In the previous unit, we learned the difference between legislative rulemaking and non-legislative guidance. We also learned that, sometimes, it’s hard to determine whether an agency action constitutes rulemaking or merely an interpretation or statement of policy that doesn’t bind regulated entities. In this unit, we will learn how to differentiate between agency actions that involve legislative rulemaking and those that involve adjudicative (quasi-judicial) actions. Before we explore the differences between rulemaking and adjudication, we will first define adjudication and examine the APA’s requirements for adjudication procedures.

Introduction to Adjudication

According to the APA, when an agency’s final disposition is not a rulemaking, it is an “order.” APA Section 551(6) defines order as “a final disposition [...] of an agency matter other than rulemaking but including licensing.” This definition divides the agency’s final decisions into two categories: quasi-legislative rules and quasi-judicial orders. Of course, agencies also perform other tasks, including investigating and gathering information, as well as issuing guidance. But agencies make binding decisions by promulgating rules and issuing orders.

APA Section 551(7) defines “adjudication” as the “agency process for the formulation of an order.” Adjudications cover a wide range of activity. Some adjudication proceedings resemble courtroom proceedings, with agency attorneys prosecuting individuals who violate laws and seeking agency orders that confer penalties before administrative law judges (ALJs). Other agency adjudications do not resemble those that occur in courtrooms. When people qualify for social security or disability support, an agency order is made without a hearing, the involvement of attorneys, or the presence of judges. In short, agency adjudications follow many different procedures that are either described in the agency’s enabling statutes or codified by agencies themselves in their regulations.

In many instances, agency adjudications are routine and can occur in large numbers. When agencies evaluate Medicare reimbursement claims, student loan awards, whether an employer’s action is an unfair labor practice, or whether an industrial plant exceeded a pollution threshold, agencies work to achieve “mass justice.” They administer a huge number of claims every year, and work to do so as efficiently as possible.

Formal or Informal Adjudication?

Like rulemaking, the APA recognizes procedures for both formal and informal adjudication. The difference between “formal” and “informal” adjudication isn’t as cut and dry as it is in the rulemaking context. Some informal adjudication is quite “formal” (highly proceduralized). Procedures can be added through enabling statutes passed by Congress or procedural rules made by the agencies themselves. Rather than differentiating between formal and informal adjudication, some administrative law guides refer to adjudication under the APA and non-APA adjudication. APA adjudication is agency adjudication that follows APA procedural requirements in APA Sections 554, 556, and 557. (Remember, courts have interpreted APA Section 553 to trigger 556 and 557 requirements when enabling statutes mandate rules be made “on the record” and “after opportunity for an agency hearing.”)

Collectively, the requirements in sections 554, 556, and 557 require procedures similar to those in a court trial without a jury, with an Administrative Law Judge (ALJ) presiding. When formal adjudication is not triggered by the statutory language ("on the record", "after opportunity for a hearing") or otherwise required by statute or regulation, the minimal procedural requirements in APA Section 555 apply to the proceeding. APA Section 555 applies to all agency proceedings and provides:

• The right to be represented by counsel in any proceeding or, another qualified representative if allowed by the agency
• The right to appear before an agency “so far as the orderly conduct of public business permits”
• The right to have an agency matter concluded within a “reasonable time”
• -The right to obtain copies of materials required to be submitted to an agency
• The right to utilize agency subpoena power when relevant, so long as the scope of evidence sought is reasonable
• The right to receive prompt notice when an agency denies your request, accompanied by a brief statement of the grounds for denial

Agencies often supplement these minimal APA Section 555 procedural requirements with additional procedures through regulations. Additionally, Congress sometimes imposes procedures for specific types of enforcement and other adjudicative actions through statutes. 

Choice of Procedures: Rulemaking or Adjudication

Sometimes, in adjudicative undertakings, agencies make decisions that set precedents for non-parties without going through the rulemaking process. Some administrative law scholars refer to these types of actions as “nonlegislative rules.” This name is appropriate because, while these decisions do not technically bind third parties or undergo the legislative rulemaking process described in APA Section 553, they are “rules” according to APA Section 551(4). They are agency statements “of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describ[e] the organization, procedure, or practice requirements of an agency.” 

