Big Government Crushing the Little Guy
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In order to avoid public, judicial, and congressional scrutiny, the Obama administration uses voluntary compliance to make policy. As a result, it is undermining the rule of law.
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Limited judicial review and the high costs of challenging agency action make it impossible for most Americans to do anything but voluntarily comply with agency dictates, whether or not they are supported by law.
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As rulemaking becomes more rigorous and transparent, agencies will turn more toward flexible policymaking such as voluntary compliance.
Last month the Supreme Court agreed to hear a case that highlights one of the most alarming trends in the Obama administration: the aggressive efforts of agencies to shape policy through voluntary compliance in order to avoid public, judicial, and congressional scrutiny.
In the case U.S. Corps of Engineers v. Hawkes, the Supreme Court will consider whether federal courts can review a U.S. Army Corps of Engineers “jurisdictional determination” that private property constitutes “waters of the United States” and is subject to the Clean Water Act. While it is seemingly a boring case about procedure, that procedure matters.
The Obama administration is arguing that judges cannot review these determinations. Without judicial review, anyone who receives a jurisdictional determination stating that his or her property is subject to the CWA is left with only three options: (1) do nothing with the property; (2) spend thousands of dollars seeking a permit (in some cases EPA employees have strongly suggested that no such permit will be forthcoming); or (3) use the property anyway and hope the EPA doesn’t bring an enforcement action seeking penalties of tens of thousands of dollars per day. The sane person voluntary complies with the agency’s will and does nothing with their property. Through this voluntary compliance, the agency is able to implement the policy it desires without going to court, making a rule, or petitioning Congress.
Blocking Judicial Review to Force Compliance
As the Hawkes case shows, blocking judicial review is an effective way for an agency to increase voluntary compliance. The agency simply makes a determination of how the law applies to a regulated party, claims that the decision can’t be reviewed by a court, and then dares the person to not comply.
Hawkes isn’t the first time the EPA has tried this approach under the CWA. In the 2012 Supreme Court case Sackett v. EPA, the Obama administration sought to block review of CWA compliance orders. The compliance orders do exactly what their name suggests: order people to comply with the EPA’s interpretation of the CWA through restoring their property or stopping an activity. If someone does not comply with such an order, their potential statutory penalties are doubled, to $75,000 a day. The Obama administration maintained that such orders were not reviewable by a court because they were not actual enforcement actions. If not reviewable, the recipient of a compliance order had to comply or face enormous liability. The Supreme Court rightly rejected this tactic, but other agencies are still using it.
“The combinations of the uncertain reach of the Clean Water Act and the draconian penalties imposed for the sort of violations alleged in this case still leaves most property owners with little practical alternative but to dance to the EPA’s tune.” – Justice Alito, Sackett v. EPA, 03/21/2012
The Department of Labor, for example, is trying to bully the small consignment business Rhea Lana into voluntarily complying with a strained interpretation of the Fair Labor Standards Act. Rhea Lana arranges the location and logistics for small consignment sales, where consignors bring and sell their own items. If consignors volunteer to help with other functions, such as carrying purchases to customers’ cars, Rhea Lana offers them favorable display locations. DOL decided that performing these additional functions made volunteer consignors employees who were entitled to wages under the FLSA. Rather than bring an enforcement action, DOL sent Rhea Lana a letter stating their interpretation of the FLSA and noting that the company was potentially liable for up to $1,100 in penalties for each violation.
The owners of Rhea Lana are challenging the DOL letter, but the Obama administration is once again claiming the decision cannot be reviewed by the courts. Without judicial review, most small companies receiving such a letter would have no choice but to acquiesce in the agency’s interpretation, pay the back wages, and end the volunteer consignment arrangement that benefited both Rhea Lana and the consignors. This allows DOL to slowly expand the application of the FLSA beyond its reasonable scope, without any challenge or oversight.
Compliance through Consent Decree
Agencies can also obtain voluntary compliance by beginning investigations or enforcement actions that they know people will settle. The resulting consent decree then commits the defendant to adopting the agency’s policies.
Settlement is often the only rational choice for most people and companies. The financial cost of fighting an agency can be enormous. Even at the investigation stage, complying with the document requests and depositions can drain financial resources. These costs are magnified by the reputational harm and the disruption to a defendant’s life or business. The incentives to settle are even greater when a case is adjudicated by an agency, rather than a court. When the agency is prosecutor, judge, jury, and even appellate court, there is little reason to fight.
