North Carolina Law Review

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The Re-“Tooling” of Federal ALJs: Lucia v. SEC and Executive Order 13,843

June 25, 2019

When Congress established the position of the administrative law judge (“ALJ”) via the Administrative Procedure Act (“APA”) in 1946, it sought to address concerns that persons hearing administrative cases lacked sufficient independence from the agencies that employed them. Indeed, prior to the APA, agencies controlled the compensation and promotion of the very officials tasked with presiding over hearings to which the agencies were parties. This structure led to the perception that hearing examiners were “mere tools” of agencies whose factual and legal determinations were compromised by their “subservien[ce] to agency heads.”

 

To remedy this problem, Congress wrote into the APA several provisions intended to insulate ALJs from agency coercion or influence. For instance, the APA eliminates agencies’ powers to determine ALJ salaries and grants the task instead to the Office of Personnel Management (“OPM”), an agency independent of presidential control. Furthermore, the APA provides that ALJs may not be subject to the supervision of agency prosecutors or investigators and may not engage in ex parte communication.

 

Notably, the APA also provides significant protections to ALJs against removal from their positions. ALJs may be removed only for “good cause” after a formal administrative hearing before the Merit Systems Protection Board (“MSPB” or “the Board”). Members of the Board, in turn, “may be removed by the President only for inefficiency, neglect of duty, or malfeasance in office.” Thus, although ALJs structurally remain part of agencies under the APA, the Act’s provisions secure them a high degree of independence from agency interference in their decision making. 

 

For seven decades, the manner of ALJ recruitment and hiring has provided additional safeguards to ALJ “decisional independence.” Although agencies appoint ALJs, the APA delegates authority to the OPM to determine who is qualified for ALJ positions.The OPM classifies ALJs as members of the “competitive service” and, accordingly, requires ALJ candidates to meet certain professional criteria and attain a sufficient score on a competitive examination. On the basis of exam performance, the OPM assigns rankings to candidates and provided a list of three eligible candidates from which agencies have to choose when they seek to hire an ALJ. This competitive hiring process, while not without its critics, both ensures that ALJs have a certain level of experience and largely shields ALJ appointments from political considerations.

 

Today, we find ourselves in a situation in which the decisional independence of ALJs is of increasing importance. Their prevalence in the federal government has greatly increased alongside the development of the “administrative state”: they now outnumber Article III judges by more than two to one, and they decide many more cases. The scope of ALJs’ responsibilities has also grown, as they now hear and decide a wide variety of matters that affect the national economy and the rights of individuals. 

 

This piece focuses on two recent developments that, in combination, greatly increase the degree of control that agency heads have over the hiring of ALJs. The first is the Supreme Court’s June 2018 decision in Lucia v. SEC wherein the Court held that the Securities and Exchange Commission’s (“SEC” or “the Commission”) ALJs are “Officers of the United States” within the meaning of the Constitution’s Appointments Clause and thus must be appointed by agency heads rather than agency staff. The second development is President Trump’s July 2018 executive order that responded to Lucia by excluding all ALJs from the competitive civil service and thus handing agency heads nearly full discretion over the ALJ hiring process.

 

The primary and overarching consequence of Lucia and the executive order is that, taken together, they jeopardize the continued impartiality of ALJs by rendering those important decision makers vulnerable to political influence. Within this broad theme, the two developments raise three somewhat overlapping problems. First, with Lucia as a springboard, the executive order’s exception of ALJs from the competitive civil service was a wrongheaded move to provide agency heads greater hiring discretion at the expense of ALJ decisional independence. Second, the executive order’s directive that all federal ALJs are “Officers of the United States” and, therefore, excepted from the competitive civil service goes much farther than Lucia’s narrow holding. Because not all ALJs exercise the significant authority necessary to make them “Officers of the United States,” and because Lucia’s holding does not require any change to the service status of ALJs, the executive order is an over broad and ill-considered policy decision. Third, Lucia and the executive order pave the way for a finding that the APA’s “for cause” removal protection for ALJs is unconstitutional. This is important because such a finding would eliminate one of the most significant protections of decisional independence that the APA confers on ALJs.

 

Note that this Recent Development does not argue that Lucia was wrongly decided; it may very well be the case that Lucia’s holding was compelled by the Court’s precedents. Furthermore, this piece does not question the President’s authority to issue Executive Order 13,843. The following discussion focuses only on the ramifications of the two developments for ALJ decisional independence and Lucia’s importance as a backdrop for the subsequent ill-conceived policy changes in the executive order. The following discussion proceeds in three parts. Part I describes the facts and the Court’s reasoning in Lucia. Then, Part II discusses the mandates and underpinnings of President Trump’s executive order. Finally, Part III analyzes the three problems associated with Lucia and the executive order outlined above.

 

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