If an agency has the authority to engage in both rulemaking and adjudication, it determines which procedures it will use to make decisions. The agency can make rules that have future effect and bind large groups, or they can make decisions on a case-by-case basis that primarily affect only the parties involved. Each choice, rulemaking, and adjudication has its pros and cons:

Rulemaking provides for public participation and puts all regulated entities on notice about what is permissible by law. Rulemaking is also efficient because it binds all stakeholders to the same, uniform obligations. When an agency makes a rule, that rule settles debate between competitors about what is allowed and what is prohibited. A bright-line policy brings clarity and conclusiveness, avoiding a series of ad hoc decisions through drawn-out, punitive adjudicative proceedings.

Adjudication, on the other hand, allows agencies to be more flexible and to resolve issues and questions that the agency did not foresee. Sometimes, agencies must address problems they did not anticipate in their rulemaking processes. Adjudication also avoids rigid rules in situations where case-by-case evaluations are a better fit than a hard-and-fast rule.

The debate is complex, and in a few cases, regulated parties have attempted to persuade courts to instruct agencies to use one form of decision-making or another. As we see in National Labor Relations Board (“NLRB”) v. Bell Aerospace Co., courts generally defer to agencies’ choice of rulemaking or adjudication so long as Congress authorizes the agencies to utilize those decision-making methods.

National Labor Relations Board v. Bell Aerospace Co. 

416 U.S. 267 (1974)

MR. JUSTICE POWELL delivered the opinion of the Court.

This case presents two questions: first, whether the National Labor Relations Board properly determined that all “managerial employees,” except those whose participation in a labor organization would create a conflict of interest with their job responsibilities, are covered by the National Labor Relations Act; and second, whether the Board must proceed by rulemaking rather than by adjudication in determining whether certain buyers are “managerial employees.” We answer both questions in the negative.

I

Respondent Bell Aerospace Co., Division of Textron, Inc. (company), operates a plant in Wheatfield, New York, where it is engaged in research and development in the design and fabrication of aerospace products. On July 30, 1970, Amalgamated Local No. 1286 of the United Automobile, Aerospace and Agricultural Implement Workers of America (union) petitioned the National Labor Relations Board (Board) [to unionize] the 25 buyers in the purchasing and procurement department at the company’s plant. The company opposed the petition on the ground that the buyers were “managerial employees” and thus were not covered by the Act [...]

III

The Court of Appeals also held that, although the Board was not precluded from determining that buyers or some types of buyers were not “managerial employees,” it could do so only by invoking its rulemaking procedures under § 6 of the Act, 29 U.S.C. § 156. We disagree.

At the outset, the precise nature of the present issue must be noted. The question is not whether the Board should have resorted to rulemaking, or in fact improperly promulgated a “rule,” when in the context of the prior representation proceeding it held that the Act covers all “managerial employees” except those meeting the new “conflict of interest in labor relations” touchstone. Our conclusion that the Board applied the wrong legal standard makes consideration of that issue unnecessary. Rather, the present question is whether on remand the Board must invoke its rulemaking procedures if it determines, in light of our opinion, that these buyers are not “managerial employees” under the Act. The Court of Appeals thought that rulemaking was required because any Board finding that the company’s buyers are not “managerial” would be contrary to its prior decisions and would presumably be in the nature of a general rule designed “to fit all cases at all times.”

A similar issue was presented to this Court in its second decision in SEC v. Chenery Corp., 332 U. S. 194 (1947) (Chenery II). There, the respondent corporation argued that in an adjudicative proceeding the Commission could not apply a general standard that it had formulated for the first time in that proceeding. Rather, the Commission was required to resort instead to its rulemaking procedures if it desired to promulgate a new standard that would govern future conduct. In rejecting this contention, the Court [...] concluded that “the choice made between proceeding by general rule or by individual, ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.”

