Notice & Comment

A “Worm’s Eye” View of the Practical Effect of Guidance, by Ming Hsu Chen

The worrisome practical effect of guidance is a key concern for administrative law scholars like Robert Anthony, who wrote the first ACUS report on guidance. Scholars have not stopped worrying. A new way to assess guidance is to see how it operates on the ground. That is, does it make real change in the regulated arena? This focus on regulatory effects is built into the infamously muddy “force of law” test. It resonates with a law and society understanding of how norms operate and the evolution of law: “law in action” as opposed to the “law on the books.” Nick Parrillo’s “Worm’s eye view” of agency practices and especially their relationship to their regulated entities provides an opening for understanding these issues in a fresh way.

In general, the force of law test specifies that guidance should be:

  • Not be binding on agency (foremost)
  • Should be flexible, not inflexible
  • Prospective/speculative, not retrospective

Modern formulations of the force of law test (Pacific Gas & Electric v. Federal Power Commission, 506 F.2d 33 (D.C.Cir. 1974); Molycorp Inc. v. EPA, 197 F.3d 543 (D.C.Cir.1999); Appalachian Power Co. v. EPA, 208 F.3d 1015 (D.C.Cir. 2000) specify that the practical consequences for regulated parties should be considered. The worry for the last prong is that there is a practical effect for the regulated party no matter whether technically and legally binding. This might be the result of the agency’s proclivity to make a position dispositive. Or it might result from a misuse or misunderstanding on the part of agencies and regulated parties. For example, Nina Mendelson discusses the reliance interests of regulated entities on guidance – essentially that the guidance will become “too legitimate” so as to become de facto regulations – or the regulated entity’s attempts to emulate best practices described in guidance.

In the empirical study underlying Parrillo’s ACUS report and JREG article, he interviews 135 agency officials and 100 regulated parties: industry, NGOs, unions including 58 former agency officials. The interviews with regulated parties yielded insights into the incentives regulated parties face: essentially that regulated parties comply with guidance for instrumental reasons. So other than the regulations gone amok story of guidance’s misuses or misunderstandings that administrative law scholars have presumed, empirical evidence shows that compliance behaviors are the byproduct of organizational concerns and institutional pressures. Parrillo’s incentives analysis, which recasts practical effect as the inevitable consequence of guidance, relies on recognition that (1) a guidance document can legitimately play an influential role in regulatory behavior that does not rise to the level of being “binding”; and (2) industries can cooperate with regulators for reasons other than legal threat of enforcement or instrumental benefit.

Parrillo could have said more about the second point: the reasons regulatory parties comply. Beyond instrumental incentives, the most interesting reason reported is the interest of regulated parties in maintaining relationships (at 191). The main example he gives is banks that are subject to multiple layers of monitoring: the Office of the Comptroller of the Currency, the Fed, the FDIC, and the CFPB. Maintaining relationships is sometimes instrumental, i.e. obtaining a benefit or avoiding a sanction. But sometimes it is based on the development of mutual trust. As Parrillo says, “it is to the regulated party’s advantage to win the trust of the agency – that is, to build a reputation with the agency for generally seeking in good faith to comply and cooperate” (at 191). In these cases, the relationship reinforces self-interest: the industry seeks to earn the trust of agency officials as parties acting in good faith such that mistakes would be considered inadvertent.

Sometimes relationships serve more than self-interest: the agency official seeks to earn respect from the regulated entity to obtain cooperation or vice versa. This dynamic of mutual regard is captured in the metaphor of the parent-child relationship (at 195), wherein an interviewee likens the relationship to a parent relying on informal means such as raising an eyebrow instead of spelling out rules to obtain cooperation from a child. Why? Because the child respects the parent and seeks his respect in turn. These kinds of appeals contrast with technical or legalistic appeals, and they’re captured in stories of clients being advised “not to respond to the guidance too literally” (at 194).

