Many of the rules lawyers use in interpreting government regulations come from court cases. In this section, we will look at some of the biggest regulation cases from the Supreme Court to answer two questions. First, when are courts supposed to defer to an agency’s rules? Second, what kinds of agency actions send up red flags that mean a court should step in to stop an agency’s rules?
In 1977, Congress passed a new law requiring any source of air pollution—power plants, oil refineries, etc.—to get a permit from the Environmental Protection Agency (EPA) every time there was an equipment upgrade. In 1981, the EPA interpreted the law to mean that a change in a plant’s pollution-emitting equipment did not require the whole plant to get a new permit so long as the plant did not produce more overall pollution. The National Resources Defense Council, an environmental lobbying group, opposed the new rule, while a group of companies led by oil company Chevron supported it.
Justice John Paul Stevens wrote:
When a court reviews an agency's construction of the statute which it administers, it is confronted with two questions. First, always, is the question whether Congress has directly spoken to the precise question at issue. If the intent of Congress is clear, that is the end of the matter; for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress. If, however, the court determines Congress has not directly addressed the precise question at issue, the court does not simply impose its own construction on the statute, as would be necessary in the absence of an administrative interpretation. Rather, if the statute is silent or ambiguous with respect to the specific issue, the question for the court is whether the agency's answer is based on a permissible construction of the statute . . . .
If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute. Sometimes the legislative delegation to an agency on a particular question is implicit, rather than explicit. In such a case, a court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.
Chevron is the most famous Supreme Court administrative law case; it has been mentioned in over 4,000 federal court cases. It sets out the two questions a court must ask when it must decide whether to defer to an agency’s interpretations of a federal law through rules. First, did Congress make its law ambiguous or unclear? If it did, courts will assume that Congress intentionally left the interpretation of its law to an agency. Second, is the agency’s interpretation of the law consistent with that law? If it is, courts will defer to the agency’s interpretation of the law rather than second-guess it. In Chevron, the Supreme Court found that the EPA’s rule on pollution permits was a reasonable interpretation of Congress’ law.
In two recent cases, the Supreme Court was trying to determine just how far Chevron should go. Should a court defer to every rule an agency writes, or should there be some kinds of rules it will not defer to? Both cases involved the same subject: pay for police officers under a law called the Fair Labor Standards Act of 1938 (FLSA), which regulates how public employees are to be paid for overtime and time off.
In the first case, Auer v. Robbins, the Department of Labor enacted a rule that certain kinds of executive and administrative employees are not eligible for overtime pay if they are paid a salary instead of a wage based on the quality or quantity of work. A group of police sergeants and a police lieutenant claimed that this rule was being wrongly applied to them by their department—since their salaries could be reduced, they were not salaried employees, and were entitled to overtime. In its legal, the Department of Labor told the Court that it believed the rule on overtime pay was being correctly applied. The Supreme Court sided with the Labor Department’s interpretation. Justice Antonin Scalia wrote:
Because Congress has not “directly spoken to the precise question at issue,” we must sustain the Secretary's approach so long as it is “based on a permissible construction of the statute.” While respondents’ objections would perhaps support a different application of the salary-basis test for public employees, we cannot conclude that they compel it. The Secretary’s view that public employers are not so differently situated with regard to disciplining their employees as to require wholesale revision of his time-tested rule simply cannot be said to be unreasonable. . . .
Petitioners complain that the Secretary’s interpretation comes to us in the form of a legal brief; but that does not, in the circumstances of this case, make it unworthy of deference. . . . There is simply no reason to suspect that the interpretation does not reflect the agency’s fair and considered judgment on the matter in question. . . . A rule requiring the Secretary to construe his own regulations narrowly would make little sense, since he is free to write the regulations as broadly as he wishes, subject only to the limits imposed by the statute.
Auer is a clear application of the Chevron rule requiring deference, even though here, the agency did not adopt its interpretation of a law through a regulation, but only through a court brief. But that wasn’t the end of the matter.
