Administrative Law Courts Are Unfair and Need Reform

A new Competitive Enterprise Institute report delves into a court system that most people are unaware exists – administrative law courts, or ALCs. In addition to the independent judicial branch set forth in the U.S. Constitution, many federal regulatory agencies now have administrative law courts as their very own in-house court systems, with a given executive branch agency both making the rules and then appointing and paying the judges that adjudicate those rules.

The report argues this setup is unfair and extremely costly for defendants, unjustly empowers regulators, and should be abolished.

“When a federal agency charges you with violating a law or regulation, and you have to defend yourself in court, it’s a problem that you must go to a special court housed within the same agency that charged you,” explained Stone Washington, CEI research fellow and co-author of Conflict of Justice: Making the case for administrative law court reform.

“The agency acts as prosecutor, appoints and pays the judge, and sets the rules,” Washington continued. “The government wins nearly every dispute in its own in-house courts, stacking the deck against the average citizen or business; and that’s not just or fair.”

“Administrative law courts are particularly unjust considering there is already a judicial system set forth by the U.S. Constitution in Article III,” said Ryan Young, CEI Senior Economist and report co-author. “Congress should stop setting people up to fail in this bizarre justice system and instead move ALCs out of regulatory agencies and into the regular judicial branch, where people have a better chance of getting a fair trial.”

Between FY 2011-2014, the Securities and Exchange Commission, for example, won an average of 90 percent of its cases when handled in-house. By way of comparison, the federal government wins just over half of cases on appeal in Article III courts (data from 2022).

Another problem is there are many more ALC courts than Article III courts. Currently, 34 federal agencies have ALCs, with 13,840 administrative law judges, adjudicators, and hearing officers collectively review hundreds of thousands of cases per year. By contrast, there are just 870 judgeships across Article III courts (federal district and appeals courts).

Numerous agencies lack any transparency or reporting on ALC activity to the public, like the Department of Interior, the Department of Transportation, the International Trade Commission, and the National Transportation Safety Board.

Meanwhile, there is a pending legal challenge to the powers wielded by administrative law courts. The U.S. Supreme Court is hearing a case called Securities and Exchange Commission v. Jarkesy, in which a hedge fund manager charged with securities fraud was subjected to closed-door hearings that denied him the right to a civil jury trial. Seven years later, only after Jarkesy lost his case in the SEC’s court, he was allowed to appeal to a regular court (the Fifth Circuit Court of Appeals).

The CEI report urges Congress to pass legislation formally moving ALCs out of agencies and into the standard court system.

> View the report, Conflict of Justice: Making the case for administrative law court reform, by Stone Washington and Ryan Young