Supreme Court Reiterates That Federal Agencies Must Give Fair Notice Prior to Enforcing Regulations

Two recent Supreme Court decisions have affirmed regulated industries' right to fair notice of federal agencies' interpretations of the laws they implement.  Fair notice encapsulates “the principle that agencies should provide regulated parties ‘fair warning of the conduct [a regulation] prohibits or requires.'” Christopher v. SmithKline Beecham Corp. 132 S. Ct. 2156, 2167 (2012) (internal quotation marks and citations omitted); see also FCC v. Fox Television Stations, Inc., 132 S. Ct. 2307 (2012). 

In FCC v. Fox, the Court rejected the Federal Communications Commission's (FCC) attempt to enforce its indecency policy against broadcasters where the Agency adopted a new policy after the alleged violations had occurred.  The FCC claimed that both the Fox and ABC television networks had violated the Agency's decades-old indecency standard because the networks aired two incidents of “fleeting expletives” and one brief female nudity scene.  However, as far back as the Supreme Court's 1978 ruling in FCC v. Pacifica Foundation, the FCC had said its indecency policy did not cover so-called “fleeting expletives” or other material that did not “dwell on or repeat at length the offending description or depiction.”  Fox, 132 S.Ct. at 2309 (internal quotation omitted). 

Nonetheless, after the three incidents on Fox and ABC, FCC abruptly changed its policy and brought an enforcement action against NBC for the singer Bono's use of an expletive during the broadcast of the 2003 Golden Globe awards.  The agency then attempted to apply this new policy to Fox and ABC.  The Court found that because the agency “failed to give Fox or ABC fair notice prior to the broadcasts in question that fleeting expletives and momentary nudity could be found actionably indecent[,]”  FCC's new policy, as applied to these three instances, was void for vagueness.  Id.at 2320.  The court found that due process demands “that regulated parties should know what is required of them so they may act accordingly [and] precision and guidance are necessary so that those enforcing the law do not act in an arbitrary or discriminatory way.”  Id. at 2317.

Just days before its decision in FCC v. Fox, the Court issued its opinion in Christopher v. SmithKline, holding that a Department of Labor (DOL) policy announced for the first time in an amicus brief after the Supreme Court agreed to hear Christopher's case did not provide sufficient notice.  Christopher and Buchanan were “detailers”—employees of a drug company whose jobs were to persuade doctors to write prescriptions for specific drugs.  They sued their employer under the Fair Standards Labor Act (FSLA) for failing to pay overtime.  Under DOL's regulations, employers do not have to pay overtime for “outside salesmen.”  The Agency had not previously taken enforcement action against drug manufacturers who routinely treated detailers as outside salesmen.  The Court emphasized that “where, as here, an agency's announcement of its interpretation is preceded by a very lengthy period of conspicuous inaction, the potential for unfair surprise is acute.”  Christopher, 132 S. Ct. at 2168.

Moreover, DOL previously had taken the position that a “consummated transaction” was a sale for the purposes of the “outside salesmen” exception.  However, DOL changed its interpretation in an amicus brief to require an actual transfer of title for a “sale.”  Therefore, the Court refused to defer to the Agency's new interpretation of its own regulations:

[i]t is one thing to expect regulated parties to conform their conduct to an agency's interpretations once the agency announces them; it is quite another to require regulated parties to divine the agency's interpretations in advance or else be held liable when the agency announces its interpretations for the first time in an enforcement proceeding and demands deference.  

Id.  

The holdings in Fox and Christopher provide an important reminder to regulated industry—while federal agencies may indeed change their policies, they cannot enforce those changed policies without providing adequate notice.  Especially in a time where short-staffed and underfunded federal regulatory agencies often opt for guidance documents and other policy statements rather than revising rules, companies are well-advised to be sure they could have known of a new policy before acceding to an agency's enforcement efforts.