The FTC is currently using the settlement approach to write new federal data security standards. While Congress has declined to enact such standards, the FTC has brought more than 50 data security enforcement actions, almost universally resulting in consent decrees that commit the companies to the FTC’s data security standards and 20 years of FTC supervision.
These consent decrees are negotiated privately between the FTC and the defendant company without any judicial supervision or public input. Yet, prior to 2014, if another company asked what data privacy standards it should follow to avoid ending up in the FTC’s crosshairs, it was told to go examine these consent decrees, rather than statute, regulation, or case law. Even today, consent decrees and non-binding agency guidance comprise the FTC’s data security standards.
LabMD is one of only two companies to challenge the FTC’s data security enforcement and it suffered the full cost of fighting a federal agency. First, there were three years of investigation, which cost LabMD hundreds of thousands of dollars. Then, when LabMD refused to sign a consent decree and publicly criticized how the FTC conducted the investigation, the FTC brought an enforcement action. When the case was finally adjudicated, the FTC’s own in-house administrative judge rejected the FTC’s position. This came too late for LabMD, however. The reputational and financial cost of fighting the FTC had already put it out of business. The FTC is now appealing the administrative judge’s decision to the agency commissioners, who are likely to overturn the decision and side with their own employees.
The Department of Education’s Office of Civil Rights is another master of this technique. It is rewriting several civil rights laws by issuing non-binding guidance letters that outline new policies, investigating schools for alleged violations of these policies, and then demanding that schools adopt these policies in order to end the investigation. If a school resists, the department threatens to pull the school’s funding. Through this process, the department has been able to effectively transform its guidance into binding law without ever conducting a rulemaking.
The department’s aggressive enforcement of its Title IX sexual harassment and violence guidance is one of the most notable examples of this approach. Sexual violence and harassment on college campuses are serious issues that require a serious response. DOE, however, is using its investigate-and-settle approach to force colleges to adopt procedures that restrict free speech and strip traditional due process rights from the accused. Most notably, the guidance lowers the standard of proof required for a school to find a student guilty of sexual harassment or violence and essentially prohibits the accused from cross-examining the accuser.
“[DOE]’s process has sacrificed the basic safeguards of the lawmaking process [that] are critically necessary to formulate sound regulatory policy.” – 16 Penn Law faculty members on DOE Title IX enforcement, 02/18/2015
When Harvard revamped its procedures in 2014 to make a DOE Title IX investigation go away, 25 Harvard law professors wrote an open letter criticizing the new policies: “Harvard has adopted procedures for deciding cases of alleged sexual misconduct which lack the most basic element of fairness and due process, are overwhelmingly stacked against the accused, and are in no way required by Title IX law or regulation.” The professors urged Harvard to reject DOE’s new policies and “to stand up for principle in the face of funding threats.” Harvard, of course, kept the policies and settled with the department.
As of January 13, 2016, 161 postsecondary institutions were under investigation for sexual-harassment-related Title IX violations. Each of these schools most likely will agree to whatever terms DOE demands, regardless of the harm to students.
Congress Must Take on This Administrative Overreach
The Obama administration’s use of voluntary compliance is undermining the rule of law. The law – and the Congress that writes it – is irrelevant if agencies can get regulated parties to acquiesce to their policies even when not supported by law. Voluntary compliance also avoids important safeguards such as public input and judicial review.
To implement a voluntary compliance approach to policymaking, all an agency needs to do is make non-compliance either too risky or too costly. As these cases show, blocking judicial review is an effective way to increase the risk, while the costs of challenging an enforcement action make non-compliance impossible for most Americans.
As Congress works to make the rulemaking process more rigorous and accountable, unelected, unaccountable Washington bureaucrats will turn even more toward extra-legal tricks, like voluntary compliance, that make their jobs easier. Congress should begin to address this issue before the Obama administration subjects more Americans to this abuse. Some of the problems arise out of overly broad authorizing statutes that need to be refined. Other issues, like the timing of judicial review, abusive investigations, and policymaking consent decrees, could be addressed through general statutes.
Where legislation is infeasible, congressional oversight of all aspects of agency enforcement could help stem some of the more abusive practices. There is no single solution, but one thing is clear: Congress must look beyond rulemaking if it wants to address the excesses of the administrative state.
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