Beres, agency deference, and Lochnerism, Part 2

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In three cases set for oral argument on December 1st — TetraTech v. DOR, Appeal No. 2015AP2019, DWD v. LIRC (Beres), Appeal No. 2016AP1365, and Wisconsin Bell, Inc. v. LIRC, Appeal No. 2016AP355 — the Wisconsin Supreme Court is re-considering the whole field of agency deference in what could be a legal revolution that up-ends modern governance.

In a previous post, I described the statutory text at issue in Beres, the unemployment case among the three. Here, I want to deal directly with why the Wisconsin Supreme Court might scuttle agency deference and what is at stake in such an event.

Why agency decision-making is being questioned

The decisions of administrative agencies are the building block for modern government. In 19th-century America, there was no government bureaucracy available for enforcing much of anything. There were no requirements for food to be safe to eat, for instance, or for protecting worker safety. Cities had water and sewer services that in some instances were collectively run or in other instances were operated by private companies. But, outside of police, there were little to any regulations for: (1) how public services were to be provided or (2) how private companies and individuals could interact with each other. Hence, snake oil salesmen abounded, and companies and individuals could do what they want with the land they owned and the people they hired.

The modern world we know today is built on the idea that there needs to be some organization to how businesses and people interact. Health and building codes are needed to prevent cows from starting fires that burn entire cities to the ground or to stop epidemics and food poisoning from becoming rampant. And, safety and health and other regulations are needed to make sure people get paid the wages promised them, that companies sell the products they proffer, and that products and workplaces are generally safe for workers and the public in general.

As modern living has grown more complex, so has the scope and complexity of the administrative agencies needed to regulate the interactions among people and among people and companies. The legislatures in the late 19th and early 20th centuries that created these administrative agencies recognized this complexity of modern life. The administrative agencies that were created were not only literally drafted into existence by these laws, but these agencies also were given the responsibility and power to manage these laws through the regulations the agencies issued. As such, these agencies took on this combination of responsibilities and authority that joined legislative, executive, and even judicial functions together because the complicated reasoning and scope of their actions (like setting safety standards or usage rates that would apply across thousands of different companies and types of businesses) needed this combination of actions simply in order to function.

NOTE: Courts were initially reluctant to follow along with these legislative endeavors and struck many of them down as violations of individual liberty to contract (what become known as Lochnerism, after a famous case with that name). Eventually, judges realized that modern living required legislative regulation to some extent of that ‘liberty.’ More on *Lochnerism below.*

Unemployment was one such effort to overcome the problem of individual companies laying people off. Layoffs could easily accelerate a decline in economic growth when the laid-off workers lacked monies for rent and groceries and thus turned an economic decline into a recession or even a depression.

Today, to accomplish this legislative goal in unemployment matters, the Department of Workforce Development drafts and publishes regulations that fill in the details of the unemployment laws passed by the state legislature and Congress. The Department is also charged with handling investigations into unemployment claims, managing the unemployment taxes paid by employers, and “helping” claimants understand the unemployment system and apply for unemployment benefits. Finally, the Department also has the judicial responsibility for running hearing offices that adjudicates employee and employer disputes over unemployment claims. In this way, the Department — an executive agency that exists as an arm of the governor — has legislative, executive, and judicial responsibilities.

Because the Department has so many responsibilities in the field of unemployment benefits, the Labor and Industry Commission is a second administrative agency that has judicial oversight of the Department: decisions by administrative law judges can be appealed to the Commission. Moreover, the Commission’s decisions in unemployment cases should provide guidance to the Department about how to manage the unemployment law and the Department’s regulations. Naturally, the Commission also has to create its own regulations to indicate how its judicial-like decision-making is administered. So, the Commission — an executive agency that is independent of the governor as the Commissioners serve set terms and cannot be removed from office except in limited circumstances — has judicial and legislative functions.

Keep in mind that all of this bureaucracy is intended to provide guidance and transparency into what these administrative agencies do and offer reasonably clear expectations into how unemployment benefits operate (at least, these are the goals).

But, the past forty or so years have seen a growing push against all of this bureaucracy connected to the “administrative state.” Rather than making the modern world easier to manage, the argument goes, bureaucracy has become over-grown and has started to strangle innovation and economic growth. In the last decade, these attacks exploded to become a diatribe against all regulation rather than targeted attacks against specific instances of over-regulation.

