This Week in the Supreme Court: Property Rights and Underground Regulation

Date: April 22, 2016

Since the National Federation of Independent Business led its historic legal challenge to the Affordable Care Act’s Individual Mandate in 2012, NFIB has proven itself a force to be reckoned with in the courts. Since then NFIB has continued pressing for small business rights, and fighting executive overreach, by challenging illegally promulgated regulations from the National Labor Relations Board, Environmental Protection Agency, Department of Labor and other federal agencies. But in addition, the NFIB Small Business Legal Center has stepped-up its amicus program to ensure that the small business community is heard—loud and clear—in many other cases. 
In recent years the NFIB Legal Center has filed approximately 70 amicus briefs per year in state and federal courts throughout the country—which is a remarkable feat for a small organization. As a testament to the impact we’re having on the courts, it’s worth remembering that the SCOTUS Blog listed NFIB Legal Center as among the top ten organizations in the country when it comes to drawing the Supreme Court’s attention on important issues. In any given week, it seems we have something happening in the Supreme Court. Here’s a run-down of the latest developments:
United States v. Texas – An Under-Appreciated Aspect of a Controversial Case
On Monday, the Supreme Court heard arguments in United States v. Texas. This is one of the more controversial cases on the Court’s docket this term. At issue is President Obama’s executive action to defer deportation of approximately 4 million undocumented immigrants. 
A Procedural Out for the High Court?
The Fifth Circuit Federal Court of Appeals previously held that this order likely violated federal law, and issued an injunction to block it—a result that had many conservatives cheering. And with Justice Scalia’s passing, the conventional wisdom is that the Court may very well split 4-4, which would result in affirmance of the lower court judgment—just as in Friedrichs v. California Teachers Association. But an under-appreciated aspect of this case is a procedural question, which is more in the weeds of administrative law—yet a very important to the small business community. 
As we argued in our brief to the Court, the President’s Executive Order actually resulted in a substantive change in the law that should have been subject to the requirements of the Administrative Procedures Act (APA). Specifically, the APA requires changes to be adopted only with proper public notice, and an opportunity for interested parties to voice concerns through “public comment.” Accordingly, if the Court is looking for a less controversial way to resolve this case, we suggest it might be best for the Court to decide the case on these narrow grounds under the APA. Such a holding would signal that the President needed to go through a formal notice-and-comment process before changing its enforcement practices on this issue, or any other regulatory matter in the future. 
Such a result would not necessarily end the controversy. But it would presumably leave it to the next Administration to promulgate regulations through notice-and-comment, if the next President is so inclined. Of course, that might well result in new legal challenges, and or resurrection of the same arguments at issue here over the scope of executive power. But in any event, it would at least allow an opportunity for public in-put upfront, and would ensure the right of concerned citizens and businesses to raise their objections. What is more, by the time those legal challenges should work their way back to the Supreme Court we could presumably expect Justice Scalia’s vacancy to be filled, which would then allow the Court to make a definitive decision on the more substantive questions presented with five votes for or against the President. 
Why NFIB Choose to Focus on the Administrative Procedures Act? 
Of course, it is important to emphasize here that NFIB Legal Center did not wade into the highly controversial issues presented in this case. We did not speak to the President’s ultimate power to change or reform immigration policy, but instead focused solely on this procedural issue because of its broader implications for other regulatory regimes that more directly affect the small business community. 
And this narrow focus was important also because the small business community remains ultimately divided on the fundamental policy issues presented. But however divided small business owners are over the question of immigration reform, we know demonstrably that the small business community is united in its concern over the Executive Branch’s continual practice of imposing objectionable burdens on the regulated community without going through the proper notice-and-comment process. To be sure, the President’s Executive Order on immigration was just one of many illegal “underground regulations,” that we maintain should only be enforced if the public is first allowed an opportunity to voice objections.
The NFIB Legal Center previously released a white paper detailing numerous examples of executive action imposing affirmative burdens on small business, without allowing an opportunity for notice-and-comment. The report can be found here. And in light of our extensive work on this issue, we thought it imperative to raise these concerns in United States v. Texas because the case presents the Court an opportunity to make clear that these sort of “informal” actions must still go through the formal rulemaking process—which is an essential protection for the small business community against arbitrary and ill-informed regulation. 
Murr v. Wisconsin – A Basic Question of Property Rights
There was also action in Murr v. Wisconsin this week. Murr presents another issue of great importance to the small business community, which we’ve explained previously here. In a nutshell, the case asks whether government can evade takings liability while denying a landowner the right to build on one of two adjoining parcels of land simply by characterizing the separate parcels as a ‘single property’ for the purpose of the review under the Takings Clause.
We encouraged the Court to take this case because it presents such a fundamental question of takings law. If government can so define the relevant parcel, it can eliminate property rights without incurring any takings liability—making an end run around our constitutional protections. Accordingly, in our brief to the Supreme Court this week, we argued that it’s essential for the courts to respect property lines. 
When a property is lawfully divided into separate parcels under state law, it should be treated as a separate parcel for the purpose of the Takings Clause. Under this common sense approach, government will not be allowed to evade takings liability. If a land use authority chooses to deny development rights for a property, it must pay just compensation—regardless of whether that property was previously carved from a larger estate. This is a matter of first principles. 
Professor Ilya Somin of the George Mason School of Law provides additional commentary at Volokh Conspiracy. Also Trevor Burrus provides comments on the Cato Blog. And for more commentary, we would direct readers to the Pacific Legal Foundation’s Liberty Blog

Encino Motorcars, LLC v. Navarro – A Vital Question Under the FLSA
Also this week, on Wednesday, the Supreme Court heard oral arguments in Encino Motorcars, LLC v. Navarro, which NFIB Legal Center filed in to voice concerns on behalf of the small business community. The case raises a narrow question as to whether service advisers, working for auto dealerships, may be treated as exempt employees under the Fair Labor Standards Act. But we weighed-in because of the big picture issue looming in the background.

The question of whether an employee may be treated as exempt or non-exempt under the FLSA is an important recurring question for small business owners in all industries. Why? Because only exempt employees may be paid a salary–instead of an hourly wage, and overtime. 

Unfortunately, the Department of Labor–and the trial bar–insist that FLSA exemptions must be narrowly construed against employers. But we argue that approach is unfair and fundamentally flawed. Our hope is that the Supreme Court will take the opportunity to repudiate this lingering notion that exemptions must be construed narrowly against employers. Our prior press release on the subject can be found here.



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