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Response to Prof. Aaron Nielson on 'Auer Deference'

As I’ve discussed before, there is a robust ongoing debate over the propriety of Article III courts giving binding respect to a regulatory agency’s interpretations of its own rules, a practice known as Auer or Seminole Rock deference, after the Supreme Court opinions that gave rise to the doctrine.

Over at Notice & Comment, in a thought-provoking post based on a forthcoming paper, Prof. Aaron Nielson argues that critics of Auer should beware what they ask for:

In a forthcoming article, Beyond Seminole Rock, I offer a take on Seminole Rock [a.k.a. Auer] that should give pause to skeptics of the administrative state. In particular, without [Auer], agencies might stop promulgating as many regulations, and instead begin conducting more adjudications. That would be worse, not better, for regulated parties.

To understand why, it is necessary to appreciate another aspect of administrative law. The Supreme Court’s decision in SEC v. Chenery (1947) (Chenery II) holds that an agency generally has discretion whether to engage in prospective rulemaking or instead to simply enforce the statute itself in a retroactive adjudication …

[I]f the Supreme Court were to overrule [Auer], what would happen? The intended consequence would be clearer regulations, as agencies would have one less reason to promulgate ambiguous rules. But isn’t there also an unintended consequence lurking in the background? Might agencies not promulgate clearer regulations, but instead promulgate fewer regulations? In particular, if [Auer] were gone, agencies might respond at the margins by retreating from rulemaking in favor of their power under Chenery II to enforce the statutes they administer through retroactive adjudication…

Allow me to recap Prof. Nielson’s argument. There are two primary ways an agency can make policy. The first is by promulgating rules, and this rulemaking procedure mirrors the legislative process. In a nutshell, an agency proposes an idea, takes public comment on the idea, and then shapes a final rule based on the public’s input. The second manner in which agencies make policy is by administrative adjudications, which render policy in a case-by-case fashion that mirrors the manufacture of common law by state courts. In a landmark 1947 ruling, SEC v. Chenery, the Supreme Court held that agencies are free to enact policy by either legislative rulemaking or administrative adjudication. Prof. Nielson warns that the “Chenery II principle” might lead administration agencies to eschew rulemakings in favor of administrative adjudication, if the Supreme Court or Congress were to repeal Auer. He argues such a shift would be a bad thing. According to Prof. Nielson,

Almost by definition, even an ambiguous regulation provides more notice of someone’s legal duties than the statute that the regulation implements. It could not be otherwise. If the regulation covers more policy “space” than the underlying statute, the regulation is ultra vires, and if the regulation covers the same “space,” there is no Seminole Rock deference anyway because of the anti-parroting principle. The upshot, as Jason Marisam has explained, is that “regulations are typically narrower than enabling statutes.” Thus, if agencies shift away from rulemaking in favor of adjudication, regulated parties will receive even less notice of their legal obligations than they do now. At the same time, making policy through adjudication is problematic because it generally involves less public participation.

Prof. Nielson’s research is an important contribution to the debate over Auer. It provides the sort of high order thinking that is crucial to the contemplation of any doctrinal reform. Many observers, myself included, are keen on overhauling Auer deference, and it is imperative that we think through the ramifications of what we propose, lest our ideas do more harm than good.

And upon reflection, I’ve reason to doubt the threat of unintended consequences attendant to reforming Auer. There are a number of factors that influence an agency’s decision whether to make policy by rulemaking or adjudication. This multifaceted incentive structure is not lost on Prof. Nielson. As he explains,

To meaningfully predict what a post-[Auer] world would look like, “we need to know an agency’s ‘cross-elasticity of demand’ between rulemaking and adjudication, and have a good sense for how that cross-elasticity would change if [Auer] (which makes rulemaking relatively more attractive) were no longer part of the equation.”

For my part, I believe that the “cross-elasticity of demand” between rulemaking and adjudication is low, such that reforming Auer would not precipitate fewer notice and comment rules relative to adjudicative policymaking.

For starters, an agency’s institutional history cannot be discounted. Some agencies, like the National Labor Relations Board, have been rendering policy through adjudication for 80 years. That’s not going to change, regardless whether Auer is altered. Other agencies, like the Environmental Protection Agency, are statutorily required to make policy by rulemaking. And where an agency historically has promulgated policy via rulemaking, a shift to adjudicative policymaking could not happen without a major reshuffling of resources. That is, inertia works against the idea that reforming Auer would lead to unintended consequences.

More to the point, there are empirical reasons to think that the “cross-elasticity of demand” between rulemaking and adjudication is low. Some courts, including the D.C. Circuit, grant controlling deference to agency interpretations of administrative orders and adjudications. See Hapner v. Tidwell, 621 F.3d 1239, 1251 (9th Cir. 2010) (granting Auer deference to U.S. Forest Service interpretation of a forest management plan); Ry. Labor Executives’ Ass’n v. United States, 987 F.2d 806, 818 (D.C. Cir. 1993) (giving Seminole Rock deference to Interstate Commerce Commission interpretation of prior order); see also Colorado interstate Gas Co. v. F.E.R.C., 791 F.2d 803, 810 (10th Cir. 1986) (according “great weight” to an agency’s interpretation of its own order).

The fact that the Auer principle applies to texts other than rules codified in the Code of Federal Regulations might lessen the potential blowback from reforming or rejecting the doctrine. That courts give Auer deference to agency interpretations of their slip opinions and administrative orders means non-rulemaking administrative processes potentially are “preferred” by the Auer status quo, perhaps as much as notice and comment rulemakings. It follows that reforming Auer might depress agency incentive for adjudication procedures no less than it would for rulemakings.

Finally, it is essential to keep in mind that there are multiple paths to reforming Auer deference, which undoubtedly will influence the cross-elasticity of demand between rulemaking and adjudication. There are some, like Justice Clarence Thomas, who believe that Auer is incompatible with the U.S. Constitution, and, therefore, they believe the doctrine should be overturned outright. Yet others, myself included, argue that the ills associated with Auer could be cured if only the doctrine were presumptively denied to interpretations that are not a product of administrative processes that carry the force and effect of law. It stands to reason that the latter remedy would have a lesser impact than the former on the cross elasticity of demand among administrative policymaking means.

In a recent paper, The Simple Solution to Auer Problem, I make the empirical case for a limited reform of the Auer doctrine. This post was adapted from that paper.