Supreme Court Limits Power of Federal Agencies to Define Regulations

The U.S. Supreme Court on June 28 announced a ruling that overturns a 40-year-old precedent and limits the authority of regulatory agencies to effectively write their own laws.

In a 6-3 ruling, the court’s majority opinion in the case of Loper Bright Enterprises v. Raimondo undoes the 1984 decision in the case of Chevron U.S.A. v. Natural Resources Defense Council. That prior decision established what became known as the Chevron deference, a legal doctrine that essentially gave regulatory agencies leeway in how they interpreted statutory language to create regulations. The thinking was that courts should defer to regulatory agencies, which usually have specialized knowledge of their area, to interpret statutes when the intent of Congress was ambiguous and where the interpretation was reasonable. However, in practice that often led to significant changes in how agencies defined and enforced regulations whenever a new presidential administration took office. Further, regulatory agencies frequently put forward regulations for issues that would otherwise have been under the scope of Congress, such as recent efforts by the Department of Labor to expand the pool of workers that qualify for overtime pay.

Because of this, business groups and trade associations have long opposed the Chevron deference. In overturning the doctrine, the Supreme Court agreed with businesses that Chevron allowed agencies to exceed their authority and that it violated the Administrative Procedure Act (APA), the law that governs how administrative agencies propose and establish regulations. Instead of deferring to the agencies, the Supreme Court held that the APA requires courts to exercise independent judgment in deciding whether an agency has acted within its statutory authority.

“This decision reaffirms the importance of checks and balances within our government,” said Eric Hoplin, president and CEO of the National Association of Wholesaler-Distributors. “It ensures that agencies do not exceed their intended authority and that courts take a more active role in interpreting laws. This decision brings much-needed clarity and fairness to the regulatory process, benefiting businesses and the economy as a whole.”

The U.S. Chamber echoed NAW’s sentiments, saying the decision would help create a more predictable and stable regulatory environment. “The Supreme Court’s previous deference rule allowed each new presidential administration to advance their political agendas through flip-flopping regulations and not provide consistent rules of the road for businesses to navigate, plan and invest in the future,” U.S. Chamber President and CEO Suzanne Clark said. “The Chamber will continue to urge courts to faithfully interpret statutes that govern federal agencies and to ensure federal agencies act in a reasonable and lawful manner."

Survey Finds that Failure to Extend Tax Cuts Would Impact Manufacturing Investment

A failure to extend the 2017 Tax Cuts and Jobs Act could have drastic consequences for manufacturing and the supply chain.

A recent survey from the National Association of Manufacturers found that if tax cuts are allowed to expire, 73 percent of manufacturers would be forced to limit their capital investments, 65 percent would have to reduce job creation and 52 percent would spend less on research and development. Additionally, 93 percent of pass-through manufacturers said the loss of the pass-through deduction would harm their ability to grow, create jobs and invest in their business. Ultimately, that would result in less production and innovation, reducing the availability of equipment and new products in industries like foodservice equipment and supplies.

NAM has joined other business advocacy and trade groups, including FEDA, in urging Congress to preserve the key provisions of the 2017 Tax Cuts and Jobs Act before they expire at the end of 2025. Those policies include:

• Pass-through deduction: Protect the 20 percent deduction that has allowed small businesses organized as pass-throughs to compete on a level playing field
• Corporate tax rate: Preserve the 21 percent corporate tax rate, which has stimulated economic activity here at home and has bolstered America’s competitiveness on the world stage
• Individual tax rates: Prevent damaging tax hikes on manufacturing families and pass-through manufacturers that pay tax at individual rates
• Research and development: Restore immediate R&D expensing and preserve America’s leadership in R&D and innovation
• Full expensing: Preserve the ability for manufacturers to immediately expense 100 percent of the cost of capital equipment purchases
• Interest deductibility: Support manufacturers’ efforts to get job-creating projects off the ground by returning the United States to an EBITDA standard for interest deductibility
• Estate tax: Preserve tax reform’s increased exemption threshold or eliminate the estate tax altogether
• International tax: Prevent tax increases on globally engaged manufacturers

More information on ongoing efforts to pass or extend tax relief for businesses is available to FEDA members on the FEDA Advocacy Center.

Supreme Court Rejects NLRB’s New Standard for Labor-Related Injunctions

The Supreme Court has ruled unanimously against the National Labor Relations Board (NLRB) and rejected a rule that sought to more tightly restrict companies suspected of interfering in unionization campaigns.

The case, Starbucks v. McKinney, stemmed from an incident in February 2022 when seven Starbucks employees were attempting to unionize a store in Tennessee. To promote their organizing effort, the employees invited a news crew from a local TV station to visit the store after hours. The coffee chain then fired the involved workers for violating company policy. That prompted the NLRB to file an administrative complaint against Starbucks alleging it engaged in unfair labor practices.

