Notice & Comment

The Role of Guidance Documents in Agency Regulation, by Stuart Shapiro

The year 2019 may prove to be a landmark one for the question of the proper role of agency guidance documents (or “non-legislative rules”).  Within the next month or two, the Supreme Court will reach a decision on Kisor v. Wilkie where the question of judicial deference to agency’s interpretation of their regulations is at issue.  If the Court uses this case to overturn “Auer deference,” and make it less likely that courts will defer to agency interpretations of their own regulations, agencies may be disincentivized from using guidance documents to fill in the gaps in their regulations.

Meanwhile, the Office of Management and Budget (OMB) recently issued a memo clarifying their position that the Congressional Review Act applies to guidance documents.  In addition to subjecting guidance to Congressional review, this also gives OMB the ability to review guidance documents from independent commissions to determine whether such documents are “major” under the CRA.

The OMB memo raises the cost to agencies of issuing certain (“major”) guidance documents by requiring OMB review and cost-benefit analysis. At the same time, the Supreme Court decision in Kisor may reduce the benefit to agencies of using guidance documents.  Even in combination, these two efforts will not eliminate the use of guidance (or come close to doing so).  But by increasing their cost and reducing their benefit to agencies, the actions by the judicial and executive branches of government will almost certainly reduce the usage of non-legislative rules by agencies.

If agencies do cut back the use of guidance documents, they will have to move in one of two directions.  They could adopt a more formal approach by taking documents that would have been guidance documents and subject them to notice-and-comment rulemaking.  Or they could move toward greater informality, and rely more on internal management documents, other alternatives to guidance, and case by case adjudication.  In which direction will they move?  Nicholas Parrillo’s outstanding article on agency guidance can help us think about the answer to that question.

Parrillo details numerous pressures on agency officials that lead toward more inflexible interpretations of guidance documents.  Some of the pressures come from external parties, including both regulatory beneficiaries who wish to ensure consistent compliance from regulated parties, and from firms who wish to ensure a level playing field with their competitors.  These cross-pressures are likely to make rulemaking a desirable option for agency officials who move away from guidance in order to signal to external stakeholders continued consistency in regulatory interpretation.

The problem is that rulemaking is costly.  The procedural requirements associated with rulemaking are likely responsible in part for the proliferation of non-legislative rulemaking in the first place.  These costs, both in agency resources, and in the scarce time of agency leadership, will not allow more than a handful of guidance documents to be turned into legislative rules through a notice-and-comment process.

Instead agencies are likely to move in the other direction.  As I detailed in an earlier article, many such options take the form of the provision of information to other parties.  Agencies may create enforcement manuals that instruct their enforcement personnel to behave in particular ways.  They may provide information to regulatory beneficiaries (such as workers) about their rights under agency regulations.  Or they may provide information to state and local partners or non-profit organizations that can help the agency with the enforcement of regulations.  All of these methods are unlikely to be seen as guidance documents that would trigger either OMB review or judicial scrutiny.

Agencies may also move further on the spectrum away from formality and toward case by case adjudication.  The courts have established that agencies can make policy through individual adjudications .  But this mode of policy-making raises other problems.  Case by case law is by its very nature vague and contradictory. Parrillo notes the pressures on high level agency officials to defer to their inspection staff’s enforcement decisions, which makes appeals of such decisions costly and often unsuccessful.  These characteristics of adjudication are in part what led to the appeal of both rulemaking and guidance to the regulated community.

Indeed, the factors that Parrillo identifies as reasons industry follows non-binding guidance documents also point to their desire for agency guidance in the first place. Industry, particularly if they are subject to pre-approval clearances or large post-inspection penalties has a great deal at stake in ensuring they know what agencies want.  A movement away from guidance will make it harder for industry to predict the behavior of the agencies that oversee them.

Guidance became prevalent because writing regulations is hard for agencies, and because industry prefers predictability to the uncertainty of case by case enforcement.  Guidance is “ecologically rational” given the current system.  Making it harder and less desirable for agencies to write guidance will lead to inferior choices given the current system.  The issuance of fewer guidance documents is unlikely to lead to better solutions from either a legal or economic perspective if nothing else changes.

As Parrillo notes, the one way out of this conundrum is more systematic reform (rather than focusing merely on agency guidance). Such systemic changes could include making it easier for agencies to write and modify rules (at least in certain circumstances) so agencies embrace this as an alternative to guidance, or giving significantly more resources to regulatory agencies so they can provide compliance assistance to industry.  Sadly neither of these changes seem likely at the moment, meaning that guidance documents are likely to remain an attractive solution for agencies and their curtailment is likely to be harmful both to agencies and the regulated community.

Stuart Shapiro is a professor and the Associate Dean of Faculty at the Edward J. Bloustein School Of Planning And Public Policy, Rutgers University.

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

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