ALJs Could Get Political With New Executive Order

Financial Services Law

The new executive order (EO) granting agency chiefs the power to hire administrative law judges (ALJs) according to their own standards—and eliminating the exam and competitive hiring process formerly in place—could turn the position of ALJ into a politicized one, critics of the move argue.

The “Executive Order Excepting Administrative Law Judges from the Competitive Service,” signed by President Donald Trump on July 10, attempts to solve the problems raised by the Supreme Court’s decision this year in Lucia v. Securities & Exchange Commission. But critics worry about the unforeseen consequences to the regulatory process that this EO may cause.

What happened

In a closely watched case, the Supreme Court in Lucia held that the common practice of having ALJs appointed by the staffs of federal agencies was unconstitutional. ALJs, such as those used by the Securities and Exchange Commission (SEC), are “Officers of the United States” who can be appointed only by the president, “Courts of Law” or “Heads of Departments” pursuant to the Appointments Clause of the Constitution, the Court held.

The opinion, authored by Justice Elena Kagan and joined by the five conservative-leaning justices (with a concurrence in part by Justice Breyer), has resulted in considerable uncertainty, not just for the SEC but for all federal agencies that use ALJs. ALJs are found throughout the federal system, from the National Labor Relations Board to the Federal Energy Regulatory Commission, with the bulk of the approximately 1,900 ALJs found in the Social Security Administration. Before the president’s July 10 EO, federal agencies had hired ALJs through a competitive merit selection process administered by the Office of Personnel Management. After Lucia, this practice might no longer pass constitutional scrutiny.

In an effort “to eliminate doubt regarding the constitutionality of the method of appointing officials who discharge such significant duties and exercise such significant discretion,” Trump issued the EO.

In the EO, the president explained: “I find that conditions of good administration make necessary an exception to the competitive hiring rules and examinations for the position of ALJ.

“These conditions include the need to provide agency heads with additional flexibility to assess prospective appointees without the limitations imposed by competitive examination and competitive selection procedures.”

The EO “will also give agencies greater ability and discretion to assess critical qualities in ALJ candidates, such as work ethic, judgment, and ability to meet the particular needs of the agency,” the president added. “These are all qualities individuals should have before wielding the significant authority conferred on ALJs, and each agency should be able to assess them without proceeding through complicated and elaborate examination processes or rating procedures that do not necessarily reflect the agency’s particular needs. This change will also promote confidence in, and the durability of, agency adjudications.”

Now, the sole requirement to be appointed an ALJ is a professional license to practice law and good standing to practice in one of the states, the District of Columbia, Puerto Rico or any territorial court. As a result, agency heads have broad discretion to appoint ALJs as they see fit, with very little oversight.

Critics of the EO expressed concern that this new process will lead to political appointments that lack the appearance of independence. “This change will politicize our courts, lead to cronyism and replace independent and impartial adjudicators with those who do the bidding of political appointees,” Marilyn Zahm, president of the Association of Administrative Law Judges, said in a statement, calling the EO “an assault on due process for the American people.”

Why it matters

While the White House touted the EO as a means to alleviate uncertainty in the wake of the Lucia decision and as a more efficient and less burdensome procedure than the former competitive examination and selection process, critics were not appeased. Forgoing the merit-based hiring process and putting the selection power into the hands of politically appointed agency heads will lead to politicized ALJs, opponents argued. Going forward, it will be important to watch and see how this new appointments process affects ALJ decisions throughout the federal agencies. 



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