Happy new year everyone.
I am a bit of an administrative law gearhead and have been practicing in that area for decades. I have been turning over the Ohio Supreme Court decision in Twism Ent’s., L.L.C. v. State Board of Registration for Professional Engineers and Supervisors decided December 29, 2022, which can be found here, in my head for a while as a possible blog entry. The clincher was reading the WSJ editorial applauding the decision in today’s WSJ (I have been reading the WSJ since high school). Basically, for those trying to figure out how the United States Supreme Court might kill Chevron, all you have to do is look to this case. As usual, the blog entry is divided into categories and they are: facts; Chevron in Ohio; agency deference in Ohio moving forward; and thoughts/takeaways. Of course, the reader is free to focus on any or all of the categories.
Engineering firms that wish to do business in Ohio must receive authorization from the Board. R.C. 4733.16(B). The firm seeking authorization “shall designate one or more full-time partners, managers, members, officers, or directors as being responsible for and in responsible charge of the professional engineering or professional surveying activities and decisions.” R.C. 4733.16(D). The person designated must be a state-registered engineer. Id. Once the statutory requirements are met, the Board has a mandatory duty to register the firm: the Board “shall issue a certificate of authorization to each firm, partnership, association, limited-liability company, or corporation that satisfies the requirements of this chapter.” R.C. 4733.16(E).
The Board has adopted an administrative rule that defines “responsible charge” as “being in control of, accountable for and in either direct or indirect supervision of the engineering and/or surveying activities of the business enterprise.” Ohio Adm.Code 4733-39-02(A). The rule defines “full-time” as “working more than thirty hours per week or working substantially all the engineering or surveying hours for a firm, partnership, association, limited liability company or corporation that holds a certificate of authorization.” Ohio Adm.Code 4733-39-02(B).
TWISM, a small start-up firm, applied to the Board for a certificate of authorization. TWISM’s application designated James Cooper as its manager. Cooper attested that he is a full-time engineer “in responsible charge for and in charge of the professional engineering * * * activities and decisions of the firm.” SUPREME COURT OF OHIO 4 Cooper represented that he provides engineering services to TWISM on a perproject basis and that he provides all of TWISM’s engineering services. TWISM’s operating agreement lists Cooper as a “manager” “vested with the management” authority “to oversee the day to day operations of the engineering department.” For tax purposes, the firm reports his income to the IRS as an independent contractor on a form 1099, rather than withholding and reporting his income as an employee under a W-2 tax form.
The Board denied TWISM’s application. As the basis for its denial, the Board said that TWISM had “failed to designate one or more full-time partners, managers, members, officers, or directors as being responsible for and in charge of professional engineering activities and decisions for the firm.” In the Board’s view, a manager had to be a “W-2” employee rather than a “form-1099” independent contractor.
The Board identified two problems with TWISM’s application. First, it said that Cooper did not work “full time” for TWISM. It pointed to Ohio Adm.Code 4733-39-02(B)’s definition of “full-time,” which requires more than 30 hours of work weekly or “working substantially all the engineering or surveying hours for” the firm. The Board, though, never explained why Cooper, who indisputably performed “all the engineering * * * hours” of TWISM, failed to meet this definition. Second, the Board found that TWISM did not satisfy the requirement that it have a full time “manager,” because of Cooper’s status as an independent January Term, 2022 5 contractor rather than a W-2 employee. The Board said that it was necessary that the holder of the certificate of authorization have control over the professional engineer’s activity and “[t]hat control is ensured by an employer/employee relationship.” Thus, the Board adopted a hardline rule that R.C. 4733.16(D) requires formal W-2 employment; a business may not designate an independent contractor as professional engineer.
Chevron in Ohio
- Ohio’s approach to agency deference is hard to categorize. Since Chevron, Ohio courts have gone about it three different ways: 1) mandatory deference whereby the court give conclusive deference to an agency’s interpretation of the statute that it had the duty to enforce so long as the interpretation is reasonable; 2) ambiguity triggers mandatory deference where the courts will conclusively defer to an agency’s reasonable interpretation where the statute is ambiguous; and 3) permissive deference where courts in Ohio may or may not rely on the expertise of a state agency.
- The ultimate authority to render definitive interpretations of the law rests exclusively in the judicial branch. That is, only the judiciary may make an interpretation considered authoritative in a judicial proceeding.
- The idea a court must defer to an agency determination is difficult to reconcile with separation of powers concepts because it then hands to the executive branch the judicial authority to say what the law is.
- Mandatory deference raises questions of judicial independence because how is it possible for the judiciary to fairly decide a case when it turns over to one party the conclusive authority to say what the law means.
- No person is allowed to be a judge in their own cause because that interest certainly biases the judgment. So, mandatory deference creates systematically biased judgment in cases where a government agency is a party.