Three years later, in Christensen v. Harris County, the Supreme Court decided not to defer to an agency. This case, again, involved pay for police officers; this time, a group of sheriffs who challenged their department’s policy that capped the amount of vacation time the sheriffs could accumulate and required the sheriffs to take the extra time off or lose it. This was despite the fact that the department had written to the Department of Labor asking for advice about its overtime policy; the Department wrote an opinion letter saying the sheriff’s department could not apply the policy to vacation time already accumulated. The Supreme Court ruled for the sheriff’s department, and held that the Labor Department’s opinion letter did not require court deference. Justice Clarence Thomas wrote:
In an attempt to avoid the conclusion that the FLSA does not prohibit compelled use of compensatory time, petitioners and the United States contend that we should defer to the Department of Labor's opinion letter, which takes the position that an employer may compel the use of compensatory time only if the employee has agreed in advance to such a practice. Specifically, they argue that the agency opinion letter is entitled to deference under our decision in [Chevron]. . . . Here, however, we confront an interpretation contained in an opinion letter, not one arrived at after, for example, a formal adjudication or notice-and-comment rulemaking. Interpretations such as those in opinion letters—like interpretations contained in policy statements, agency manuals, and enforcement guidelines, all of which lack the force of law—do not warrant Chevron-style deference.
Seeking to overcome the regulation’s obvious meaning, the United States asserts that the agency’s opinion letter interpreting the regulation should be given deference under our decision in Auer, [where] we held that an agency’s interpretation of its own regulation is entitled to deference. But Auer deference is warranted only when the language of the regulation is ambiguous. The regulation in this case, however, is not ambiguous—it is plainly permissive. To defer to the agency’s position would be to permit the agency, under the guise of interpreting a regulation, to create de facto a new regulation.
Christensen puts an important limit on Chevron deference. For an agency’s rules to get Chevron deference, they must be the result of notice-and-comment rulemaking or adjudications. Opinion letters, policy statements, agency manuals, and guidelines, basically, any agency document interpreting an agency’s own regulations, do not get Chevron deference. But a court may still find them persuasive.
Forty years before Chevron, the Supreme Court found that agency interpretations of laws were entitled to “respect,” so long as they agency put some care and effort into how it interpreted the laws. In another case under the Fair Labor Standards Act, a group of firefighters employed by a packing plant sued their employer for back pay, claiming that time they spent off-duty, but in a fire station on the plant’s grounds on call in case of fire, was time they should be paid for. A government official—the Administrator of the Department of Labor’s Wage and Hour Division—wrote to the Court that it was his opinion, based on many other cases, that the firefighters should be paid for time on-call except when they were eating or sleeping. The Supreme Court found the Administrator’s reasoning persuasive. Justice Robert Jackson said:
The rulings of this Administrator are not reached as a result of hearing adversary proceedings in which he finds facts from evidence and reaches conclusions of law from findings of fact. They are not, of course, conclusive, even in the cases with which they directly deal, much less in those to which they apply only by analogy. They do not constitute an interpretation of the Act or a standard for judging factual situations which binds a district court's processes, as an authoritative pronouncement of a higher court might do. But the Administrator's policies are made in pursuance of official duty, based upon more specialized experience and broader investigations and information than is likely to come to a judge in a particular case. They do determine the policy which will guide applications for enforcement by injunction on behalf of the Government. Good administration of the Act and good judicial administration alike require that the standards of public enforcement and those for determining private rights shall be at variance only where justified by very good reasons.
We consider that the rulings, interpretations and opinions of the Administrator under this Act, while not controlling upon the courts by reason of their authority, do constitute a body of experience and informed judgment to which courts and litigants may properly resort for guidance. The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.
Skidmore respect is the counterpart to Chevron deference. A court can still find an agency’s rule worthy of respect—and application—if the agency has put in the effort to make a good rule. The court will ask if the agency relied on solid evidence, paid attention to public comments on the rule, and has been consistent in its application of the rule for a long period of time. The more effort the agency has put into a rule, the more likely a court will respect it. But if the agency has changed its rule recently, or done so without a good reason and in opposition to the evidence it has or the weight of public comments, the court will ask the agency to explain itself.