And in NLRB v. Wyman-Gordon Co., 394 U. S. 759 (1969), the Court upheld a Board order enforcing a [...] requirement first promulgated in an earlier adjudicative proceeding [recognizing] that “[a]djudicated cases may and do . . . serve as vehicles for the formulation of agency policies, which are applied and announced therein,” and that such cases “generally provide a guide to action that the agency may be expected to take in future cases” [...] 

The views expressed in Chenery II and Wyman-Gordon make plain that the Board is not precluded from announcing new principles in an adjudicative proceeding and that the choice between rulemaking and adjudication lies in the first instance within the Board’s discretion. Although there may be situations where the Board’s reliance on adjudication would amount to an abuse of discretion or a violation of the Act, nothing in the present case would justify such a conclusion. Indeed, there is ample indication that adjudication is especially appropriate in the instant context. As the Court of Appeals noted, “[t]here must be tens of thousands of manufacturing, wholesale and retail units which employ buyers, and hundreds of thousands of the latter.” 475 F. 2d, at 496. Moreover, duties of buyers vary widely depending on the company or industry. It is doubtful whether any generalized standard could be framed which would have more than marginal utility. The Board thus has reason to proceed with caution, developing its standards in a case-by-case manner with attention to the specific character of the buyers’ authority and duties in each company. The Board’s judgment that adjudication best serves this purpose is entitled to great weight.

The possible reliance of industry on the Board’s past decisions with respect to buyers does not require a different result. It has not been shown that the adverse consequences ensuing from such reliance are so substantial that the Board should be precluded from reconsidering the issue in an adjudicative proceeding. Furthermore, this is not a case in which some new liability is sought to be imposed on individuals for past actions which were taken in good-faith reliance on Board pronouncements. Nor are fines or damages involved here. In any event, concern about such consequences is largely speculative, for the Board has not yet finally determined whether these buyers are “managerial.”

It is true, of course, that rulemaking would provide the Board with a forum for soliciting the informed views of those affected in industry and labor before embarking on a new course. But surely the Board has discretion to decide that the adjudicative procedures in this case may also produce the relevant information necessary to mature and fair consideration of the issues. Those most immediately affected, the buyers and the company in the particular case, are accorded a full opportunity to be heard before the Board makes its determination.

The judgment of the Court of Appeals is therefore affirmed in part and reversed in part, and the cause remanded to that court with directions to remand to the Board for further proceedings in conformity with this opinion.

If you are interested in an updated discussion of the NLRB’s choices between rulemaking and adjudication processes, here is an essay from 2015 discussing a few rules that NLRB promulgated through the APA Section 553 rulemaking process discussing the rationales and pros and cons of adjudication versus rulemaking in an NLRB context: Charlotte Garden, Towards Politically Stable Lawmaking: Rulemaking vs. Adjudication.

Beyond the procedural requirements for agency adjudication, there are constitutional requirements that agencies must satisfy. The Due Process Clause of the Fifth Amendment (and the 14th Amendment in state agencies) requires that agencies, as state actors, provide people notice and the opportunity to be heard by a neutral decision-making before being denied life, liberty, or property.

In LEDP, you learned about substantive due process, which protects certain fundamental rights from government interference. In administrative law (PI), we will discuss procedural due process, which requires that notice and hearing procedures must be available to those being denied life, liberty, or property by the government. A person adversely affected by an agency action could argue that they are being deprived of life, liberty, or property without due process. When a person sues an agency for violating their procedural due process, the court will determine:

1. Whether the agency action is one that triggers procedural due process
2. Whether the person’s property, liberty (and in very rare cases, life) is at stake due to the agency’s action
3. Whether the due process clause obligates the agency to use more procedures than it used when it took the action that deprived the person of their interest
4. If more due process is needed, the court will have to determine how much due process is required to satisfy the constitutional due process requirement

Procedural due process issues typically arise in administrative law contexts because the government often deprives individuals of liberty and property without adequate procedures through agency actions. Courts follow codes of civil and criminal procedure that ensure procedural due process is satisfied, but when agencies are not obligated to follow formal adjudication procedures described in APA Section 556 and 557, agencies sometimes deprive people of their constitutionally guaranteed procedural due process.

