A Supreme Court Decision and Executive Order Change the Hiring Process For the SEC’s Administrative Law Judges

On June 21, 2018, in its ruling in Lucia v. Securities and Exchange Commission, No. 17-130, the United States Supreme Court held in a vote of 7-2 that the Securities and Exchange Commission’s (“SEC”) bureaucratic hiring process for its administrative law judges (“ALJ”) violates the U.S. Constitution’s Appointments Clause.  Justice Kagan, who authored the opinion, explained that the SEC’s ALJs qualify as “Officers of the United States” rather than “employees” under the Appointments Clause because, inter alia, the ALJs receive a career appointment and have significant discretion to carry out important functions, such as issuing opinions that bind the SEC.  The Appointments Clause provides that “Officers” may only be appointed by the President of the United States, a court, or the head of a department.  See Art. II, §2, cl. 2.

President Trump wasted no time implementing the Court’s decision.  On July 10, 2018, the President issued an executive order that changed the government’s historical hiring practice for all ALJs.  See Executive Order Excepting Administrative Law Judges from the Competitive Service.  ALJs had previously been hired using the “competitive service” process, through which federal workers are hired based upon standard rules and procedures created by the Office of Personnel Management.  Under the Executive Order, ALJs will now be subject to the “executive service” hiring process which will give far more discretion to agency heads, who are political appointees.  Some have said that the Executive Order will give the executive branch more influence over agencies such as the SEC and may cause ALJs to lose their adjudicative independence.

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Faruqi & Faruqi focuses on complex civil litigation, including:  securities, antitrust, employment, and consumer class actions. The firm is headquartered in New York, and maintains offices in Delaware, Pennsylvania, Georgia and California. Since its founding in 1995, Faruqi & Faruqi continues to serve as lead or co-lead counsel in high-profile cases that ultimately provide significant recoveries to investors, consumers and employees.

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About Megan Sullivan

Megan Sullivan is a Partner in the firm’s New York office and focuses her pratice on securities litigation.

Posted by Megan Sullivan

Partner at Faruqi & Faruqi, LLP
New York Office
Tel: (212) 983-9330
Fax: (212) 983-9331
Email: msullivan@faruqilaw.com

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