Small business owners aren’t typically lawyers, though they are undoubtedly familiar with the thousands of inscrutable pages of new regulations published every year in the Federal Register. Instead of devoting their energies to growing their businesses, owners must expend significant time and resources ensuring compliance with these voluminous and often vague regulations, with costly fines looming as consequences for failure to comply. “The Fourth Branch & Underground Regulations,” a new report by the National Federation of Independent Businesses (NFIB), details the processes by which administrative agencies skirt “notice-and-comment” requirements to impose new interpretations of rules that avoid the constitutional system of checks and balances. Unfortunately, operating on this shifting field disproportionately affects small businesses, as they are most poorly equipped to lobby for favorable rules.
The Administrative Procedure Act established “notice-and-comment” as a means for regulated businesses to voice concerns with or offer suggestions to improve proposed regulations. However, “non-legislative rules,” or “general statements of policy” and “interpretive rules,” are not required to undergo this process. This grants administrative agencies – the “Fourth Branch” of government – significant leeway in how “legislative rules” are interpreted and implemented, essentially giving them law making power. The recent Supreme Court ruling in Perez v. Mortgage Bankers Association allows agencies not only to interpret rules without undergoing “notice-and-comment,” but also the ability to change their interpretation at any point.(Cato filed an amicus brief in the case.)
Without a required need for transparency, agencies are thus free to issue “underground regulations” that impose serious and sudden rules on regulated businesses. NFIB examines four ways in which these “underground rules” are established: executive orders, guidance documents, amicus filings, and enforcement actions. Recognizing the potential dangers of this “underground” system of lawmaking, NFIB argues that “the regulated public should have a right to voice concerns over any newly announced rules, policy, or administrative interpretation of law that may impose affirmative regulatory burdens on individuals or businesses” and urges agencies to “allows some opportunity for notice-and-comment on all new rules imposing liabilities or other regulatory burdens – without regard to quantifiable compliance costs.”
Freed from congressional oversight and the beneficiary of considerable judicial deference, administrative agencies can pursue ideological agendas without the general public even being aware regulations are being instituted. One way this is achieved is by filing an amicus brief in a case between two private parties. An agency can offer the court its authoritative interpretation of a rule – though given the ruling in Perez, the agency can change that interpretation in a later brief in another case or court.