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Trump Orders Limit Effect of Agency Guidance on Industry (1)

Oct. 9, 2019, 1:34 PMUpdated: Oct. 9, 2019, 11:29 PM

President Donald Trump signed a pair of executive orders intended to reduce the impact of agency guidance the White House believes has become a back-door means of regulation.

Industries often seek guidance from agencies to help them comply with complex rules. These agency policy statements—memorandums, circulars, bulletins, and letters—aren’t legally binding but often can serve as the basis for enforcement. Critics view such guidance as an improper shortcut around formal rulemaking.

“For many decades, federal agencies have been issuing thousands of pages of so-called guidance documents—a pernicious kind of regulation imposed by unaccountable bureaucrats in the form of commentary on how rules should be interpreted,” Trump said at the signing ceremony. “All too often guidance documents are a back door for regulators to effectively change the laws and vastly expand their scope and reach,” the president said.

The orders would not prevent agencies from pursing enforcement actions, but they clarify that violations of law should be based on statutes and legally binding regulations, said Paul Noe, vice president of public policy at the American Forest & Paper Association and former OMB official during the George W. Bush administration. Guidance documents by their nature are non-binding and cannot create a separate and independent basis for an enforcement action, Noe said.

Nonetheless, the new limits on guidance could have a broad, if uncertain, effect across multiple agencies that routinely use guidance and other documents to provide clarity to industry.

The Treasury and Labor Departments for example have issued letters to businesses and other entities seeking guidance on tax and workplace issues. The Food and Drug Administration is expected to issue guidance soon on the importation of drugs. And the Environmental Protection Agency has used a combination of memos, guidance documents, and formal rules to ease air permit requirements.

“These are fundamental steps to providing a more transparent, fair and predictable regulatory system by significantly improving practices for developing, using and managing guidance documents,” Noe said. “I think these are good government principles.”

Changing Behavior

The executive orders target significant guidance that could be interpreted as adding new rights or obligations or materially affect the economy, environment, public health, or state, local, or tribal communities. Such guidance is supposed to be—but often isn’t—reviewed first by OMB’s Office of Information and Regulatory Affairs.

“I think a big takeaway is that the real-world effect of an agency’s action is more important than its formal characterization,” said Anthony Campau, director of government regulation at the Detroit-based law firm Clark Hill PLC and a former chief of staff and counselor at OIRA.

One order, called “Promoting the Rule of Law Through Improved Agency Guidance Documents,” requires agencies to post all of their guidance documents on a searchable website with the understanding that anything not posted is considered rescinded.

The order mirrors legislation (S. 380) sponsored by Senate Homeland Security and Governmental Affairs Committee Chairman Ron Johnson (R-Wis.) that would require federal agencies to post all guidance, directives, memorandums, and notices on one website.

The other order, called “Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement and Adjudication,” is intended to safeguard against secret or unlawful interpretations of regulations, or from unfair or unexpected penalties, the White House said.

The orders take effect immediately, although each order does lay out timelines for agencies to complete specific tasks.

Independent regulatory agencies, such as the National Labor Relations Board or the Securities and Exchange Commission, are not subject to any presidential executive order.

What About Legal Letters?

It’s not immediately clear whether the orders will apply to legal opinion letters, like those that the Labor Department revived in recent years to address questions from lawyers for businesses, workers and unions. The missives are tailored to specific fact situations, but some say they’re often little more than regulations in letters’ clothing.

The DOL shortly after Trump was inaugurated brought back the letters, which had been coveted by attorneys during George W. Bush administration. Critics call them a “get out of jail free card” because lawyers can use the letters to defend companies accused of shortchanging their workers in court.

“I suspect opinion letters will not be covered by the orders because they are a specific type of guidance authorized by the Administrative Procedure Act,” Paul DeCamp, an Epstein Becker attorney who served as DOL Wage and Hour chief in the Bush administration, told Bloomberg Law.

The White House cited 2015 guidance from the Department of Labor as a prime example of back-door regulation. That measure declared many independent contractors should be classified as employees. This created confusion, raised costs for thousands of small businesses, and was done without public input, the White House said.

The Labor Department in 2017 scrapped the “administrator’s interpretation” on worker classification. Then Labor Secretary Alexander Acosta said at the time that Congress should tackle questions about whether gig and other workers are employees or independent contractors, but also kept the door open to using notice-and-comment rulemaking if lawmakers didn’t act.

Guidance Issued on Drugs, Benefits, Vaping

One of the ways the administration plans to allow the importation of drugs to the U.S. that were originally intended for a foreign market is through agency guidance.

