Administrative Law 5 Administrative law governs and defines the powers of government agencies. A number of

political and technological factors have led to an explosion in the growth of government since the turn of the 20th century, at both the federal and state levels. Even though these

bureaucracies fall under the executive or legislative branch, their rapid growth has given rise to what is commonly referred to as the “fourth branch of government”: administrative agencies.

5.1 What Is the Purpose of an Administrative Agency?

Beginning in the 1930s, the federal government has been steadily expanding its regulatory pow- ers over business and individuals through the creation of agencies such as the Federal Trade Commission, Internal Revenue Service, and Food and Drug Administration. Under the U.S.

Supreme Court’s broad interpretation of the Commerce Clause, Congress has the power to regulate nearly any matter that has an impact on interstate commerce. How- ever, the 535 men and women that make up the 112th Con- gress have neither the time nor the expertise to become involved in the specifics of drafting regulatory rules for each federal agency. What Congress has done instead is to create administrative agencies to oversee or carry out specific governmental functions and then empower those agencies to create the rules by which they will operate. The same holds true for the executive branch of government, where the president uses administrative agencies to help carry out the responsibilities of the office.

When an agency is created, Congress gives the agency the power to draft its own agency rules—the guidelines under which the agency operates and that must be followed by persons over whom the agency is given regulatory pow- ers. When federal agencies enact rules, they must follow the guidelines set forth in the Administrative Procedure Act (APA), which specifies the procedures agencies must follow in promulgating new rules. As long as an agency creates rules in accordance to the Administrative Proce- dure Act, such rules have the force of law.

Agencies have two main purposes: assisting in carrying out vital government functions and exert- ing regulatory control. They are the instruments through which Congress and the president institute policies and implement government regulation. As both government and government regulation have steadily grown, starting in the first half of the 20th century, agencies, as the instrumentality of

The Internal Revenue Service is one example of an agency created by the federal government to expand its regulatory power.

Comstock/Thinkstock

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that growth, have likewise swelled in size and power. While the titular seat of power may rest with legislative and executive branches of government, it is administrative agencies that carry out the day-to-day operation of governmental regulatory and service functions, and they often take on a life of their own.

5.2 The Administrative Procedure Act

An independent federal agency is created through an act of Congress that estab- lishes the agency and empowers it to perform whatever duties Congress specifi- cally delegates to the agency. The actual creation of the agency and the scope of

its authority are detailed in the enabling legislation—the act of Congress that creates the agency. The details of the agency’s operation are left to the agency, which creates its own rules in accordance with the guidelines set forth in the 1946 Administrative Procedure Act (APA). The APA gives agencies broad rulemaking powers, as long as they act within the guidelines that the APA provides. Federal executive agencies are usually created by presidential order. Like independent agencies, executive agencies are also subject to the guidelines of the APA.

What relevance does this have to you as a businessperson? One effect could be that if an act by an administrative agency exceeds the powers given to it by its enabling legislation, and this impacts your business, then the act by the administrative agency is unenforceable.

Rulemaking Requirements

Under the Administrative Procedure Act, agencies have the power to create rules that have the force of law provided that the guidelines of the APA are observed. The basic requirements that all federal agencies must observe in rulemaking are as follows:

• Giving notice to the general public that a new rule or rule change is being consid- ered by publication of the proposed rule in the Federal Register

• Providing an opportunity for all interested parties to participate in the rulemak- ing process by conducting public hearings and giving all interested parties a reasonable opportunity to voice their views on the proposed new rule or rule change

• Publishing in the Federal Register a draft containing the essential factors relating to the proposed rule and its purpose at least 30 days before the rule is to take effect

Once the requirements of the APA have been met, the proposed rule takes effect on its proposed effective date and has the force of law.

Limits on Administrative Agencies

As previously noted, federal agencies have far-reaching powers within the areas that they oversee. A congressional grant of authority to an agency often includes the ability to carry out investigations, create rules that are the functional equivalent of statutes, hold hearings to adjudicate alleged violation of agency rules, and assess punishment (usually by way of fines) to those adjudicated to be in violation of the agency’s rules. Agencies with such powers, such as the Internal Revenue Service, can act as legislator, police, judge, and jury.

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While this concentration of power leads to the swift administration of justice, the average citizen facing an administrative hearing may take comfort in the knowledge that both agency rules and most agency decisions are subject to judicial review on any of the fol- lowing grounds:

• The agency acted beyond the scope of its authority under the agency’s enabling act; • The agency misinterpreted federal law (including its enabling act) in its rulemak-

ing or in the adjudication of any matter before the agency; • Agency action violates the U.S. Constitution or any federal law; or • Agency rules or the findings of administrative law judges are arbitrary or

capricious.

Agency rules and procedures, as well as the adjudications by administrative law judges of agency hearings conducted as informal trials, are upheld by the courts as long as they meet the noted requirements.

