How recent changes in administrative law…

Few legal developments sound less soporific than ​“changes in federal regulatory authority.” But don’t mistake dullness for lack of impact: A pair of recent Supreme Court decisions are likely to have the biggest impact on labor law in decades.

This sea change consists of two parts. Many readers will already be familiar with the groundbreaking Runner Bright Enterprises, Inc. v. Raimondo decision, which overturned the long-standing decision of the Court ​“Chevron “respect” doctrine. Chevron
required courts to give special regard to the interpretation of applicable law by a federal administrative agency within its enforcement jurisdiction on the theory that an agency specializing in, say, environmental regulation has special expertise in the environmental laws it enforces. That rule is gone: now the agency may be right, but so may any other litigant who challenges it.

The real ​““sleeper” is actually the combined effect of Runner and another decision, SEC vs Jarkesyissued by the court just before Runner. In Jarkesythe Supreme Court held that when the Securities and Exchange Commission (SEC) seeks civil penalties against a defendant in a securities enforcement action, the Seventh Amendment gives a defendant the right to a jury trial: he must bring the case in a federal court rather than before administrative law judges in the SEC’s internal forum. Although Jarskey While the statute’s reasoning on its face applies only to the SEC and the specific enforcement proceeding at issue in that case, there is no real reason why its reasoning would not apply to an administrative proceeding before a federal agency with the authority to impose fines.

In fact, Jarskey strongly resembles the recent decision of the Court in Starbucks vs. McKinneyin which the Supreme Court held that the National Labor Relations Board (NLRB) must be subject to the same test as other parties when seeking a preliminary injunction, as opposed to a more lenient test that appeared biased in favor of an agency simply because it was the enforcer.

Think about it: First, federal agencies’ opinions about the meaning of the law are not entitled to special consideration (Runner); and second, federal agencies must fight it out in court rather than in their own quasi-courts, which provide fewer procedural safeguards to the party against whom enforcement is sought (Jarskey). Runner Clear, JarkesyAnd McKinney are all indicative of a major trend that ultimately benefits employers, rather than the employment agencies that are so often seen as their opponents in all but name.

Here’s why it matters to employers. Administrative lawsuits are common in employment law. The kinds of safeguards that employers can use in real lawsuits—discovery, evidentiary rules, the right to appeal, the list goes on—are severely limited, if not absent, in administrative courts. If the Supreme Court were to rule on the logic of Runner And Jarskey to administrative agencies in general, including the EEOC, NLRB, OSHA, and DOL, to name a few, we find ourselves in an entirely new landscape, one that not only offers employers a fairer opportunity to fight in actual litigation, but also to argue persuasively for interpretations of the applicable law that are less likely to be rejected simply because a federal agency disagrees.

What happened in SEC vs Jarkesy?

In 2013, the SEC filed an administrative action against hedge fund manager George Jarkesy and his firm Patriot28. The administrative law judge found that Jarkesy had violated the anti-fraud provisions of the federal securities laws. After Jarkesy appealed, the SEC ordered Jarkesy to pay a $300,000 civil penalty, in addition to other equitable relief. Jarkesy and his firm appealed to the Fifth Circuit, which ruled in their favor. The Fifth Circuit found that the use of administrative law judges violated Jarkesy’s right to a jury trial. The SEC petitioned the Supreme Court to review the Fifth Circuit’s decision, and the court granted certiorari.

The Supreme Court agreed with the Fifth Circuit, holding that the use of administrative procedure where civil penalties were at stake was unconstitutional. The Court’s reasoning was rooted in the Seventh Amendment’s guarantee of the right to a jury trial in common law actions, including claims in which a party seeks monetary relief designed to punish or deter conduct. The Court also concluded that the SEC’s antifraud provisions replicate common law fraud claims. In JarskeyThe SEC sought civil penalties for alleged fraud, which jeopardized the Seventh Amendment right to a jury trial. The Court also reasoned that the ​““public rights” exception does not apply, which is an exception that allows Congress to assign the case to an agency without a jury. Since the SEC fraud claim and civil penalties fell within the scope of the Seventh Amendment, the defendant, and now defendants in the future, are entitled to a jury trial as opposed to proceedings before an internal administrative law judge

What should employers do in the future?

At the moment the impact of Jarkesy
combined with Runner Clear remains to be seen. However, with the internal administrative procedures under scrutiny, employers should pay attention to future cases involving challenges to federal labor and employment law agencies, particularly those challenging administrative procedures. Since federal labor and employment law includes administrative procedures before agencies such as the NLRB and OSHA, future decisions limiting the use of those procedures would change the landscape of labor and employment law, which would benefit employers.

For questions and guidance on the impact of Jarkesy or administrative proceedings under federal labor law, please contact a member of Kelley Drye’s Labor and Employment team.