As the case wound its way through the court system, the NLRB argued that the National Labor Relations Act gave courts the authority to grant preliminary injunctions forcing employers to reinstate employees for the duration of the administrative proceedings. A district court applied a two-part test that asked whether “there is reasonable cause to believe that unfair labor practices have occurred,” and whether the injunctive relief is “just and proper.” Using that test, the district court required Starbucks to rehire the workers.

However, in its ruling published on June 13, the Supreme Court found that district courts must instead apply the traditional four factors outlined in Winter v. Natural Resources Defense Council, which has a higher standard for an injunction. Without a clear command from Congress, the justices said the NLRB could not impose a new standard for labor-related cases. “When interpreting a statute that authorizes federal courts to grant preliminary injunctions, the Court ‘do[es] not lightly assume that Congress has intended to depart from established principles,’” Justice Clarence Thomas wrote in the opinion.

FEDA Joins Business Groups in Opposing NLRB Chair’s Renomination

A group of business and trade associations, including FEDA, are asking Congress to either reject the renomination of the chair of the National Labor Relations Board (NLRB) or hold a hearing on her policy decisions.

Former President Barack Obama nominated Lauren McFerran to the NLRB in 2014 and she was renominated to the board by Donald Trump in 2020. President Joe Biden then named her as the NLRB’s new chair on the day he took office, Jan. 20, 2021. Since then, the NLRB has shifted its policies largely in favor of union organizing and expanded the scope of the National Labor Relations Act (NLRA). Under McFerran’s leadership, the NLRB issued a new joint employer standard that dramatically expanded the scope of businesses that would be considered a joint employer.

The Biden administration appears to be attempting to cement McFerran’s place on the board by renominating her six months before her term is set to expire. If confirmed, McFerran would remain on the board, keeping it under Democratic control even if there is a change in the presidential administration. It also issued decisions that allow employees to use their workplace for political activity and eliminated the requirement for secret ballots in union representation elections.

The Coalition for a Democratic Workplace, a group representing hundreds of business associations and employers, sent a letter to the U.S. Senate and House committees on Health, Education, Labor and Pensions (HELP) asking them to hold a hearing to question McFerran on the NLRB’s actions during her tenure as chair. “McFerran’s tenure on the board has been riddled with mismanagement of the agency and radical and expansive interpretations of the NLRA,” the letter states. “Further, her policy choices have been repeatedly rejected by Congress and struck down by federal courts.”

Further, the letter asks the Senate HELP Committee to hold the Biden administration accountable for attempting to control the NLRB into a potentially new administration. “If no hearing is held, the Committee should reject her nomination outright based on her poor record, which puts the safety and rights of workers and employers at risk,” the letter states.

The full letter is available here.

Proposed Act Seeks to Remove Obstacles for S Corp Businesses

A new bill seeks to simplify rules for Main Street businesses and make it easier for them to be competitive.

Rep. Brad Wenstrup (R-OH) introduced the S Corporation Modernization Act of 2024 (H.R. 8619) on June 4. The bill was referred to the House Committee on Ways and Means, of which Wenstrup is a member. The full text of the bill was not available as of Friday, June 7, but a summary from the S Corp Association of America said it would push forward three technical provisions that were important to S corporations, including:

• Increasing their access to capital
• Expanding the list of eligible shareholders to include more employees, non-resident aliens and retirement accounts
• Eliminating rules that penalize S corporations compared to partnerships and other business forms.

“Well into the 21st century, America’s most popular form of small-business corporation deserves rules adapted to the economy we live in today,” said Brian Reardon, president of the S Corp Association. “The S Corporation Modernization Act would ensure the continued success of these businesses by modernizing the rules that apply to firms that have selected S corporation status.”

House Holds Hearing on Corporate Transparency Act

The implementation of the Corporate Transparency Act (CTA), a law that requires small businesses to self-report their beneficial owners’ information to the Financial Crimes Enforcement Network (FinCEN), has proven to be a compliance challenge so far, according to testimony before a Congressional committee.

The House Committee on Small Business heard from small business owners during a hearing on the law on April 30. Testimony from witnesses outlined the early issues with the law, confusion from small businesses on how they can comply with its requirements and security concerns over how FinCEN is protecting the data it collects. “Let me stress — we do not know the database is secure,” Tim Opsitnick, a member of the National Small Business Association, told the committee. “We further know that the information and/or access to the database will be shared. Every time an owner shares their information, the risk that it will be misused or lost to the dark web significantly increases. FinCEN’s own website opens with an alert about fraudulent solicitations under the CTA.”

