We were just about to push the button to publish a white paper taking a look back after the dust has settled on the Lucia v. SEC Supreme Court case involving the constitutionality of the Securities and Exchange Commission’s administrative law judges when I saw a look of abject horror come across my editor’s face. I assumed she had caught an embarrassing and heretofore undiscovered typo on my part, but no. Just moments before we were to send the paper along its merry electronic, President Trump issued an executive order changing the way that administrative law judges are hired, moving them from the competitive service, where potential hires are reviewed and examined by the Office of Personnel Management (OPM), to the excepted service, where department and agency heads have much more leeway in selecting their personnel.
The executive order, issued July 10, amends the civil service rules to accomplish the changes mentioned above, and to provide that, “Except as required by statute, the Civil Service Rules and Regulations shall not apply to removals” from the position of administrative law judge. My initial reaction was, can the president do that? The answer is yes, that is a proper exercise of presidential authority. Under 5 U.S.C. § 3301, the president may “prescribe such regulations for the admission of individuals into the civil service in the executive branch as will best promote the efficiency of that service.” In addition, under 5 U.S.C. § 3302, the president may make any “necessary exceptions of positions from the competitive service.”
The next question involved the rule change on removal authority. Upon closer look, this is not as drastic as it sounds with regard to the ALJs, because they fall within the “Except as required by statute” language. The Administrative Procedure Act provides that any “actions” against ALJs may only be taken for “good cause established and determined by the Merit Systems Protection Board on the record after opportunity for hearing before the Board.” Under 5 U.S.C. § 7521, “actions” covered under this protection include:
The statute exempts actions due to general reductions in force, disciplinary violations, and suspensions or removals for national security reasons from this review process.
In its explanatory language, the president’s order states that the Lucia decision may “raise questions about the method of appointing ALJs, including whether competitive examination and competitive service selection procedures are compatible with the discretion an agency head must possess under the Appointments Clause in selecting ALJs.” The Supreme Court did not, however, discuss the issue of whether the competitive component of the hiring process raises appointments clause issues, and the parties and other participants did not address the question in their briefing. The academic literature dealing with the constitutionality of administrative enforcement also has not focused on the competitive testing angle.
The order, in all likelihood, will not resolve any future appointments clause challenges, and will certainly not be relevant to any lingering viability questions concerning cases decided by ALJs that are outside the appeals window.
It is true that the placement of ALJs in the excepted service will allow departments and agencies to select their judges from a larger pool of applicants, and they may be able to choose from applicants with skill sets more suited to the specific needs of the position. The elimination of OPM screening and competitive testing does raise the possibility, however, that ALJ vacancies could be filled by political hires, which could threaten the independence of the adjudicators from the departments or agencies that employ them.
Due to the “good cause” restrictions on removal and other disciplinary actions in the Administrative Procedure Act, the executive order has little impact on current ALJs. It should be noted, however, that there are still questions surrounding the legal and constitutional status of sitting ALJs. One applies to judges across the government, while another is unique to the SEC ALJs.
Initially, there is the lingering question of the constitutionality of those removal protections. The Supreme Court sidestepped the issue in Free Enterprise Fund v. PCAOB in 2010, and left it unresolved in Lucia. As described by Justice Breyer in his concurrence, there is a potential constitutional conflict between the executive authority of the president to remove officers of the United States, including ALJs, and the APA language that provides for removal only for good cause. He indicated that he believed that Congress would not have intended for ALJs to be officers of the United States if such a characterization would have cost them their “for cause removal” job protection.
With regard to the SEC’s ALJs, in the Lucia opinion, Justice Kagan did not appear to be not convinced of the constitutional efficacy of the order issued by the SEC last year, when the agency ratified the appointments of the five sitting ALJs. In a footnote, she wrote that "[w]e see no reason to address” the impact of the ratification order, but she noted that the SEC could “assign the hearing to an ALJ who has received a constitutional appointment independent of the ratification.” In addition, her statement in the text, that the “official cannot be Judge Elliot, even if he has by now received (or receives sometime in the future) a constitutional appointment” indicates that she does not believe that ratification cured the constitutional defect.
In a future administrative proceeding, a respondent could make a plausible argument that the ALJ assigned to the case lacked the authority to hear the matter because the judge had not been properly appointed. The SEC could avoid any such problem by taking steps to appoint their sitting administrative law judges in a formal procedure and not rely on the November 2017 ratification order. To date, the Commission has shown no inclination to do so.
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