In June 2019, a unanimous Supreme Court in Kisor v. Wilkie retained but limited the scope of Auer deference – the court-created doctrine that courts should defer to an agency’s interpretation of its own regulations or other pronouncements. In summary, the Court clarified that judicial deference should only be afforded to an agency’s interpretation of its own regulations if (1) the regulation is genuinely ambiguous, even after exhausting the traditional tools of construction; (2) the agency’s interpretation is reasonable; and (3) the character and context of the interpretation suggests it should be given controlling weight by the courts.
Auer deference is similar to but distinct from the more well-known Chevron doctrine, which governs judicial deference to agency interpretations of statutes that Congress delegated to that agency to administer.
In Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc. (1984), as modified by US v. Mead Corporation (2001), the Court outlined a (much discussed and debated) multi-step process in the case of agency interpretations of federal legislation. In determining whether to defer to such an interpretation, a federal court is to determine:
- Whether Congress intended for agencies or courts to possess interpretive authority over the statute in question (Chevron “step zero”);
- If the agency has that authority, whether Congress expressed intent in the statute and, if so, whether the statute's meaning is ambiguous (Chevron “step one”). If the intent of Congress is unclear, or if the statute lacks direct language on a specific point, the court must decide whether the agency’s interpretation is based on a permissible construction of the statute—one that is not arbitrary or capricious or obviously contrary to the statute; and
- If the agency’s interpretation of the ambiguous statute is reasonable, whether the decision of Congress to leave an ambiguity or its failure to include express language on a specific point, was done explicitly or implicitly (Chevron “step two”).
- If done explicitly, the agency’s regulations are binding on federal courts unless those regulations are arbitrary, capricious, or manifestly contrary to statute.
- If done implicitly, a court still must defer to the agency's reasonable construction.
In contrast, in Auer v. Robbins (1997), the Court expressed an even more deferential approach to an agency’s interpretation of its own regulations, asking only:
- Whether the regulation is ambiguous, and
- If so, whether the agency interpretation is plainly erroneous or inconsistent with the regulation.
Kisor v. Wilkie
While the Court in Kisor declined to abandon Auer deference, it set out four limitations on the application of that doctrine, which modify the articulated Auer factors as they have been applied over time and import Chevron principles into the analysis. As stated in the opinion of the Court (citations omitted):
- “[A] court should not afford Auer deference unless the regulation is genuinely ambiguous.” In this particular case, the Court found that the court must do more than find the regulation ambiguous simply because both parties made sensible arguments that the plain language of the regulation supported their respective positions.
- “[B]efore concluding that a rule is generally ambiguous, a court must exhaust all the ‘traditional tools’ of construction.” If a court can determine the meaning of a regulation as a legal matter, then deference to the agency’s policy judgment is not required.
- “If a genuine ambiguity remains, moreover, the agency’s reading must still be ‘reasonable.’” That is, “[u]nder Auer as under Chevron, the agency’s reading must ‘fall within the bounds of reasonable interpretation.’”
- “[A] court must make an independent inquiry into whether the character and context of the agency interpretation entitles it to controlling weight.” The opinion identified several important “markers” on this point that courts should consider.
- “To begin with, the regulatory interpretation must be one actually made by the agency. In other words, it must be the agency’s ‘authoritative’ or ‘official’ position, rather than a more ad hoc statement not reflecting the agency’s views.” This marker distinguishes interpretations involving senior agency officials, from those offered by more junior officials or administrative law judges.
- “Next, the agency’s interpretation must in some way implicate its substantive expertise.” That is, “the basis for deference ebbs when ‘[t]he subject matter of the [dispute is] distan[t] from the agency’s ordinary’ duties or ‘fall[s] within the scope of another agency’s authority.’”
- “Finally, an agency’s reading of a rule must reflect the ‘fair and considered judgment’ of the agency. That means … that a court should decline to defer to a merely ‘convenient litigating position’ or ‘post hoc rationalizatio[n] advanced’ to ‘defend past agency action against attack.’ And a court may not defer to a new interpretation, whether or not introduced in litigation, that creates ‘unfair surprise’ to regulated parties.”
In this particular case, the Court questioned whether a non-precedential decision of an agency hearing board was “of the sort that Congress would want to receive deference.”