The distinction between legality from relational legitimacy is something Tom Tyler and procedural justice theorists herald as a key component of garnering voluntary compliance and cooperation. Cooperation is an even higher calling than compliance. Cooperation represents something more, something higher, and something more mission-driven than simply following the law. It represents “doing the right thing” (at 200).

The chance to see expressions of these higher motives is obscured in the examples Parrillo chooses. The core examples of strong incentives emanate from financial regulation and adhere to a rational actor, cost-benefit logic that roughly tracks the profit motive of those industries. The other examples of OSHA, EPA, and FDA, where incentives to follow guidance are weaker, show weaker compliance. From an instrumental standpoint, this is not surprising. Indeed, it is merely the same finding recast with new examples. Where are the instances of strong compliance despite weak enforcement? We cannot know what we do not study, and Parrillo studied roughly 100 more agencies and regulated parties than the typical administrative law scholar. Still if the stories did not arise in his interviews, it would be interesting to consider why not.

Theories of cooperation and other empirical studies of regulation show schools robustly complying with language and sexual harassment guidance from the U.S. Department of Education, Office for Civil Rights, despite the nonbinding character of guidance and the non-litigating enforcement apparatus of the agency. Social service agencies serve immigrants and workplaces protect undocumented workers when neither the law nor their conscience strictly requires it. Environmental firms overcomply with guidance due to reputational concerns and not just the bottom line. Thinking more about value-driven, non-instrumental incentives for cooperation would make the findings richer and contribute more to our understanding of regulatory behavior.

It would also equip us to pursue new and urgent questions about the current policy environment, where the administrative state is being radically deconstructed and reconstructed precisely because of competing values. The Trump administration has rescinded Obama era guidance with head-spinning speed and breath-taking scope. DHS rescinded DACA and TPS for vulnerable immigrants with little explanation or justification. The DOJ repealed 24 guidances in a single day. Executive orders are frequently unaccompanied by any operational guidance in the agencies, as with the travel ban, family separation, and the transgender ban in the military. To use Parrillo’s parlance, agencies are not being stymied by “inflexible” guidance; agencies have treated guidance so “flexibly” that guidance function as trampolines or launch pads for policy change. The reaction from regulatory parties has been mixed. Sometimes regulated parties comply; sometimes they resist. Among the resistors, many of the sanctuary cities and sanctuary networks defying DHS’s punitive immigration policies do so due to value judgments about immigration policy and disrespect for the regulators in the relationship. Instrumental incentives do not guide them and lawsuits do not scare them; in some cases, cities act against their self-interest when they defy federal immigration enforcement and risk losing federal dollars.

Debates over guidance doctrine that require more procedure to discipline agency regulation seem out of touch with these modern realities. Maybe notice and comment would inject more speed bumps into the regulatory process, to good effect. But would we be better off without guidance, if the regulatory speed bumps encourage off-roading? Ultimately I agree with Rena Steinzor’s sentiment in the Guidance Racket that: “Getting rid of all guidance, as opposed to using it in a thoughtful way, will cause more harm than good.” While administrative law scholars worry about ossification, my prediction is that the real alternative to guidance in the Trump administration is not greater use of notice and comment procedures for the sake of increased transparency, deliberation, or legal compliance. More likely, agencies would act on unwritten agency practices in the Trump administration, which is more concerning for policy development, less legitimate to regulated parties, and less susceptible to judicial review than guidance if unprincipled flexibility or impure motives are at play.

These omissions notwithstanding, Parrillo’s empirically-grounded insights shed light on the efficacy of guidance and especially the issue of whether to worry when guidance appears to become too binding. Generally, we should worry less about guidance formalism and more about the functional responses of regulated parties acting in the real world: a messy, complex world of contested values and competing motivations and unpredictable results. We’re better off having some guidance than no guidance.

Ming Hsu Chen is Associate Professor at the University of Colorado Law School and Faculty-Director of the Immigration Law and Policy Program. She teaches courses on administrative law, immigration law, and citizenship.

This post is part of a symposium on federal agency guidance. The rest of the posts in this symposium can be viewed here.

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