Federal, state, and local administrative agencies regulate virtually every aspect of a business’s operation. Agencies’ rules, orders, and decisions make up the body of administrative law. How agencies function is the subject of this chapter.
Agency Creation and Powers
Congress delegates some of its authority to make and implement laws, particularly in highly technical areas, to administrative agencies.
A. Enabling Legislation – To create an agency, Congress passes enabling legislation, which specifies the powers of the agency.
B. Types of Agencies –
- Executive Agencies – Includes cabinet departments and their subagencies. Subject to the authority of the president, who can appoint and remove their officers.
- Independent Regulatory Agencies – Includes agencies outside the major executive departments. Their officers serve for fixed terms and cannot be removed without just cause.
C. Agency Powers and the Constitution – Agency powers include functions associated with the legislature (rulemaking), executive branch (enforcement), and courts (adjudication). Under Article I of the Constitution and the delegation doctrine, Congress has the power to establish agencies to create rules for implementing laws.
Rulemaking, investigation, and adjudication make up the administrative process. The Administrative Procedure Act (APA) of 1946 imposes procedural requirements that agencies must follow.
A. Rulemaking – Rulemaking is the formulation of new regulations. Legislative rules, or substantive rules, are as legally binding as the laws that Congress makes. Interpretive rules are not binding but indicate how an agency will apply a certain statute.
- Notice of the Proposed Rulemaking – An agency begins by publishing, in the Federal Register, a notice that states where and when proceedings will be held, terms or subject matter of the proposed rule, and the agency’s authority for making the rule.
- Comment Period – Interested parties can express their views. An agency must respond to significant comments by modifying the final rule or explaining, in a statement accompanying the final rule, why it did not.
- The Final Rule – The agency publishes the final rule in the Federal Register . The final rule has binding legal effect unless overturned by a court.
B. Investigation – Agencies must have knowledge of facts and circumstances pertinent to proposed rules. Agencies must also obtain information and investigate conduct to ascertain whether its rules are being violated.
- Inspections and Tests – Through on-site inspections and testing, agencies gather information to prove a regulatory violation or to correct or prevent a bad condition.
- Subpoenas – A subpoena ad testificandum is an order to a witness to appear at a hearing. A subpoena duces tecum is an order to a party to hand over records or other documents. Limits on agency demands for information through these subpoenas, and otherwise, include—
- An investigation must have a legitimate purpose.
- The information that is sought must be relevant.
- Demands must be specific
- The party from whom the information is sought must not be unduly burdened by the request.
- Search Warrants – A search warrant directs an officer to search a specific place for a specific item and present it to the agency.
Fourth Amendment – The Fourth Amendment protects against unreasonable searches and seizures by requiring that in most instances a physical search must be conducted under the authority of a search warrant.
- b. Warrantless Searches – Warrants are not required to conduct searches in businesses in highly regulated industries, in certain hazardous operations, and in emergencies.
C. Adjudication – Adjudication involves the resolution of disputes by an agency.
- 1. Negotiated Settlements – The purpose of negotiation is (1) for agencies: to eliminate the need for further proceedings and (2) for parties subject to regulation: to avoid publicity and the expense of litigation.
- 2. Formal Complaints – If there is no settlement, the agency may issue a formal complaint. The party charged in the complaint may respond with an answer. The case may go before an administrative law judge (ALJ).
- 3. The Role of an Administrative Law Judge (ALJ) – The ALJ presides over the hearing. The ALJ has the power to administer oaths, take testimony, rule on questions of evidence, and make determinations of fact. An ALJ works for the agency, but must be unbiased. Certain safeguards in the APA prevent bias and promote fairness.
- 4. Hearing Procedures – Procedures vary widely from agency to agency. Agencies exercise substantial discretion over the type of procedures used. A formal hearing resembles a trial, but more items and testimony are admissible in an administrative hearing.
- 5. Agency Orders – After a hearing, the ALJ issues an initial order. Either side may appeal to the commission that governs the agency and ultimately to a federal appeals court. If there is no appeal or review, the initial order becomes final.