The system of checks and balances that the Constitution established is an essential safeguard against government overreach. Yet, the ever growing administrative state often undermines fundamental checks and balances. “Fourth branch” agencies frequently take on legislative, executive, and judicial roles simultaneously. And to make matters worse, administrative officials are much less accountable to the people than their counterparts in the traditional three branches.
One especially alarming example of the breakdown of essential separation of powers within the administrative state is the Securities and Exchange Commission’s use of administrative law judges (ALJs). ALJs adjudicate most of the SEC’s enforcement actions. They have the authority to impose significant civil penalties and can bar respondents from working in the securities industry.
The SEC’s use of ALJs to decide important cases violates the Constitutional principle of an independent judiciary. ALJs are housed within the same agency that initiates the proceedings they adjudicate. While notionally independent, the lack of distance between ALJs and the SEC’s enforcement counsel may serve as a source of bias and conflict of interest. The SEC selects the ALJs that hear cases, even though the Supreme Court has deemed it problematic when “a man chooses the judge in his own cause.”
There is also the risk that ALJs may feel pressure, whether explicit or implicit, to support their employer agency. The SEC’s win rate is better in cases heard by ALJs than cases brought to federal court. While there may be some selection bias at play, the optics are not good and, in matters of justice, the appearance of injustice can be harmful in itself.
In addition to these separation of powers and due process issues, ALJs are insulated from public accountability, meaning there is very little any elected official can do to check instances of bias or overreach. Cato recently filed an amicus brief in Lucia v. SEC, a case regarding ALJs’ lack of accountability to the public.
The SEC classifies its ALJs as employees rather than officers. Under the Constitution’s appointments clause, federal government officials are divided into two primary categories, officers and employees. All officers in the executive branch are subject to presidential removal power. The president’s power to remove officers that fail to preform their duties is essential for his ability to faithfully execute the law. Presidential removal power is also necessary in order for officers to be held accountable to the public.
Position holders that exercise significant power and discretion therefore must be labeled officers so that the president can carry out the laws and that officials can be held publically accountable. It is for that reason that jurists going back to the Founding understood that the definition of an officer includes any public official who exercises coercive authority over others. It is also why the Supreme Court defined an officer as an official that “exercis[es] significant authority” in Buckley v. Valeo while describing employees as subordinate “lesser functionaries.”
Given that SEC ALJs issue decisions in high impact cases involving significant dollar sums it is hard to argue that they are “lesser functionaries.” Indeed, the Supreme Court has ruled that the holders of similar positions like tax court special trial judges are officers, not employees. But the SEC insists its ALJs are mere employees. It argues that ALJs are not officers because the SEC Commission can review their decisions. However, this claim ignores the role of ALJs in influencing respondents to settle cases before appeal.
The SEC wants to have its cake and eat it too by trying enforcement cases before judges that are not independent yet still insulated from the public. Defendants should have the right to have their cases heard by federal judges, with all the due process protections that implies. But subjecting ALJs to presidential removal power is an important first step towards restoring accountability.