The rise of the administrative state in the last century – and its metastasization in the last fifty years – at both the national and state levels has eroded the power of both the legislative and judicial branches of our governments. Congress and state legislatures have ceded law-making power, and federal and state courts have outsourced the power to interpret the law, to executive branch agencies.

Fortunately, federal and state courts and some state legislatures are waking up to the threat posed by concentrating in one branch of government the power to make, enforce and interpret the law.  Most notably, the United States Supreme Court last year overturned its 1984 Chevron decision that required federal courts to defer to agency interpretations of ambiguous statutes as long as those interpretations were “reasonable.” Such deference was “misguided” the Court said, “because agencies have no special competence in resolving statutory ambiguities. Courts do.”

The states, too, are rethinking the deference issue. Over the last several years, the Supreme Courts of Wisconsin, Mississippi and Ohio, among others, have rejected giving any deference to agency interpretations. Other states, including Arizona, Georgia and Florida have abolished deference by statute or constitutional amendment.

The situation in North Carolina is confused. The North Carolina Supreme Court wisely never adopted Chevron-type deference to agency interpretations, but the influence of Chevron was so dominant for so long that lower state courts routinely acted as if it had. As recently as 2020, the Court of Appeals echoed Chevron declaring that courts should defer to agency interpretations as long as they “are reasonable and based on a permissible construction of the statute.” Because most cases never get beyond the Court of Appeals, North Carolina was effectively a deference state.

A recent tax decision by the state Supreme Court and a bill pending in the General Assembly may change that.

The tax case, Philip Morris USA Inc. v. North Carolina Department of Revenue, involved a dispute over the proper interpretation of the state’s cigarette export credit. The construction placed on the statute by the Department would have significantly reduced the size of the credit the taxpayer could claim. The court rejected the Department’s interpretation of the statute. In doing so, it ruled that “to the extent that [prior decisions] established a rule permitting deference to the Secretary [of Revenue] in all circumstances, we disavow any such understanding. We therefore align ourselves with previous precedent repudiating agency deference when the question is one of law.”

This case was decided while another key North Carolina Supreme Court decision on agency deference remains pending.  In Mitchell v. UNC Board of Governors, argued before the high court in February of this year, a university professor seeks a reversal of his termination, which occurred after a lengthy and labyrinthically entailed university-run process. The Chamber’s Legal Institute joined with the North Carolina Farm Bureau Federation to urge the Court to clarify the tortured and disjointed history of agency deference law in North Carolina.  The brief also respectfully asserted that the concept of deference runs counter to the structure of North Carolina’s State Constitution. Ultimately, the brief urged the Court to eliminate the use of agency deference when interpreting both statutes and regulations. We anxiously await the outcome, which in no way should discourage the state legislature from further enhancing North Carolina administrative law.

The bill in the state legislature is House Bill 402: Limit Rules With Substantial Financial Costs. This bill is modeled on similar legislation pending in Congress. The North Carolina bill would delay the effectiveness of agency rules that would have a substantial economic impact of $20,000,000 over five years until the General Assembly has an opportunity to review them. However, the bill would also require rules with an aggregate financial cost of $1,000,000 or more over five years to be adopted by the respective boards, commissions, or similar bodies by achieving a specific voting threshold.   The bill safeguards the constitutional role of the General Assembly as the state’s primary policymaking body.  Most importantly, it puts North Carolinians first, by empowering legislators- those elected directly by the citizens – to scrutinize these rules to best protect North Carolinians. House Bill 402 would do for all citizens what the Philip Morris decision did for taxpayers – put them back on a level playing field when contesting agency action.

Judicial deference to agency interpretations was a departure from Constitutional norms. As Chief Justice Marshall said over 200 years ago in Marbury v. Madison, in a government based on the separation of powers, “it is emphatically the province and duty of the Judicial Department to say what the law is.” Allowing executive branch agencies to usurp that function distorted our Constitutional order and eroded the protections that order afforded to citizens against government overreach. Philip Morris and House Bill 402 are important steps of Constitutional restoration.