The coming Food and Drug Administration guidance would allow drug manufacturers who already have FDA-approved drugs to bring foreign versions of those medications into the U.S.

The Centers for Medicare and Medicaid Services also has used guidance in the Trump administration to expand how states can use federal waivers to change what they cover in their Medicaid programs and individual insurance markets.

Guidance from January 2018 allowed states to require some of their Medicaid beneficiaries to work to receive benefits. So far, only Indiana has been able to implement those work requirements, and Arkansas, Kentucky, and New Hampshire have by stymied by the courts.

The CMS also put out guidance allowing states to use federal funds to pay for individual market insurance plans that don’t cover people with pre-existing conditions, including short-term limited-duration plans and association health plans.

Trump’s executive order attacking regulatory guidance will undermine his own promise to tackle the vaping crisis, said Amit Narang, regulatory policy advocate at Public Citizen.

“At the very least, the executive order will make it harder for the agency to ban vaping products that have yet to receive approval, and conservative groups opposed to the ban will point to the executive order as grounds for blocking it,” Narang said.

Treasury Already Scaling Back

The Treasury Department and Internal Revenue Service already have been putting the brakes on sub-regulatory guidance.

Treasury’s Assistant Secretary for Tax Policy David Kautter and General Counsel Brent McIntosh wrote in March that the department would cut back on issuing notices to flag intended rules, limit use of temporary rules, and focus on notice-and-comment rulemaking.

This shift away from notices and other sub-regulatory guidance is a natural effect of Treasury and the IRS’s rush to provide some understanding of the changes made by the 2017 tax overhaul, said James Alex, Kautter’s former senior adviser and now a principal at RSM US LLP. He noted that if there’s ever a similar rush in the future, it might be good to keep those quick and easy forms of guidance as options.

“What I saw was just the natural evolution of providing assistance to taxpayers,” he said. “Certainly, tax reform was assisted by what took place.”

It’s unclear whether and how the executive orders might affect private letter rulings, in which the IRS provides a taxpayer—often a large company considering a transaction—written certainty of tax treatment.

The effect of the executives orders on tax guidance depends on how broadly they apply, said Lisa Zarlenga, former tax legislative counsel at the Treasury Department.

Limiting the IRS’s use of memos, letters and other guidance not requiring normal notice-and-comment will likely be an “overall negative” for taxpayers because many rely on that information when determining how to fill out their tax returns, said Zarlenga, a partner at Steptoe & Johnson LLP.

Still, there have been some instances where taxpayers felt the IRS overstepped and issued “stealth regulation” in informal guidance, Zarlenga said.

Many taxpayers, for example, were upset when the IRS in a 2018 question-and-answer document denied taxpayers, who had elected to pay the 2017 tax law’s levy on accumulated offshore earnings over eight years, the ability to claim a refund or credit if they overpaid their first installment.

Effect on EPA Actions?

Natural Resources Defense Council attorney John Walke called the Trump administration’s move hypocritical, as agencies have routinely used guidance documents and other, less formal measures to update, suspend, or clarify existing environmental policies.

Bill Wehrum, the EPA’s assistant administrator for air and radiation under the Trump administration until June of this year, pledged to ease Clean Air Act new source review permitting requirements that the fossil fuel and manufacturing industry have long complained are time-consuming and costly.

He chose to make bite-sized changes to the permitting program through a combination of rules, guidance documents, and policy memos—instead of a comprehensive rule change that he pushed during his earlier time at the Environmental Protection Agency a decade ago.

The agency has also used a less formal process to change a 24-year-old policy for toxic air pollution controls, and is using a guidance document to update its interpretation of ambient air, a key Clean Air Act definition.

“This is a classic example of a guidance document that evades notice-and-comment rulemaking in order to roll back safeguards, and favor industry over ordinary Americans,” Walke said in an email.

The EPA also used an informal “interpretive statement” in April to update its position on whether the Clean Water Act’s permitting program applies to pollution that moves through groundwater before reaching a federally regulated waterway.

To contact the reporters on this story: Cheryl Bolen in Washington at cbolen@bgov.com; Shira Stein in Washington at sstein@bloomberglaw.com; Chris Opfer in New York at copfer@bloomberglaw.com; Lydia O'Neal in Washington at loneal@bloombergtax.com; Ellen M. Gilmer in Washington at egilmer@bloombergenvironment.com; Amena H. Saiyid in Washington at asaiyid@bloombergenvironment.com

To contact the editors responsible for this story: Martha Mueller Neff at mmuellerneff@bloomberglaw.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com; Terence Hyland at thyland@bloomberglaw.com