Carol Roth, an author and small business advocate, told the committee that the U.S. Treasury has provided little or no guidance so far to help business owners understand their compliance obligations under the new law, which went into effect on Jan. 1, 2024. Additionally, she provided a record of nearly 450 statements from small business owners that said they were not aware of the CTA or familiar with FinCEN. “Your average small business owner is just trying to stay afloat, and isn’t familiar with that division of Treasury,” she said. “And when they find out they ask, ‘Why is it that the Financial Crimes Enforcement Network is asking for my information?’ So, the communication hasn’t been there.”

The hearing came just a few days after Sen. Tommy Tuberville (R-AL) and Rep. Warren Davidson (R-OH) introduced a bill to repeal the CTA. The law is also being challenged in the courts, where a federal judge in Alabama ruled it unconstitutional in March on grounds that it transcended the limits the Constitution imposes on the legislative branch.

While the matter continues to make its way through the courts and is being reconsidered by Congress, FinCEN has started taking steps to help businesses better understand the requirements. In mid-April, the agency updated an FAQ on beneficial ownership information and reporting obligations. That new FAQ can be found here.

U.S. Chamber Sues FTC Over Total Noncompetes Ban

Business advocacy groups are moving quickly to mount a legal challenge to the Federal Trade Commission’s (FTC) newly finalized rule banning nearly all types of noncompete clauses.

The U.S. Chamber of Commerce filed a lawsuit in the U.S. District Court for the Eastern District of Texas within hours of the FTC’s announcement on Tuesday, April 23. The lawsuit seeks an injunction from the rule going into effect and notes that the agency’s rule is not backed by any federal legislation. “Without such authorizing legislation, federal agencies have not previously sought to play a role in regulating noncompete agreements on a nationwide basis,” the lawsuit states.

The final rule effectively prohibits noncompete agreements between all businesses and their employees. Noncompetes are a common tool businesses use to protect trade secrets and competition. They are typically reserved for higher-skilled employees and often come with increased wages and benefits to compensate the employee.

The FTC claims that a blanket ban on noncompetes will lead to new businesses forming — 8,500 in the first year — and an estimated earnings increase for the average worker of $524 annually. The rule allows for existing noncompetes for senior executives to remain but prohibits employers from entering into or attempting to enforce any new noncompete agreements, even ones involving senior executives. Further, employers will be required to provide notice to workers, other than senior executives who are bound by an existing noncompete, that they will not be enforcing any such agreements.

Business groups, including the U.S. Chamber and the National Association of Wholesaler-Distributors (NAW), issued statements saying that the rule exceeded the FTC’s authority.

“Since its inception over 100 years ago, the FTC has never been granted the constitutional and statutory authority to write its own competition rules,” said Suzanne Clark, U.S. Chamber president and CEO. “Noncompete agreements are either upheld or dismissed under well-established state laws governing their use. Yet, today, three unelected commissioners have unilaterally decided they have the authority to declare what’s a legitimate business decision and what’s not by moving to ban noncompete agreements in all sectors of the economy.

“This decision sets a dangerous precedent for government micromanagement of business and can harm employers, workers, and our economy,” she continued.

Brian Wild, chief government affairs officer for NAW, called the FTC rule a “misguided attempt to micromanage private contractual arrangements,” and said it would particularly affect wholesaler-distributors.

DOL Finalizes Rule Expanding Overtime Pay to More Employees

The Department of Labor issued a final rule on Tuesday, April 23, that drastically expands the number of salaried employees who qualify for overtime pay.

The rule will go into effect on July 1 and will increase the minimum annual salary threshold at which workers are exempt from overtime pay requirements from $35,568 to $43,888. On Jan. 1, 2025, that threshold will rise to $58,656, and further threshold increases will occur every three years beginning in 2027. Employees who qualify for overtime pay must receive at least 1.5 percent pay for any hours worked more than 40 for a week.

The rule has been opposed by many business groups and trade associations, who have warned that it would increase the already rising cost of labor and put the economy at risk. “This is deeply troubling, particularly amidst rampant inflation and the looming threat of recession,” Lauren Williams, associate vice president of government relations at the National Association of Wholesaler-Distributors (NAW), said in a statement. “Distributors have spent recent years adapting operations and personnel management to meet evolving workforce needs post-pandemic, the DOL’s rule would add new regulatory burdens and compliance costs to an industry already grappling with workforce shortages and excessive regulations.

“Increasing the minimum salary threshold by at least 65 percent will stifle employee growth opportunities, diminish workplace autonomy and limit flexibility,” she continued.

Williams noted that courts have previously struck down similar rules because the Department of Labor cannot impose a salary-level test that undermines the prescribed duties test, which exempts employees from overtime pay if their job involves executive, administrative or professional duties. NAW said it would exhaust all avenues, including legal resources, to prevent the updated overtime rule from being enforced.