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Ruling on occupational licensing boards could open floodgates to lawsuits

by Jan. 9, 2018, 1:25 PM

Rebecca Haw Allensworth (Vanderbilt University)

Every state in America is at risk of becoming embroiled in multiple costly lawsuits because of a U.S. Supreme Court ruling against North Carolina in a case about how dentistry is regulated.

There are 1,790 occupational licensing boards in the United States, many of them vulnerable to lawsuits, said Rebecca Haw Allensworth, professor of law at Vanderbilt Law School and author of a comprehensive study of occupational licensing boards.

Almost a third of all jobs in the country are under the jurisdiction of occupational licensing boards. The boards cost consumers an estimated $116 billion per year, researcher Morris M. Kleiner estimated in his 2006 study, “Licensing Occupations: Ensuring Quality or Restricting Competition?”

“These suits not only expose states to significant financial liability, but they threaten to unravel the way that the occupations have been regulated for decades,” Allensworth said. “States need to take these new suits seriously.”

‘Foxes at the Henhouse’

The study, “Foxes at the Henhouse: Occupational Licensing Boards up Close,” was published in December in the California Law Review.

Allensworth compiled a list of 1,790 state boards. Eighty-five percent of the boards have rules that result in most of the board members selected to serve being active in the same profession the board regulates.

“The dark side of occupational licensing – its tendency to raise prices to consumers with dubious effects on service quality, its enormous payout to licensees and its ability to shut many willing workers out of the workforce – has begun to receive significant attention,” Allensworth said.

Currently, more than a dozen lawsuits involving occupational licensing boards are in various stages. North Carolina is defending three and California two. There is one lawsuit each in Connecticut, Georgia, Louisiana, Mississippi, Nevada, Pennsylvania, Tennessee and Texas.

“Several boards are accused of suppressing innovative new forms of professional practice that threaten the bottom line of traditional practitioners,” Allensworth said.

The original case

In the original case, North Carolina State Board of Dental Examiners v. Federal Trade Commission, the dental examiners’ board issued cease-and-desist orders in 2010 to non-dentists who offered teeth-whitening service without having a license to practice dentistry. The FTC objected and filed a lawsuit claiming the board was being unlawfully anti-competitive.

North Carolina law requires that six of the eight members of the dental board be licensed practicing dentists. That gives dentists an unfair advantage in getting their way, the FTC charged. The Supreme Court ruled in 2015 in favor of the FTC, stipulating that a state licensing board that is composed primarily of active market participants is immune from antitrust law only if it is “actively supervised” by the state.

Pending cases include hair braiders against a state cosmetology board, a hearing aid specialist board that allegedly suppresses competition by refusing to grant licenses to anyone outside their clique and a medicine board that made rules to stop a company from providing health care over the internet.

“States must act soon, as 1,515 boards are potentially vulnerable to the kinds of antitrust suits that are currently winding their way through the district courts.”

“States must act soon, as 1,515 boards are potentially vulnerable to the kinds of antitrust suits that are currently winding their way through the district courts,” Allensworth said.

How to fix it

There are two solutions that states can pursue, according to Allensworth’s article. One would be for states to take more seriously the duty of supervising occupational boards. This would entail creating more government involvement, probably in the form of a new regulatory body. The second is to rework the rules of who can serve on the boards so they become more diverse.

“Providing dominated boards with adequate state supervision could be a good way to avoid antitrust liability for board members,” Allensworth said. “The biggest disadvantage … is that the court has been unclear about what constitutes ‘adequate supervision.’ Supervision is therefore a risky route to immunity, and for that reason alone states may prefer immunizing boards by altering their composition.”

Changing the composition of state occupational boards would require new laws by state legislatures. If done well, state officials might be saving themselves from having to defend their systems from lawsuits.

“Uniformity within a state would give that state confidence that if one board is immune to antitrust laws, they are all immune and should not be subject to board-by-board litigation over whether supervision is required,” Allensworth said. “They should take the opportunity to reform all licensing boards along similar lines.”