Just because an agency is interpreting a federal law does not mean that courts will automatically approve their interpretation. Gonzales v. Oregon is an example of where a government official—the Attorney General—got the rulemaking process wrong.
In 1994, the State of Oregon passed a law legalizing physician-assisted suicide, allowing physicians to prescribe lethal drugs to terminally ill patients at these patients’ informed request. However, the lethal drugs used for assisted suicide were regulated by a federal law, the Controlled Substances Act (CSA), which required any regulated drug to be prescribed only for legitimate medical use. The Attorney General has the power to make rules interpreting the CSA, but only based upon findings presented by another government agency, the Department of Health and Human Services (HHS). In 2001, the Attorney General issued a rule stating that assisted suicide is not a legitimate medical purpose, and that any physician who prescribed lethal drugs for assisted suicide could be prosecuted under the CSA, without any required findings by the HHS.
The Supreme Court struck down the rule, and sided with the State of Oregon. Justice Anthony Kennedy said:
Here . . . the underlying regulation does little more than restate the terms of the statute itself . . . The Government does not suggest that its interpretation turns on any difference between the statutory and regulatory language. . . . The regulation uses the terms “legitimate medical purpose” and “the course of professional practice,” but this just repeats two statutory phrases and attempts to summarize the others. It gives little or no instruction on a central issue in this case: Who decides whether a particular activity is in “the course of professional practice” or done for a “legitimate medical purpose”? Since the regulation gives no indication how to decide this issue, the Attorney General’s effort to decide it now cannot be considered an interpretation of the regulation. Simply put, the existence of a parroting regulation does not change the fact that the question here is not the meaning of the regulation but the meaning of the statute. An agency does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language. . . .
We need not decide whether Chevron deference would be warranted for an interpretation issued by the Attorney General concerning matters closer to his role under the CSA, namely, preventing doctors from engaging in illicit drug trafficking. . . however, the CSA does not give the Attorney General authority to issue the Interpretive Rule as a statement with the force of law.
If, in the course of exercising his authority, the Attorney General uses his analysis in the Interpretive Rule only for guidance in deciding when to prosecute or deregister, then the question remains whether his substantive interpretation is correct. Since the Interpretive Rule was not promulgated pursuant to the Attorney General’s authority, its interpretation of “legitimate medical purpose” does not receive Chevron deference. Instead, it receives deference only in accordance with Skidmore. . . . The deference here is tempered by the Attorney General’s lack of expertise in this area and the apparent absence of any consultation with anyone outside the Department of Justice who might aid in a reasoned judgment. In any event, under Skidmore, we follow an agency’s rule only to the extent it is persuasive, and . . . we do not find the Attorney General’s opinion persuasive.
The Interpretive Rule rests on a reading of the prescription requirement that is persuasive only to the extent one scrutinizes the provision without . . . the rest of the statute. Viewed in its context, the prescription requirement is better understood as a provision that ensures patients use controlled substances under the supervision of a doctor so as to prevent addiction and recreational abuse. As a corollary, the provision also bars doctors from peddling to patients who crave the drugs for those prohibited use. To read prescriptions for assisted suicide as constituting “drug abuse” under the CSA is discordant with the phrase’s consistent use throughout the statute, not to mention its ordinary meaning.
Gonzales is a checklist of how a government agency should not make a rule. First, in a rulemaking, a government agency does not get the power to make a rule interpreting federal law by just “parroting” the law; it has to explain why the laws it cites give it power to interpret. Second, if the law states that an agency must follow a certain procedure before making a rule, the agency must follow that procedure. Here, the Attorney General did not do that—he did not consult HHS for the findings the CSA required. The result: no Chevron deference. Third, the Attorney General made sure the regulation would not get Skidmore respect by making a sudden change in the rules, that would have a major impact on important rights, without hearing the evidence or consulting with experts. Finally, the rule was a stretch from what Congress had intended when it passed the law—it was trying to stop drug abuse, not assisted suicide. An agency that does any one of these things in rulemaking should be challenged in court. An agency that does them all in a rulemaking will have its rule struck down.
