Legal Challenges to Independence of Multimember Agencies

The Justice Department has informed Congress that it views statutory limitations on the President’s power to remove members of multimember agencies to be unconstitutional. In that communication, the Department specifically cited the “for cause” removal provisions applicable to members of the Federal Trade Commission, the National Labor Relations Board, and the Consumer Product Safety Commission. This position, if accepted by the Supreme Court, would have a significant impact on the independence of other multimember agencies, including the Federal Reserve Board (Fed), the Federal Deposit Insurance Corporation (FDIC), and the Securities and Exchange Commission (SEC).

This memorandum provides some background on the President’s power to remove members of independent agencies, explains two pending lawsuits related to this power that could reach the Supreme Court, and suggests that the Court, despite its current make-up, might be willing to retain some limits on the President’s power to remove members of multimember agencies. If it does not do so, the independence of multimember agencies, including the Fed, will be diminished.

Humphrey’s Executor v. United States

Article II of the Constitution gives the President executive power, and this power has long been interpreted to include the power to remove officers appointed by the President and confirmed by the Senate. In 1935, however, the Supreme Court narrowed the scope of this authority in a case involving President Roosevelt’s removal of William Humphrey, a member of the Federal Trade Commission (FTC). In Humphrey’s Executor v. United States, the Court held that President Roosevelt was bound by the “for cause” removal provisions in the Federal Trade Commission Act and, therefore, could not lawfully remove Humphrey at will.

The decision in Humphrey’s Executor was grounded in the Court’s view that, at that time, FTC commissioners exercised quasi-legislative and quasi-judicial functions and did not exercise executive functions. Not surprisingly, that view has “not withstood the test of time” since the FTC, in its current form, unquestionably exercises executive functions. Thus, the holding in Humphrey’s Executor has been subject to some criticism. For example, Justice Scalia characterized the decision as “six quick pages devoid of textual or historical precedent.” And, more recently, Justice Thomas and Justice Gorsuch called for overturning Humphrey’s Executor because, they assert, the Constitution does not permit the creation of officers exercising “quasi-legislative” and “quasi-judicial powers” in “quasi-legislative” and “quasi-judicial agencies.”

Seila Law v. CFPB and Collins v. Yellen

Despite the criticism of Humphrey’s Executor, the Supreme Court has yet to overturn the holding in that case. It has, however, declined to extend the holding to single headed independent agencies.

During the first Trump administration, the Justice Department urged the Supreme Court to find that a statutory restriction on the President’s power to remove the head of the Consumer Financial Protection Bureau (CFPB) “for cause” “violated the separation of powers embedded in the constitution.” The Supreme Court agreed, holding that the limitation on the President’s power to remove the head of an independent agency led by a single individual vested with significant executive power was unconstitutional.

When it was decided, the Court’s conclusion in Seila Law arguably turned on the especially broad authority of the CFPB. Shortly thereafter, however, in a case involving the Federal Housing Finance Agency (FHFA) (Collins v. Yellen), the Court found that a “for cause” restriction on the President’s power to remove the Director of FHFA was unconstitutional, regardless of the nature and breadth of the Director’s authority. And shortly after Collins v. Yellen, the Biden Administration took the position that the same principles follow for the Social Security Administration, and the President removed the incumbent Administrator.

Collectively, the rulings in Seila Law and Collins v. Yellen, combined with the Biden Administration’s removal of the head of the Social Security Administration, have significantly diminished the independence of federal agencies headed by a single individual. The heads of these agencies are replaced following each election and policy positions are revised and realigned based upon the political party in control. The Trump Administration is now interested in extending these rulings to multimember agencies.

Pending Legal Cases

There are two pending lawsuits involving the President’s power to remove members of the National Labor Relations Board (NLRB) that could reach the Supreme Court.

First, in Wilcox v. Trump, Gwynne Wilcox is challenging her removal as a member of the NLRB by President Trump. In her complaint, Ms. Wilcox states that, pursuant to the National Labor Relations Act, she may be removed only for “neglect of duty or malfeasance in office, but for no other cause,” and only after “notice and hearing.” She also states that she “has no desire to aid the President in establishing a test case,” but “is also cognizant of the fact that, if no challenge is made, the President will have effectively succeeded in rendering the NLRA’s protections—and, by extension, that of other independent agencies—nugatory.” This case is pending in district court in the District of Columbia.