5.3 Types of Administrative Agencies

Federal agencies fall into two basic categories: independent and executive. Indepen- dent agencies are created by Congress to assist it in exerting regulatory control or to carry out governmental administration. Once created, these agencies are headed by

a director who is appointed by the president and confirmed by the Senate. In order to dis- tance these agencies from the political process, independent agency directors serve for set terms that are staggered so as to prevent any given administration from having too great an impact on such agencies through presidential appointments.

Independent Federal Agencies

Independent federal agencies can wield tremendous power. Congress often imbues these agencies with quasi-judicial, quasi-legislative, and quasi-executive powers: they create their own rules (a legislative power), enforce these rules and conduct investigations (executive pow- ers), and adjudicate disputes relating to these rules or their applications in administrative hearings similar to trials (a judicial power). Administrative law judges (ALJs) preside over hearings, rule on issues of evidence, decide the outcome of cases, and write opinions. Inde- pendent agency directors are appointed by the president and confirmed by the Senate.

Independent agencies perform a vital function in areas where specific expertise is a requirement in order to perform a governmental function or regulate a specific business. They include the Central Intelligence Agency, the Environmental Protection Agency, the Equal Employment Opportunity Commission, the Federal Communications Commis- sion, the Interstate Commerce Commission, the Federal Trade Commission, the Nuclear Regulatory Commission (NRC), and the Securities and Exchange Commission, among many others. Although Congress may have the right to regulate aviation (because of avi- ation’s impact on interstate and international commerce), the civilian and military use of nuclear energy, and intelligence gathering, few senators or representatives have the highly specialized knowledge necessary to effectively regulate any of these areas. Rather than regulating these areas directly, Congress can set up agencies staffed with experts who can promulgate rules by relying on their superior knowledge of the fields they regulate or operate in, with appropriate congressional oversight. Consider the following examples.

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1. The Nuclear Regulatory Commission (NRC), concerned about safety in the nation’s nuclear power generating stations, wishes to impose new safety regula- tions affecting such power-generating plants. After issuing a notice to the gen- eral public that it is considering safety rule changes, the agency conducts hear- ings from interested persons in the industry as well as from the general public for a period of 60 days. At the conclusion of these hearings, it decides that it would be in the best interest of the industry to ban the sale of alcoholic beverages in counties where nuclear generating plants are located. It then publishes a copy of the proposed regulation as well as a general statement of the need for such regu- lation in the Federal Register 30 days before the regulations are to take effect. After the effective date of the regulations, it is challenged in a federal district court of appeals by liquor store owners in affected counties. What is the result?

2. In the last example, assume that the NRC followed the same procedure and promulgated a rule that forbade nuclear generating plant workers from work- ing with a blood alcohol level of .05%, subjecting violators to a fine of $5,000. Is such a regulation likely to be upheld if it is challenged in court? Explain.

3. The Federal Communications Commission, concerned with the increasing violence and hatred depicted in the popular media, decides to consider new rules affecting the broadcasting of material of a violent, sexual, or hateful nature. After follow- ing the established procedures for rulemaking under the APA, it promulgates the following new rules:

A. Material of a violent or sexual nature can be broadcast only between the hours of 12:00 a.m. and 6:00 a.m.;

B. Music that advocates physical violence, the degradation of women, or racial bigotry cannot be broadcast at any time.

Will these two regulations withstand court challenges? Explain.

Executive Agencies

Federal agencies have also been created to assist the execu- tive branch in carrying out its responsibilities. Notable execu- tive branch agencies include the Federal Bureau of Investiga- tion (Justice Department), the U.S. Customs Service (Treasury Department), the Food and Drug Administration (Health and Human Services Department), the Bureau of Indian Affairs (Interior Department), the Immigration and Naturalization Service (Justice Department),

Members of the president’s cabinet direct executive agencies such as the Departments of State, Justice, and Homeland Security.

Pablo Martinez Monsivais/Associated Press

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the Secret Service (Treasury Department), the Federal Aviation Administration (Transpor- tation Department), and the Social Security Administration (Health and Human Services Department), to name only a few. Consider the following example.

The Federal Aviation Administration wants to institute new safety regula- tions relating to the use of drugs and alcohol by pilots in civil aviation. After conducting a study, the agency decides that it would be in the best interest of the general public to begin weekly random drug testing of all airline pilots effective immediately. At the direction of the agency director, the FAA sends out notices to all airlines that a new drug testing program is now in effect. Is this regulation valid under the facts given? Explain.

Unlike independent agencies, executive agencies are under the control of the presi- dent, who can appoint and remove their directors at will. Executive agency directors, including members of the president’s cabinet, serve at the pleasure of the president. These agencies are, therefore, much more responsive to political issues and subject to the winds of political change, at least at the top levels. Nonetheless, most agency workers are civil servants, not political appointees, and enjoy the relative job security that status conveys. Thus, while the heads of executive agencies may come and go with chang- ing administrations, the bureaucracy itself is well entrenched and grows yearly as new agencies are created and existing agencies expanded to help implement government goals and programs.