The reason that federal agencies exist, as a matter of constitutional law, is that Congress is delegating legislative power to them. But in a case during the New Deal, the Supreme Court reminded Congress and the President that there are limits to delegation. In Panama Refining Co. v. Ryan, the Supreme Court dealt with one of President Franklin Roosevelt’s New Deal laws—the National Industrial Recovery Act (NIRA)—and an executive order made under the law banning the shipment of “hot oil”—oil pumped from regulated wells in excess of federally-mandated limits. Chief Justice Charles Evans Hughes noted the dangers in what Congress and the President were doing:
The Congress did not undertake to say that the transportation of “hot oil” was injurious. The Congress did not say that transportation of that oil was “unfair competition.” The Congress did not declare in what circumstances that transportation should be forbidden, or require the President to make any determination as to any facts or circumstances. Among the numerous and diverse objectives broadly stated, the President was not required to choose. The President was not required to ascertain and proclaim the conditions prevailing in the industry which made the prohibition necessary. The Congress left the matter to the President without standard or rule, to be dealt with as he pleased. The effort by ingenious and diligent construction to supply a criterion still permits such a breadth of authorized action as essentially to commit to the President the functions of a legislature rather than those of an executive or administrative officer executing a declared legislative policy . . . . The question whether such a delegation of legislative power is permitted by the Constitution is not answered by the argument that it should be assumed that the President has acted, and will act, for what he believes to be the public good. The point is not one of motives but of constitutional authority.
. . . .
[I]n every case in which the question has been raised, the Court has recognized that there are limits of delegation which there is no constitutional authority to transcend. We think that [this law] goes beyond those limits . . . [t]he Congress has declared no policy, has established no standard, has laid down no rule. There is no requirement, no definition of circumstances and conditions in which the transportation is to be allowed or prohibited. . . . If [the law] were held valid, it would be idle to pretend that anything would be left of limitations upon the power of the Congress to delegate its law-making function . . . . Instead of performing its law-making function, the Congress could at will and as to such subjects as it chose transfer that function to the President or other officer or to an administrative body. The question is not of the intrinsic importance of the particular statute before us, but of the constitutional processes of legislation which are an essential part of our system of government. 
So while Congress may create agencies, including agencies which operate under the authority of the President, and delegate legislative powers to them, that does not mean Congress has a blank check. Congress must at least set a policy that the agency is expected to further, establish standards and practices for that agency, and tell the agency what it may and may not prohibit. In short, any delegation of Congressional power to an agency must be specific, not general.
Another important restriction on the power of federal agencies is the common-sense idea that an agency cannot delegate itself authority to regulate by passing new regulations, particularly if Congress has enacted statutes that go against what the agency wants to do. In one controversial case, the Food and Drug Administration (FDA) tried to regulate tobacco products as “drugs” and cigarettes as a “device” within the meaning of the statute that created the FDA, the Food, Drug, and Cosmetic Act (FDCA). In an opinion by Justice Sandra Day O’Connor, the Supreme Court refused to allow this.
The FDCA’s misbranding and device classification provisions therefore make evident that were the FDA to regulate cigarettes and smokeless tobacco, the Act would require the agency to ban them. In fact, based on these provisions, the FDA itself has previously taken the position that if tobacco products were within its jurisdiction, “they would have to be removed from the market because it would be impossible to prove they were safe for their intended use. . . .” Congress, however, has foreclosed the removal of tobacco products from the market. . . . More importantly, Congress has directly addressed the problem of tobacco and health through legislation on six occasions since 1965. When Congress enacted these statutes, the adverse health consequences of tobacco use were well known. . . . Nonetheless, Congress stopped well short of ordering a ban. Instead, it has generally regulated the labeling and advertisement of tobacco products. . . . Congress’ decisions to regulate labeling and advertising and to adopt the express policy of protecting commerce and the national economy . . . reveal its intent that tobacco products remain on the market. Indeed, the collective premise of these statutes is that cigarettes and smokeless tobacco will continue to be sold in the United States. A ban of tobacco products by the FDA would therefore plainly contradict congressional policy.