Potential implications for employee benefits litigation
At the outset, we note that agency regulations and sub-regulatory guidance are widely cited in employee benefit opinions (in both private and agency litigation) with at most a perfunctory nod to Auer, Chevron or similar authority. The Court is referring to these authorities because it finds them helpful in framing or persuasive in resolving the dispute between the parties. This is not the use of agency interpretations that Auer and Chevron are fundamentally about; it is at most the Skidmore1 deference (if it is deference at all) that Justice Gorsuch argued for in his Auer concurring opinion, where a court conducts its own independent analysis of the issue and follows the agency interpretation to the extent it is persuasive. This sort of reliance on agency guidance is both conventional and uncontroversial.
Auer and Chevron are substantially concerned with agency litigation where the agency asserts that its interpretation of a legal matter is conclusive and displaces the usual constitutional role of the courts to say what the law is. That is, the agency is administering the law, writing the guidance, and enforcing the law – its constitutional roles – and then in litigation claims authority to do so without independent judicial review. For the private litigant that disagrees with the agency interpretation, any such deference creates a drastically tilted playing field. Accordingly, the deference doctrines reflect a complex balancing of agency efficiency and expertise against separation of powers and due process concerns, while also taking into account legislative delegation. In state and local tax, for example, a few states have found such deference so concerning that they have abandoned the doctrine altogether.
The circumstances in which Auer deference might be invoked do not often arise in ERISA litigation, as the majority of routine benefits litigation instead implicates the deference due to decisions of the responsible plan fiduciary—e.g., to determine benefit claims or interpret the plan document—and not the Department of Labor (DOL). A classic case for application of Auer deference might arise if DOL brought suit for, say, the legal efficacy of a qualified default investment alternative (QDIA) that turns on the authority and import of DOL’s 2008 Field Assistance Bulletin interpreting the QDIA regulation. These sorts of disputes are routinely resolved short of litigation.
DOL enforcement matters that reach litigation tend to involve principles-based disputes under the ERISA fiduciary standards, for which there is limited granular regulation much less sub-regulatory guidance. Indeed, the volume of sub-regulatory ERISA interpretations generated by DOL is quite small compared to other agencies, which limits the predicate for application of Auer deference. And at least after Kisor, it seems clear that the agency’s sub-regulatory position must be announced in advance of the litigation to be entitled to deference; there is no room for an agency to claim deference for an interpretive position first taken in the instant litigation.
In contrast, there has been a recent and consequential example of the application of the Chevron doctrine in employee benefits litigation – the recent litigation over the validity of DOL’s (now vacated) “investment advice fiduciary” regulation and related exemptions – and there seems to be greater opportunity for Chevron deference questions to arise in future cases than Auer deference questions. If there is ever litigation over ERISA § 408(b)(2) disclosures, for example, Chevron deference might come into play over the validity of the regulation requiring those disclosures. To take another example, if DOL were to bring a case over proxy voting or economically targeted investments, it might claim Chevron deference in of respect of its pronouncements on those issues over the years (although the dueling positions taken by DOL in succeeding Presidential Administrations on those issues might undercut that claim).
While Kisor does not deal with Chevron deference expressly, as the Justices made clear, its commentary on Chevron principles surely is suggestive of the Court’s possible views about the application of this doctrine in future cases. That commentary is far more consonant with the probing approach the Fifth Circuit took to deference in its decision on the fiduciary rule,2 as distinguished from the more superficial approach taken by, e.g., the Tenth Circuit3 which upheld the regulation functionally on the basis that DOL had:
- Observed the procedural requirements of the Administrative Procedure Act, and
- Crafted a credible preamble for its rulemaking.
In light of Kisor, it seems highly doubtful that the Supreme Court would consider an opinion as brief as the Tenth Circuit’s Market Synergy Group decision to have applied the necessary rigor to the analysis of whether deference should be granted to an agency’s statutory interpretation. Circuit cases applying Chevron deference after such an abbreviated analysis may be subject to reevaluation in light of Kisor. In addition, in developing any new guidance on the meaning of “investment advice fiduciary,” DOL will need to be mindful not only of the limits of that statutory term as intended by Congress, which the Fifth Circuit delineated, but also of the Kisor admonitions on the limits of DOL’s own authority to make law, particularly outside of its core expertise and on practices in the primary authority of other regulators.