Supreme Court Ruling on Chevron Case Impact on Promotional IndustrySupreme Court Ruling on Chevron Case Impact on Promotional Industry On June 28, 2023, the U.S. Supreme Court overturned a precedent known as Chevron, which gave federal agencies significant power in interpreting ambiguous laws. This decision has potential implications for the promotional products industry, including recent rulings on non-compete agreements and self-employed business owners. Non-Compete Agreements In April 2024, the Federal Trade Commission (FTC) banned non-compete agreements for most employees, stating that they stifled competition and hindered economic growth. While some industry leaders opposed government intervention, others welcomed it as a necessary protection for workers. With the Chevron ruling, the FTC ban on non-competes may face challenges. Courts will now have more discretion in interpreting the legality of non-compete agreements, potentially leading to the overturning of the FTC’s decision. Self-Employed Business Owners In March 2024, the U.S. Department of Labor implemented guidelines that classified many independent contractors as employees, making them eligible for benefits and protections. This ruling was met with criticism from promo leaders, who argued that it would disrupt the independent contractor model common in the industry. The Chevron reversal could strengthen the legal standing of challenges to the Department of Labor’s guidelines. Courts may now be more likely to reject the guidelines as an overreach of agency authority, potentially upholding the independent contractor status of many promo professionals. Expert Opinions Chuck Machion, senior vice president of ASI, believes that the Chevron ruling will weaken the FTC’s ability to enforce its ban on non-compete agreements and may lead to the reversal of the Department of Labor’s guidelines on independent contractors. He anticipates significant legal challenges to both rulings. Overall, the Supreme Court’s Chevron ruling has the potential to reshape the regulatory landscape for the promotional industry. The full extent of its impact remains to be seen, but it is likely to lead to increased legal challenges and potential changes in policies affecting non-compete agreements and self-employed business owners.
On June 28, the U.S. Supreme Court overturned a 40-year precedent, weakening the position of federal regulators and potentially reversing several controversial decisions affecting the promotional products industry, including the recent ban on non-compete agreements and new guidelines regarding self-employed business owners.
The 1984 case, commonly known as Chevron, ordered lower courts to defer to federal agencies to laws that are not clearly defined; the ruling was the backbone of thousands of environmental, health and trade regulations. But the Supreme Court’s new decision changes that, redistributing regulatory power from federal departments to judges and Congress.
The decision “fundamentally reshapes administrative law, eliminating the requirement that courts defer to agencies’ interpretations of ambiguous statutes,” global law firm K&L Gates explained. “Instead, courts must exercise ‘independent judgment’ in determining the meaning of statutory provisions, although they may still ‘seek guidance’ from well-reasoned or longstanding agency interpretations. This shift in the nature of judicial review marks a significant victory for those challenging federal regulations.”
The potential impact is indeed enormous. Billions of dollars in legal challenges could now be filed in U.S. courts, all aimed at changing federal agency regulations on everything from emissions reporting to gun regulations. While the actual effect of the Supreme Court ruling has yet to be realized, experts say it will have a significant impact on the promotional industry.
The Federal Trade Commission (FTC) banned noncompete agreements in April 2024, invalidating existing clauses for all employees except senior-level executives and preventing new noncompetes. A noncompete agreement prohibits employees from taking another job or starting a business in a profession that competes with their previous employer.
FTC Chair Lina M. Khan said noncompete agreements hold down wages, stifle new ideas and “rob the American economy of dynamism.”
“The FTC’s final rule banning noncompete agreements ensures that Americans have the freedom to find a new job, start a new business, or bring a new idea to market,” Khan said.
Promotion leaders were divided over the ruling, with some saying “the federal government should stay out of this,” while advocates said no business should be able to prevent anyone from earning an income.
The FTC ruling was unprecedented, said Chuck Machion, senior vice president and senior counsel at ASI. He said he does not expect the recent Chevron reversal to be enforced. (Enforcement is scheduled for September.)
“Now that the court has struck down Chevron, the power has shifted to people who are challenging the FTC,” Machion said. “It used to be that the court would say, ‘Well, I have to give (the FTC) the benefit of the doubt.’ There’s no benefit of the doubt anymore. Without that defense, the chances of it surviving are slim to none.”
Another controversial rule in promo will be affected by the Chevron ruling. In March 2024, the U.S. Department of Labor’s classification guidelines for independent contractors went into effect, prompting criticism from promo leaders and lawsuits from contractors.
In general, the updated guidelines provided that any worker who is “economically dependent” on their employer should be classified as an employee and should be eligible for the extended protections enjoyed by employees compared to self-employed persons.
“This rule will help protect workers, especially those who are most at risk of exploitation,” said Acting U.S. Secretary of Labor Julie Su.
Many promotional products distributors rely on contract salespeople, often because they can’t afford employees, but also because the nature of the work lends itself to independent contractor relationships, Machion said. Under the new guidelines and depending on work requirements, some employers could be forced to convert contractors to employees or lay them off.
“The independent contractor is huge. If they wanted to enforce it, they could ban most independent contractors,” Machion said.
There are several lawsuits challenging the Labor Department’s guidance, including one from the U.S. Chamber of Commerce. With Chevron’s reversal, Machion said, those cases have a better chance. “Both sides of the argument,” Machion added, “are now given equal weight.”
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