In cases about the power of agencies to regulate new areas, courts will not only look at an agency’s authorizing statute, but at any other statute on that area Congress has passed. If the two conflict, courts will always apply Congress’s laws over the agency’s rules. (As it turns out, Congress would later give the FDA explicit power to regulate tobacco products in the Family Smoking Prevention and Tobacco Control Act of 2009, enacted with President Obama’s signature.)
Most regulations written by federal agencies use the notice-and-comment rulemaking process. But if Congress requires an agency to hold a formal hearing before making a rule, the agency must do so. In a case brought by the now-defunct Interstate Commerce Commission about railroad freight shipping rates, then-Justice William Rehnquist found that the phrase “on the record” was the signal to look for.
We recognized . . . that the actual words “on the record” and “after . . . hearing” used in § 553 were not words of art, and that other statutory language having the same meaning could trigger [other APA provisions] in rulemaking proceedings. But we adhere to our conclusion, expressed in that case, that the phrase “after hearing” in [the statute] does not have such an effect.
Similarly, even where the statute requires that the rulemaking procedure take place “on the record after opportunity for an agency hearing,” . . . the Act makes it plain that a specific statutory mandate that the proceedings take place on the record after hearing may be satisfied in some circumstances by evidentiary submission in written form only.
We think this treatment of the term “hearing” in the Administrative Procedure Act affords a sufficient basis for concluding that the requirement of a “hearing” . . . , in a situation where the Commission was acting under the 1966 statutory rulemaking authority that Congress had conferred upon it, did not by its own force require the Commission either to hear oral testimony, to permit cross-examination of Commission witnesses, or to hear oral argument. Here . . . the parties had fair notice of exactly what the Commission proposed to do, and were given an opportunity to comment, to object, or to make some other form of written submission . . . Given the “open-ended” nature of the proceedings, and the Commission’s announced willingness to consider proposals for modification after operating experience had been acquired, we think the hearing requirement . . . of the Act was met.
The phrase “on the record” is a rare legal phrase that demands a specific result: a formal hearing. Without that phrase, no matter how close Congress gets, an agency can decide to enact a rule however it wants. Because formal rulemaking is time-consuming and expensive, agencies only use it if Congress explicitly tells them to in a statute.
In many cases, Congress will tell an agency to do something without giving it clear standards on how exactly to do it. In one such case, Congress passed a statute giving the Department of the Interior’s Bureau of Indian Affairs (BIA) broad powers to control the distribution of money that Congress appropriated for the care and assistance of Native Americans. The Secretary of the Interior, in a rule, limited this assistance to Native Americans who lived on reservations. When this rule was challenged, the Supreme Court upheld it. Justice Harry Blackmun wrote:
Having found that the congressional appropriation was intended to cover welfare services at least to those Indians residing “on or near” the reservation, it does not necessarily follow that the Secretary is without power to create reasonable classifications and eligibility requirements in order to allocate the limited funds available to him for this purpose. Thus, if there were only enough funds appropriated to provide meaningfully for 10,000 needy Indian beneficiaries and the entire class of eligible beneficiaries numbered 20,000, it would be incumbent upon the BIA to develop an eligibility standard to deal with this problem, and the standard, if rational and proper, might leave some of the class otherwise encompassed by the appropriation without benefits. But in such a case the agency must, at a minimum, let the standard be generally known so as to assure that it is being applied consistently and so as to avoid both the reality and the appearance of arbitrary denial of benefits to potential beneficiaries.
Assuming . . . that the Secretary rationally could limit the “on or near” appropriation to include only the smaller class of Indians who lived directly “on” the reservation . . . the question that remains is whether this has been validly accomplished. The power of an administrative agency to administer a congressionally created and funded program necessarily requires the formulation of policy and the making of rules to fill any gap left, implicitly or explicitly, by Congress. In the area of Indian affairs, the Executive has long been empowered to promulgate rules and policies, and the power has been given explicitly to the Secretary and his delegates at the BIA. This agency power to make rules that affect substantial individual rights and obligations carries with it the responsibility not only to remain consistent with the governing legislation. No matter how rational or consistent with congressional intent a particular decision might be, the determination of eligibility cannot be made on an ad hoc basis by the dispenser of the funds.