- The Ohio Administrative Procedure Act allows those adversely affected by many types of agency adjudications to appeal to the Court of Common Pleas. The court can affirm the order of an agency only if it is supported by reliable, probative, and substantial evidence and is in accordance with the law. Accordance with the law is a de novo review standard, which is not a deferential standard at all.
- Ohio has a statute that says that a court when determining the intention of the legislature may consider among other matters the administrative construction of the statute. So, that means the legislature envisioned that a court might defer to an administrative agency only when a statute is ambiguous, and even then, the deference is permissive and not mandatory.
Agency Deference in Ohio Moving Forward
- It is never mandatory for a court in Ohio to defer to the judgment of an administrative agency.
- Even if deference only occurs when a statute is ambiguous, a court is still assigning to the agency a range of choices about statutory meanings to the agency rendering the interpretive judgment.
- It is the province and duty of the judicial department to say what the law is.
- A court may consider an administrative agency’s construction of statutory text in exercising its duty to independently interpret the law within certain parameters: 1) an administrative interpretation should never be used to alter the meaning of clear text; 2) the weight, if any, a court assigns to administrative interpretation depends on the persuasive power of the agency’s interpretation and not on the mere fact that it is being offered by an administrative agency. That is, a court might find agency input informative or it might find the agency position unconvincing.
- A court cannot outsource the interpretive project to a coordinate branch of government.
- The Ohio Supreme Court cites to Skidmore. See also §IV(8) below
- In assessing the persuasiveness of an agency interpretation, it is appropriate for courts to keep in mind the respective competencies of the agency and the judiciary. When it comes to interpretation of texts involving common words used in the ordinary sense, there will rarely if ever be a need for court to look to an agency interpretation. On the other hand, in specialized matters involving technical meaning uniquely within the competency of the agency, the agency’s expertise might prove helpful to a court in its interpretive task. Even then, it is still up to the court to independently interpret the law with the weight being given to the agency interpretation depending upon its persuasiveness.
- One half of the States adopt a permissive approach to interpreting agency regulations.
- Turning to the merits of the case, the Ohio Supreme Court holds that the applicable language in the relevant statute says nothing about the firm’s control (employee v. independent contractor), over the manager.
- Three judges joined the reasoning and three judges concurred in the judgment only but did not offer a concurring opinion.
- If you are wondering the approach the Supreme Court may take to getting rid of Chevron, this case is a good place to start with.
- I have been involved with administrative law since 1989. I spent a legislative session on the Joint Committee on Administrative Rules for the state of Illinois. That entity is an entity that is part of the state legislature whose purpose is to proofread agency regulations and to ensure that agency regulations do not exceed legislative intent. Ohio also has a Joint Committee on Administrative Rules. If an agency goes too far, legislators on that committee can then vote and say that the regulation goes too far. Whether a court would actually allow that committee to overturn agency regulations is another question. One has to wonder what will be the role of Joint Committee on Administrative Rules in the States that have them in a scheme where Chevron deference no longer exists, such as in Ohio. Will the agency interpretation of a statute be more persuasive if the Joint Committee on Administrative Rules has not voted against the agency interpretation of that statute? What if the agency does not back down from staff warnings that the regulations go too far? What if the committee overrides the recommendation of Joint Committee on Administrative Rules staff that the rules go too far? When I was on the Joint Committee on Administrative Rules in Illinois, it was very rare for that committee to vote that an agency regulation exceeded legislative intent. Even so, no agency wanted to be in the position of having it on record at the legislature thought they went beyond legislative intent and the regulations. Accordingly, agencies would generally back down if Joint Committee on Administrative Rules staff felt the regulations went too far.
- The regulation at issue in Ohio did go through the proper rulemaking. Even so, an interpretation of the rule by the agency was involved, which might explain the court’s reference to Skidmore and the shades of Kisor in the decision.
- Was it really necessary for the Ohio Supreme Court to attack Chevron so directly when they could have made clear that Kisor was really the issue?
- On a policy level, getting rid of Chevron deference will make it harder for everybody to figure out what actually is required because the judicial branch moves so slowly.
- We already know that numerous justices on the Supreme Court can’t stand Chevron.
- The Ohio Supreme Court seems to be alluding to Kisor v. Wilkie when it talked about when to defer to specific agencies when it has particular expertise.
- To my mind, there is a big difference between Chevron deference and Kisor deference because Chevron deference involves properly promulgated administrative rules. Administrative Procedure Acts are basically all the same whereby a rule is proposed, comments are received, and then the regulations are finalized. Agency interpretation of regulations can come out whenever the agency wants to and do not go through all the checks and balances involved in formal rulemaking. So, an argument exists that the two situations (agency interpretation of their own regulations and the final regulations themselves), should not be treated the same way with respect to deference.
- I would expect Joint Committee on Administrative Rules in the various states to become even more important under a Chevron dead regime. See also this blog entry.
- We discussed Kisor v. Wilkie, here.
- Look for legislative bodies to make it much more explicit that executive agencies have the power to formulate final regulations.