How the dismantling of the Chevron deference doctrine could impact the direct selling channel and its interactions with the Federal Trade Commission
In 1984, the US Supreme Court established a precedent: when faced with ambiguity, courts should defer to the government agency with the most expertise. The original lawsuit Chevron USA, Inc. v. Natural Resources Defense Council, known simply as the Chevron deference doctrine or the Chevron doctrine, has been a template followed by the courts for more than four decades.
Chevron’s original intention was to strengthen rulemaking by empowering agency experts to write regulations a court might not be well-versed in and to implement laws passed by Congress. Proponents of the Chevron doctrine believe federal agencies have been tasked with protecting public health, safety and the environment, and that the power to interpret the laws they are responsible for carrying out should reside with them.
Over the years, however, critics of the Chevron doctrine have pushed back against its validity, saying it granted government agencies unchecked rulemaking power. They believe that what was intended to be a limited exception or last-resort solution has turned into a license with plenary power.
The Chevron Deference Doctrine’s Origin Story
In the 1970s, Congress required states to reduce air pollution from power plants. At the time, the Environmental Protection Agency (EPA) treated power plants like a single unit, regardless of how many smokestacks they had. Power plants were free to add more smokestacks without upgraded pollution controls as long as their total emissions didn’t increase.
The Natural Resources Defense Council (NRDC) sued oil and gas refining company Chevron, disagreeing with the EPA’s interpretation of the Clean Air Act. Initially the case was a simple argument about the interpretation of a statute, but quickly evolved into a conversation about the separation of powers. The resulting decision stated that when the law isn’t clear, the administrative agencies get to decide.
Chevron Overruled
The Federal Trade Commission’s (FTC) authority is a passionate subject for Amber Olson Rourke, Neora Founder and President, whose company endured seven years of litigation with the agency.
As she explained, “In the Chevron case, it basically said that in circumstances where the law or rule might not be clear, the agency can use their discretion. This tiny opening has expanded where today agencies are making their own rules without going through the rulemaking process.”
Neora ultimately won their case and their business model remained unchanged, but the emotional impact and $20 million price tag for the lengthy court battle was not insignificant.
“The FTC basically decided they wanted to change the rules but didn’t want to go through the formal rulemaking process,” Rourke said. “And it would likely not have happened if the Chevron case had been overturned like it is now.”
In June of this year, the precedent-setting Chevron decision was reversed. In Loper Bright Enterprises, et al. v. Raimondo, Secretary of Commerce, et al., the Supreme Court ruled that it is the court’s responsibility to make sure an agency is doing what Congress allows it to do without overstepping its authority. Even if a law is unclear, the court will no longer have to automatically defer and agree with an agency’s interpretation.
This appears to weaken the rulemaking authority of the FTC and other government agencies.
“The true impact of Loper Bright will be defined through years of litigation and legislation, as the courts, agencies and Congress wrestle with its implications,” said Katrina Eash, Partner at the Winston & Strawn law firm. “Direct sellers, however, are already beginning to see some impact. In a recent decision preliminarily enjoining the effective date of the FTC’s new non-compete rule as to a subset of plaintiffs, the court cited Loper Bright for the proposition that a court interpreting a statute must give effect to legislative intent. Among other things, the court ultimately held that ‘the text, structure and history of the FTC Act reveal that the FTC lacks substantive rulemaking authority with respect to unfair methods of competition.’ This is just one example of the far-reaching implications of Loper Bright and how it is expected to impact direct sellers for years to come.”
Compliance Remains Critical
How the reversal of Chevron will affect the direct selling channel in practical ways, according to legal experts, remains to be seen, but the impact of the ruling will undoubtedly impact future legal actions taken by the FTC and similar government agencies.
“The end of Chevron is very, very significant for the direct selling channel,” said Brent Kugler, Partner at the Scheef and Stone law firm. “For decades, the direct selling channel has been at the mercy of FTC staff interpretations of the FTC Act, many of which are contrary to established case precedent and clear and unambiguous statutory language. This has caused companies to devote significant resources attempting to comply with the FTC’s ever-evolving administrative interpretations.”
Direct selling executives who are weary of the heightened regulatory pressures experienced in recent years may be breathing a sigh of relief, but the reality is that, in many ways, nothing has changed. Companies still need to live up to the tenets of integrity-filled compensation structures; promote product-first models; and abide by the rules of a robust internal compliance program. The difference will be the fervency with which the FTC chooses to pursue direct selling companies given the new legal landscape.
“The end of Chevron deference will make it more difficult for the FTC to publish regulations and rules or initiate enforcement actions based on unpublished or subjective enforcement criteria not grounded in settled law,” Kugler said. “The opportunity for companies to seek judicial review of administrative interpretations without Chevron deference may cause the FTC to pause before implementing regulatory initiatives that cannot withstand judicial scrutiny.”
From the September 2024 issue of Direct Selling News magazine.
