The U.S. Supreme Court struck down a 40-year precedent on June 28, weakening federal regulatory agencies and potentially upending several controversial decisions affecting the promotional products industry – including the recent ban on noncompete agreements and new guidelines regarding independent contractors.
The 1984 case commonly known as Chevron directed lower courts to defer to federal agencies on laws that aren’t clearly defined; this ruling was the backbone of thousands of environmental, health and trade regulations. But the Supreme Court’s new decision now changes that, redistributing rulemaking power from federal departments to judges and Congress.
The decision “fundamentally reshapes administrative law, eliminating the requirement that courts defer to agencies’ interpretations of ambiguous statutes,” explained the global law firm K&L Gates. “Instead, courts must exercise ‘independent judgment’ in determining the meaning of statutory provisions, although they may still ‘seek aid’ from well-reasoned or long-standing interpretations by agencies. This shift in the nature of judicial review marks a significant victory for those challenging federal regulations.”
Indeed, the potential impact is vast. Billions of dollars in legal challenges can now potentially be brought to courts across the U.S., all aimed at changing federal agency regulations on everything from emissions reporting to gun regulations. Though the actual effect of the Supreme Court ruling is yet to be realized, experts say it stands to have a sizeable impact on the promo industry.
The Federal Trade Commission (FTC) banned noncompete agreements in April 2024, voiding existing clauses for all workers besides senior-level executives and preventing new noncompetes. A noncompete agreement prohibits workers from taking another job or starting a business in a profession that competes with their previous employer.
FTC Chair Lina M. Khan said that noncompete agreements keep wages low, suppress new ideas and “rob the American economy of dynamism.”
“The FTC’s final rule to ban noncompetes will ensure Americans have the freedom to pursue a new job, start a new business or bring a new idea to market,” Khan said.
Promo leaders were divided over the ruling, with some saying “the feds should stay out of it,” while those in favor said no company should be able to prohibit someone from making a living.
The FTC’s ruling was unprecedented, according to Chuck Machion, senior vice president and senior counsel at ASI. With the recent Chevron reversal, he said he doesn’t expect it to be enforced. (Enforcement is slated to begin in September.)
“In light of the court overturning Chevron, the power has shifted to people challenging the FTC,” Machion said. “In the past, the court would say, ‘Well, I have to give [the FTC] the benefit of the doubt.’ There’s no benefit of the doubt now. Without that defense, the chance of it surviving is slim to none.”
Another rule that has been controversial in promo stands to be affected by the Chevron ruling. In March 2024, the U.S. Department of Labor’s classification guidelines for independent contractors went into effect, drawing criticism from promo leaders and lawsuits from contractors.
Most broadly, the updated guidelines ruled that any worker “economically dependent” on their employer should be classified as an employee and qualify for the expanded protections employees have in comparison to independent contractors.
“This rule will help protect workers, especially those facing the greatest risk of exploitation,” said Acting U.S. Secretary of Labor Julie Su.
Many promo products distributors rely on contract salespeople, often because they can’t afford employees, but also since the nature of the work lends itself to independent contractor relationships, according to Machion. Under the new guidelines and depending on the work requirements, some employers could be forced to either convert contactors to employees or to let them go.
“The independent contractor one is huge. If they wanted to enforce it, they could ban most independent contractors,” Machion said.
The are several lawsuits challenging the Labor Department’s guidelines, including one from the U.S. Chamber of Commerce. With the reversal of Chevron, Machion said, those cases stand a better chance. “Both sides of the argument,” Machion added, “are now going to be given equal weight.”
