Labor Dept. ESG Rule May Survive Chevron’s Demise

Partner and chair of Herrick's Corporate Department, Morris DeFeo, was quoted in Law360 in an article discussing the Fifth Circuit's recent overturning of a ruling "that relied on the now-defunct doctrine of Chevron deference to uphold a U.S. Department of Labor rule covering socially conscious retirement plan investing."

The three-judge panel vacated a Texas court's decision upholding a rule that relied on the Chevron test. "The panel's action defers a merits ruling on the legitimacy of the so-called tiebreaker test in the DOL's rule, which describes how retirement managers can consider collateral issues like environment, social and governance, or ESG factors, when two options are theoretically otherwise equal."

The article notes that the Employee Retirement Income Security Act does not specifically address this situation, but some attorneys have expressed confidence that on remand the Texas court will support the rule that allows consideration of ESG factors when selecting retirement plan investments, and find it complies with both ERISA and the Administrative Procedure Act.

Morris stated that "while he didn't like to 'read tea leaves when it comes to situations like this,' he was reassured by the limited remand aspect of the panel's decision." He further pointed out that "the panel distinguished its decision to vacate and remand the lower court by specifying the action was 'for the limited purpose of reconsidering plaintiffs' challenge in light of the Supreme Court's decision in Loper Bright.'"

"I think it's really good when you see a court saying, we don't necessarily disagree with the underlying decision, but we think in light of the Supreme Court mandate now, we're basically saying go back and make sure that you can justify the decision based on the analysis that you made in a way that takes into consideration the fact that you can't give too much deference to the regulatory agencies," said Morris. 

The article notes that while the Supreme Court "repealed decades-old precedent that instructed judges when they could defer to a federal agency's interpretation of law, the decision also directed judges to exercise independent judgment when deciding if an agency's interpretation of a policy is within its statutory authority under the APA."

Morris stated that he was "also skeptical that regulations from agencies interpreting laws were in overall jeopardy, just because justices in June took away a deference standard that courts previously employed."

"I don't see the court saying to regulatory agencies, we are not giving you any deference at all. I mean, that's not the way I understand how this is playing out, and it makes no sense," Morris said.

Read the full article in Law360 here. Access may require a subscription.