This decision highlights another constraint on agencies. When an agency makes a rule implementing a law, particularly when that law involves giving someone public money or other benefits, the agency is expected to have a defined system of rules in place for agency employees to rely on that is consistent with what Congress would have wanted. If the standards are undefined or applied differently to people in the same kind of situation, or if the standards the agencies use lead to results Congress would not have intended, courts will have a reason to force the agency to come up with another, more fair rule.
Motor Vehicle Manufacturers Association of the United States Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29 (1983)
While courts give federal agencies lots of latitude in what rules they make and what evidence they rely on in making those rules, there are limits to how far courts will allow agencies to go without a solid reason for their decisions. When the agency does not do this, as Justice Byron White wrote in a case involving the Department of Transportation’s relaxation of automobile safety standards, courts will take a hard look at the agency’s decisions.
The Department of Transportation accepts the applicability of the “arbitrary and capricious” standard. It argues that under this standard, a reviewing court may not set aside an agency rule that is rational, based on consideration of the relevant factors, and within the scope of the authority delegated to the agency by the statute. We [agree]. The scope of review under the “arbitrary and capricious” standard is narrow and a court is not to substitute its judgment for that of the agency. Nevertheless, the agency must examine the relevant data and articulate a satisfactory explanation for its action including a rational connection between the facts found and the choice made. In reviewing that explanation, we must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. The reviewing court should not attempt itself to make up for such deficiencies; we may not supply a reasoned basis for the agency's action that the agency itself has not given. We will, however, uphold a decision of less than ideal clarity if the agency’s path may reasonably be discerned. For purposes of these cases, it is also relevant that Congress required a record of the rulemaking proceedings to be compiled and submitted to a reviewing court, and intended that agency findings under the Act would be supported by substantial evidence on the record considered as a whole.
An agency’s view of what is in the public interest may change, either with or without a change in circumstances. But an agency changing its course must supply a reasoned analysis . . . .
This standard is known in administrative law as “hard look” review. Section 706(2)(A) of the APA allows courts to review agency rules and actions that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.” A court giving a rule a “hard look” will ask if the agency based its decision on the “relevant” factors that Congress told it to consider by law, and if the agency did not, why it did not. And if the agency considered those relevant factors, the court will also ask if the agency made some error in judgment or if the logic behind its rule was flawed. This is especially important in cases where, as here, an agency is amending or repealing an important rule.
 Chevron U.S.A. Inc. v. Natural Resources Defense Council, 487 U.S. 837, 842–44 (1984) (citations omitted).
 Andrew F. Popper and Gwendolyn R. McKee, Administrative Law: A Contemporary Approach 141 (1st ed. 2009).
 Auer v. Robbins, 519 U.S. 452, 457–58, 462–63 (1997) (citations omitted).
 Christensen v. Harris County, 529 U.S. 576, 586–89 (2000) (citations omitted).
 Skidmore v. Swift & Co. 323 U.S. 134, 139–40 (1944).
 Gonzales v. Oregon, 546 U.S. 243, 257, 268–69, 274 (2006) (citations omitted).
 Panama Refining Co. v. Ryan, 293 U.S. 388, 418–20, 430 (1935) (citations omitted).
 FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 137–39 (2000) (citations omitted).
 United States v. Florida East Coast Railway, 410 U.S. 224, 237–38, 241–42 (1973) (citations and internal quotation marks omitted).
 Morton v. Ruiz, 415 U.S. 199, 230–32 (1974) (citations and internal quotation marks omitted).
 Motor Vehicle Manufacturers Association of the United States Inc. v. State Farm Mutual Automobile Insurance Co., 463 U.S. 29, 42–44, 57 (1983) (citations and internal quotation marks omitted).