July 19, 2018

Executive Order Addresses ALJ Appointments Post-Lucia

2 min

In the wake of Lucia v. Securities and Exchange Commission, discussed here, a recent executive order removes administrative law judges (ALJs) from the Office of Personnel Management's competitive service. In Lucia, the Supreme Court determined that ALJs are "inferior officers" of the United States and, therefore, are subject to the Appointments Clause of the Constitution. This means that ALJs must be appointed by the president, courts, or heads of departments, but historically ALJs have been hired through the OPM process.

While many federal agencies, including the SEC, have taken steps to appoint their ALJs consistently with the Supreme Court's interpretation, the executive order indicates that the administration is concerned that Appointments Clause arguments might still be available to parties before ALJs if, for example, only ALJs from OPM's "list of three" are appointed. Prior to the order, OPM created a list of the three highest-scoring candidates based on selection criteria, including written examination, interviews, and other factors. Agencies would then be required to select an ALJ from the list, and could not hire an ALJ ranked lower.

The executive order's stated purpose is to forestall additional Appointments Clause issues regarding ALJs and administrative adjudication. Section 1 of the order states that it "[w]ill mitigate concerns about undue limitations on the selection of ALJs, reduce the likelihood of successful Appointments Clause challenges, and forestall litigation in which such concerns have been or might be raised."

After appointment, agencies are prohibited from reviewing ALJs' performance, providing bonuses or other compensation incentives, or removing ALJs except for cause. The executive order addresses only the appointment of ALJs, however, and so leaves open questions regarding removal stemming from the Supreme Court's decision in Free Enterprise Fund v. PCAOB. As we have discussed, ALJ removal is one of several follow-on issues that are likely to stem from the Supreme Court's decision in Lucia.