Second, SpaceX has challenged the constitutionality of the removal limitation in the National Labor Relations Act in a lawsuit filed in response to a charge of unfair labor practices. A U.S. District Court granted SpaceX a preliminary injunction in that case, concluding that SpaceX was likely to succeed in its constitutional challenge. The court found that, in contrast to the Supreme Court’s view of the FTC in 1935, the NLRB “clearly wields substantial executive power,” and that the statutory standard for removal of a member of the NLRB is stricter than the standard applicable to a member of the FTC. The NLRB has appealed the preliminary injunction to the U.S. Court of Appeals for the Fifth Circuit, and that court recently held an oral argument on the case.

In both of these cases, the Administration is taking the position that for-cause removal protections at multimember agencies are unconstitutional. If one of these cases reaches the Supreme Court, the Administration may prevail because the NLRB exercises “significant executive authority.” On the other hand, the Court may not be prepared to overturn Humphrey’s Executor, especially as it applies to long-standing independent agencies, such as the Fed. Some evidence for this view may be found in Consumers’ Research et al. v. Consumer Product Safety Commission.

In that case, the plaintiffs challenged the constitutionality of the “for cause” removal provision applicable to members of the Consumer Product Safety Commission (CPSC). Like Ms. Wilcox, the plaintiffs recognized that their case “tees up a question that goes to the heart of our system of government: Whether a federal agency may exercise substantial executive power while shielded from the President’s supervision and control.” The U.S. District Court for the Eastern District of Texas sided with the plaintiffs, but the U.S. Court of Appeals for the Fifth Circuit reversed the lower court ruling, holding that it was bound by the Supreme Court’s ruling in Humphrey’s Executor.

The Supreme Court declined to review the Fifth Circuit’s decision. The Court did not explain its reason for rejecting the petition to review the Fifth Circuit’s opinion. It may be that the plaintiffs lacked standing to sue, that there was no conflict between the Fifth Circuit’s decision and any other decision of the Supreme Court or a U.S. Court of Appeals at that time, or that the case was a relatively poor vehicle for reviewing Humphrey’s Executor because it was based upon the fees charged for Freedom of Information requests, hardly a significant executive function. Whatever the reason, the Supreme Court had an opportunity to review Humphrey’s Executor, and declined to do so despite briefs filed in support of review by the Chamber of Commerce, Senator Cruz, the Competitive Enterprise Institute, and others.

Chief Justice Roberts’ opinion for the Court in Seila Law also may be read to support the continued viability of Humphrey’s Executor to multimember agencies. In that opinion, he noted that Congress could in principle cure the constitutionally impermissible structure of the CFPB by converting the CFPB into a multimember agency. He also noted that the CFPB’s design as a single-headed agency lacked historical precedent, which is a factor cited by Justice Kavanaugh in PHH v. CFPB, when he was a member of the U.S. Court of Appeals for the District of Columbia Circuit. In his dissent in that case, then Judge Kavanaugh emphasized the importance of historical practice when considering how to interpret the Constitution, citing over a dozen Supreme Court opinions to the effect that historical practice helps define constitutional limits in separation of powers cases. Such historical considerations obviously would be relevant in cases involving agencies such as the Fed, FDIC, and SEC, which have operated with a degree of independence for over 90 years.

Additionally, both Chief Justice Roberts in Seila Law and then Judge Kavanaugh in the PHH case inserted footnotes that referred to the “special” status of the Fed. While one should not read too much into those footnotes, they suggest that Justices Roberts and Kavanaugh appreciate the potential impact on the Fed’s independence if Humphrey’s Executor is overturned. Indeed, if the Supreme Court were to overturn Humphrey’s Executor, it would be difficult to carve an exception for the Fed since the Board of Governors arguably exercises significant executive authority and monetary policy is unmentioned in the Constitution. The Federal Open Market Committee (FOMC) is arguably less executive, but the members of the Fed serve both functions (as members of the FOMC and the Board).

To avoid undermining the independence of the Fed, the Supreme Court could look to factors in the structure of multimember agencies that give the President some influence over the agency, other than removal. One such factor could be a bipartisan board or, in the case of the Fed, a board composed of members from different regions of the country. Another factor could be the President’s ability to remove the chair of the agency at will. While the members of the Fed and FDIC are subject to removal only for cause, the chairs of those agencies are not subject to a similar limitation. Thus, the President could appoint a new chair from among the other members of the agency, and the former chair would remain as a member of the board. Consideration of these, and possibly other, factors may permit the Court to continue to limit the President’s removal power for multimember agencies. On the other hand, should the Court decide to overturn Humphrey’s Executor and not find a way to distinguish the Fed, monetary policy would be subject to political pressures, with inflation a likely result.