CEI primer on agency adjudication 

Agency adjudication is the process by which administrative agencies resolve legal disputes that implicate regulatory policies. Agencies render decisions through in-house tribunals commonly known as administrative law courts (ALCs). There are an estimated 42 agencies that possess ALCs regulated under the Administrative Procedure Act (APA) and an additional 12-15 entities possessing non-APA tribunals. Each ALC possesses a set of administrative law judges (ALJs).

Through the APA, Congress affords quasi-judicial authority to agencies to act as judges of their own policy. Understandably, this framework has generated much controversy in recent years, particularly in how private parties are denied the same due process in ALCs as provided federal courts that are governed by Article III of the US Constitution.

The purpose of this primer is to provide a brief assessment of agency adjudication and ALC activities in light of several major administrative law cases. While once obscure, disputes involving ALCs have recently become more visible on the dockets of federal appellate courts. This primer will also briefly survey ongoing ALC disputes and emergent reform under the Trump administration.

The nuts and bolts of agency adjudication  

Agency adjudication can take two forms: formal and informal adjudication. Formal adjudication is when the agency is statutorily required to hold a public hearing “on the record” between both parties. These hearings are generally adversarial in nature, in that the agency is disputing an aspect of its policies with an affected party. Certain agencies like the US International Trade Commission can facilitate formal adjudication between two private parties and have their investigative staff weigh in. 

Formal adjudication is outlined in several sections of the APA, namely 554 and 556-557. Hearings are held by an ALJ who serves as both the factfinder and the arbitrator of disputes. This means that there are no jury trials for most of these cases and public visibility and participation is dependent upon each agency. Despite this disparity, ALC hearings are designed to resemble Article III trials in many respects.

Informal adjudication has two distinct meanings. First, it pertains to all matters that are resolved outside of trial-like hearings. This includes agency-driven arbitration, dispute resolution, and a variety of ALJ orders that can end a dispute before it reaches the hearing stage – such as ALJ issued dismissals, summary judgments, withdrawals, and default orders.

Second, informal adjudication also pertains to all adjudicative matters conducted by non-APA regulated agencies. These refer to those agencies that possess their own tribunals that are governed entirely by the executive branch and therefore lack the statutory restraints and expectations outlined under the APA. This includes the Equal Employment Opportunity Commission (EEOC), the US Patent and Trademark Office, and the Department of Veterans Affairs.

This form of informal adjudication can be difficult to distinguish due to its similarities to formal adjudication under the APA. For example, the EEOC oversees a federal sector equal employment opportunity adjudication program with adversarial hearings. These hearings facilitate discovery, allow for submission of evidence, and are conducted before an administrative judge (adjudicators that are distinct yet similar to an ALJ). This would be considered formal for the EEOC’s purposes, yet informal when compared to statutorily required public hearings under the APA.

Attributes of ALJs 

Federal ALJs serve as both judges and juries in the cases they oversee. Official estimates show that there are around 2,000 ALJs across the federal workforce. There are actually likely more than 3,000, given that the Office of Personnel Management does not account for many ALJs that aren’t visible on the agency’s website, case decisions, or that can’t be found from basic online searches. When looking at non-APA adjudicators, the numbers rise enormously. One scholarly estimate suggests that there are around 10,831 non-APA adjudicators. 

Where ALJs are afforded two layers of statutory removal protection under the APA, non-APA adjudicators do not enjoy such security. ALJs can only be removed for cause from their position by the president or the head of their agency, subject to review before the Merit Systems Protection Board. Non-APA adjudicators, on the other hand, can be fired at will or for any reason the agency head or president deems fit.

One notable advantage that non-ALJ adjudicators enjoy over ALJs is that they can wield both executive enforcement and quasi-judicial powers simultaneously. By contrast, ALJs are entitled to wield only adjudicative power under the APA. Despite this, there are several instances where certain agencies permit their ALJs to violate this norm by wielding dual powers.

One notable instance of this is in the Department of Energy (DOE), where many of their ALJs also work as attorney advisors for the department’s legal team. Since attorney advisors provide legal support to the DOE’s secretary, they shouldn’t also be adjudicating cases as ALJs, especially since final decisions are rendered by the secretary on appeal. To make the process even more problematic, DOE also houses its ALJs in its Office of General Counsel, rather than a separate office of hearings and appeals like other executive agencies do. 

Adjudication vs rulemaking 

Agency adjudication as a process is distinct from administrative rulemaking. One key difference between rulemaking and adjudication is that rulemaking is quasi-legislative in nature in that rules constrain the future conduct of regulated persons based on internal policy considerations.

Adjudication, on the other hand, takes the form of a judicial-like order that imputes harm from a person or group’s prior violation of policy. Agencies often conduct adjudication to determine the regulated parties’ “past and present rights and liabilities.”

Some agencies, like the Federal Housing Finance Agency (FHFA) and (usually) the National Labor Relations Board, choose to conduct regulation through adjudication. We see this with the FHFA director issuing legally binding orders (including stress tests) on regulated entities such as Fannie Mae, Freddie Mac, and Federal Home Loan Banks. Some agencies may feel it more expedient to impose certain regulations by adjudication to avoid public notice or external legal pushback.

Looking forward 

Agency adjudication provides an important venue for agencies to exercise authority over their policy actions. Where agency adjudication had seemed obscure in the past, recent Supreme Court rulings like Lucia v. SEC, Axon v. FTC, andSEC v. Jarkesy have elevated certain ALCs to national prominence. As a result, we’ve seen a spike in lawsuits challenging how ALCs undermine certain constitutional rights.

Many of these disputes are playing out in federal courts brought by prominent businesses like Meta, Walmart, Trader Joe’s, and SpaceX, suing agencies like the National Labor Relations Board and the Federal Trade Commission. Several other cases are being pursued by individuals against entities like the Federal Aviation Administration, and Federal Insurance Deposit Corporation.

This primer provides a snapshot of federal agency adjudication and the dynamics by which executive agencies seek to resolve legal disputes in-house. Moving forward, Congress may consider whether agencies should continue to adjudicate their own cases in the face of allegedly unfair and unconstitutional circumstances.

One step toward reform would be to impose criteria for economically significant adjudication in the way that major rulemakings are classified under Executive Order 12866.   

This idea was discussed in a recent Federalist Society webinar reflecting on how the Office of Information and Regulatory Affairs (OIRA) must now review all “significant regulatory actions” for independent agencies under Executive Order 14215. These are rulemakings that stand to impose economic effects of $100 million or more.

Given how some agencies enact regulations through adjudication and impose hefty civil monetary penalties on firms that can climb into the millions, requiring OIRA review of adjudication seems like a plausible idea. Congress can establish civil penalty thresholds that, if triggered, would require OIRA review to justify the economic impact to the respondent. There should also be closer supervision of administrative cases by political appointees of the agency.

Following the Supreme Court’s Jarkesy decision, the Trump administration recently issued a memo directing agencies to revoke regulations that permit the adjudication of civil monetary penalties. As other lawsuits challenge agency authority in this space beyond the SEC, it will be interesting to see the potential cascading effects on adjudication across the executive branch.