of this year, the NLRB’s “ambush elections” rule goes into effect, shortening the time frame for labor elections. The stakes are high, and the consequences are real. Such action runs afoul of the National Labor Relations Act and the Administrative Procedure Act while curtailing employers’ rights to free speech and due process. The rule also has significant privacy implications by compelling employers to provide personal information about their employees, including home addresses, telephone numbers, shift schedules, work locations and personal email addresses to union and community-organizing officials.  

Once the rule goes into effect, regulators will be empowered to interpret it as they see fit. Alarmingly, they will be free to change enforcement of the rule outside of judicial scrutiny—penalizing employers who, in good faith, followed the rules as they understood them at the time.  

Congress passed the APA to avoid just this type of unchecked governmental authority over the economy by giving the public an opportunity to provide input and be properly notified of changes in how they will be asked to comply with laws. Resolution of these problems will require congressional action. Restoring Congress’ original intent for the APA will require legislative action to include safe-harbor provisions that shelter regulated entities from liability when they follow prior agency interpretations, requiring notice and comment for interpretive rules and ending judicial deference for agency interpretations of their own rules.  

The Supreme Court’s decision in Perez marks an unprecedented power shift to the regulatory state uncontemplated by the Founding Fathers, who would be troubled by an unchecked, unelected regulator with the power to fundamentally change the way businesses and individuals are governed, leaving the governed without a voice or defense. Congress must step in and address this unfairness by amending the APA, restoring balance and fair notice to the regulatory system.  

Patrick Forrest is vice president and deputy general counsel at NAM.

The 114th: CQ Roll Call’s Guide to the New Congress

Get breaking news alerts and more from Roll Call in your inbox or on your iPhone.