If Procedural Due Process is Required, How Much Procedure is Needed?

If a life, liberty or property interest is at stake, and procedural due process is required, the question becomes “how much procedure is required?” The answer varies, depending on the situation. We’ve already seen that procedural due process does not necessarily grant every person deprived of property or liberty an in-person, trial-like adjudication process. In Goldberg v. Kelly, where someone’s welfare support was at stake, the Court decided that an evidentiary hearing was necessary before depriving the person of the “very means by which to live.” On the other hand, in Cleveland Board of Education v. Loudermill, the Court stated that while a civil servant requires “some kind of a hearing” before being fired, due process may not necessarily involve an evidentiary hearing.

APA Section 555 provides some procedural requirements for agency hearings. Today, agencies usually do not have to provide additional procedural safeguards in most cases. Goldberg v. Kelly represents the height of procedural requirements, and although it has not been overruled, in the years since Goldberg, it has been limited to its facts.

Today, courts balance the harm caused by the deprivation of liberty or property against the costs and benefits of adding more procedural safeguards. For instance, in Goss v. Lopez, 419 U.S. 565 (1975), a case involving a public high school student's ten-day suspension, the Court held that procedural due process was satisfied by either oral or written notice, along with an explanation of the evidence used to support the decision. The Court said that, while the student had a right to present “his side of the story,” the student did not have a right to call their own witnesses, confront or cross-examine witnesses, be heard before an impartial decisionmaker, or to a written decision based on the evidence in an adjudicative proceeding. The Court stated that fewer procedures were required because the harm caused by the deprivation was minimal, and the number of student disciplinary actions was so large that it would be prohibitively costly for schools to provide full hearings for all students facing disciplinary actions.

What is “Ex Parte” Communication?

Ex parte means one-sided. In adjudicative proceedings, ex parte communications are communications between judges and jurors, parties, or any other people involved in the case outside of the presence of the opposing party. Both oral and written communications can be ex parte if they are off the record communications that are related to the merits of the case. Ex parte communications can interfere with due process, because one-sided, off the record communications may violate notice requirements, failing to apprise parties of matters that deprive them of their life, liberty, and property

The APA prohibits ex parte communications in formal rulemaking/adjudication. APA Section 557(d)(1)(B) says that “no member of the body comprising the agency, administrative law judge, or other employee who is or may reasonably be expected to be involved in the decisional process of the proceeding, shall make or knowingly cause to be made to any interested person outside the agency an ex parte communication relevant to the merits of the proceeding [...]” (Remember, formal adjudication and rulemaking are generally indistinguishable and we treat them the same, as procedures governed by APA Sections 556 and 557, in this class.) 

While 557 prohibits ex parte communications in formal rulemaking/adjudication, there are no rules that prohibit ex parte communications in informal rulemaking and informal adjudication. In a rulemaking context, ex parte communications are a regular part of the commenting process required by APA Section 553(c). The D.C. Circuit Court called “informal contacts between agencies and the public” the “‘bread and butter’ of the process of administration” in Home Box Office v. Federal Communications Commission, 567 F.2d. 9 (D.C. Cir. 1977). 

Informal adjudication, similarly, does not prohibit lobbyists, industry lawyers, and other interested parties from communicating with agencies off the record. One thing to keep in mind when considering the role of ex parte communications in agency adjudication: Agency adjudication is unlike hearings with two private parties arguing before a judge. In agencies’ adjudicative proceedings, there is usually one private party facing off against a government agency rather than another private party. So, ex parte communications in this context would likely involve either the party going before the agency, or parties that would be affected by the agency decision, discussing the matter with the agency. Sierra Club v. Costle gives us a glimpse of what ex parte communication looks like in informal rulemaking and adjudication, and describes the courts’ permissive stance on ex parte communications in informal agency proceedings.