Moreover, in legal circles connected to the Federalist Society there has been a push to re-visit the earlier court decisions that accepted the existence and need for administrative agencies. The center-piece of this attack has been on the deference courts give to administrative agencies.

In Wisconsin, courts have generally granted administrative agencies “great weight” deference when the agency decision or action turns on a long-standing legal issue that the agency has addressed numerous times before. Under this standard, the court will affirm the agency interpretation if the court finds that interpretation reasonable or rationale. State agencies get “due weight” deference when the issue has previously been addressed by the administrative agency. Under this standard of deference, a court will affirm an agency interpretation if the court determines that there is no more reasonable interpretation available to the court. Finally, when the issue is a matter of first impression, the court will NOT defer to the agency at all.

The three justice concurrence in Operton called into question this deference standard. For them, great weight and even due weight deference could no longer be followed because:

  • courts are constitutionally and statutorily obligated to interpret statutes independent of any administrative agency,
  • the prevailing scheme of great weight and due weight deference hamstrings courts and thereby thwarts the constitutionally-mandated separation of powers,
  • the accumulation of legislative, executive, and judicial powers within a single administrative agency runs counter to the constitutional framework of dispersing governing power among the three separate branches of government, and
  • a judicial check is needed against executive interpretations that harm citizens’ liberty interests.

Operton (J. R.Bradley, concurring); see also Gillian E. Metzger, “Forward: 1930s Redux: The Administrative State Under Siege,” 131 Harv. L. Rev. 1 (Nov. 2017), for a detailed discussion of the history and current forms of this attack on the administrative state.

As these points from Operton demonstrate, this criticism of administrative agencies is built on a didactic view of the law: each branch has their own distinct set of prerogatives that cannot be mixed and that courts alone have the predominate and sole responsibility for judicial interpretation.

Operton, however, did not lead to a fundamental re-working of agency deference. While three justices supported this change, four justices either rejected this change outright or held that the time was not yet ripe for such a fundamental change in the law.

In TetraTech, Beres, and Wisconsin Bell, however, it appears that the time is now ripe for a fundamental change in agency deference. In each of these cases, the Wisconsin Supreme Court has added a question about agency deference.

Does the practice of deferring to agency interpretations of statutes comport with Article VII, Section 2 of the Wisconsin Constitution, which vests the judicial power in the unified court system?

Whether the administrative decision in each case represents some kind of administrative abuse that the court needs to correct, however, remains to be seen.

What is central to this push for a new standard of deference is the empowerment of courts and judges to decide on their own how state agencies should decide legal disputes. Before most of the modern administrative agencies existed, judges following Lochnerism claimed that economic qua constitutional rights based on “substantive due process” or “liberty of contract” overrode legislation that sought to regulate the conduct of corporations. For judges of this era, government could not show any favoritism or hostility to any class or special interest.

Over time, there was a recognition that this Lochnerism was allowing judges essentially to legislate economic outcomes from the bench, and even Conservative jurists lambasted these decisions as judicial gerrymandering of the law. The “neutrality” of Lochner judges was simply a mask to hide real intentions of judges to write their own policy preferences into the law.

The new assault of administrative law seen in Operton decries any connection to the Lochnerism of old. But, the emphasis on contractual liberty and the preeminence of judicial acumen over the reasonable discretion of administrative agencies belies any substantive distinction from Lochnerism of old. The attack on agency discretion at issue in these cases is little more than old wine in a new bottle. Certainly, some of the tenets of legal interpretation have changed (substantive due process is probably NOT going to be revived any time soon), but the basic objectives and tactics — economic and contractual liberty alongside basic doubts about any and all economic regulation — remain the foundation for empowering judges to insert their own policy preferences into the law.

TetraTech, Beres, and Wisconsin Bell are simply the front line of a revolution that could return governance to the days of 1890 when judges reigned supreme over legislators and the executive branch. The judges on the Wisconsin Supreme Court essentially want to return court jurisprudence to the time when judges got to determine economic winners and losers. As described in other posts, each of these cases has some clear winners and losers to pick from.

All the posts in this series

UPDATE (12 Dec. 2017): Added links for all the posts in this series and updated title of post.