State Agencies

Agencies are used not only by the federal government but also by state governments. State administrative agencies are set up to assist the executive and legislative branches to carry out their responsibilities. States use agencies to assist with such matters as the administration of workers’ compensation, social services, tax collection, and the regula- tion of business. For example, each state has a tax division that not only oversees the col- lection of state taxes but also has a component with hearing boards that hold “trials” or hearings presided over by government ALJs. There is also an appeals component wherein the loser can take the tax issue to another level in the same agency. The decisions of the hearings are published and become stare decisis for further hearings. Businesses can easily consult these matters to see the current state of the law.

Workers’ Compensation Boards Because workers’ compensation is such an important business-related topic, this section will focus on a “typical” workers’ compensation board and how it makes law, but keep in mind that each state creates its own workers’ compensation law, so the rules discussed next vary throughout the United States. If you want to view your own state’s workers’ compensation rules and procedures, search the words “workers’ compensation State C.” Each state’s website is detailed and provides information unique to its systems and rules. For an overview, the U.S. Small Business Administration website sets out links for business managers looking for workers’ compensation information throughout the states.

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How Workers’ Compensation Boards Make Law In the early 1900s, when the United States had a large industrial base, many employees who were injured or killed at work, or their families, could not pay their medical expenses and often lost their jobs if their injuries were serious. Workers’ compensation laws serve an important social and political purpose in that they force employers to pay into an insurance fund to guarantee that employees will have medical and hospital coverage for injuries or death on the job. The trade-off is that the employee cannot sue the employer for negligence, a proceeding that would most likely result in much larger monetary com- pensation for the employee than the awards available through workers’ compensation.

When an employee is injured at work, the employee submits any medical bills to the employer and the bills are then paid. On occasion, an employer may refuse to pay an injured employee’s claim. Suppose, for example, that an employee suffers a heart attack at work. The employer may argue that the injury is not work related, and thus the employer is not liable. The employee, on the other hand, may disagree, contending that the job caused his heart attack, making him eligible for benefits. Such a workers’ compensation claim is deemed controverted. When this occurs, the employee may request a hearing before a workers’ compensation administrative judge. At the hearing there will be doc- tors, the employer, the employee, and the judge, who will listen to the “testimony” and render a decision about whether or not the employee is entitled to payment. Thus, the hearing resembles a trial in which there are witnesses and testimony and a decision by a judge. Because the hearing is “like a trial” but does not have all the formalities of a trial, it is called quasi-judicial. The judge’s decisions are written down and can serve as prec- edent, thereby providing some predictability. In this way, workers’ compensation hear- ings “make law.” The following case excerpt (with citations omitted) is an example of a controverted matter before the New York Workers’ Compensation Board.

Cases to Consider: Richman v. Workers’ Compensation Board

Richman v. Workers’ Compensation Board, 936 N.Y.S. 2d 722 (Jan. 2012)

Appeal from a decision of the Workers’ Compensation Board, filed August 18, 2010, which ruled that claimant sustained a compensable injury and awarded workers’ compensation benefits.

On August 10, 2007, claimant, a court reporter, was found unconscious at her workplace and rushed to a local hospital, where she was diagnosed with a subarachnoid hemorrhage caused by a ruptured basilar artery aneurysm. Although claimant survived, she apparently remains unable to communi- cate. A workers’ compensation claim subsequently was filed on her behalf, and the employer and its workers’ compensation carrier (hereinafter collectively referred to as the employer) controverted the claim, asserting that the ruptured aneurism was not related to claimant’s employment. Following a hearing, a Workers’ Compensation Law Judge (hereinafter WCLJ) found that the employer did not overcome the presumption of compensability set forth in Workers’ Compensation Law § 21 (1). The Workers’ Compensation Board affirmed the WCLJ’s decision, prompting this appeal by the employer.

We affirm. Pursuant to Workers’ Compensation Law § 21 (1) a presumption of compensability exists where, as here, an unwitnessed or unexplained injury occurs during the course of the affected work- er’s employment. “The employer may overcome the presumption by presenting substantial evidence to the contrary.” (continued)

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How Workers’ Compensation Boards Determine Payment When an employee is injured on the job, the next step in the process is for that employee to receive medical attention. The doctor will make a determination about the extent of the injury, deeming it either temporary or permanent. For example, if the worker suffered a broken arm, the injury is temporary; if the worker suffered a spinal injury, the injury may be permanent. In the case of permanent injuries, the doctor (or doctors) will make an assignment of the percentage of injury, for example, 32% permanent partial disability. That number will then be converted using the state’s permanent partial disability sched- ules to an actual dollar amount. For example, a right index finger under the schedule might be worth $2,500. The complexities of determining a workers’ compensation award are illustrated in the excerpts from the following case, which shows the ways in which claimants are classified and paid:

Cases to Consider: Richman v. Workers’ Compensation Board (continued)

Here, we find no basis upon which to disturb the Board’s conclusion that the employer did not present sufficient evidence to overcome the presumption. The record establishes that, prior to claimant’s collapse, she was under considerable stress at work and her workplace was loud and overheated. While the employer’s expert opined that claimant’s ruptured aneurysm was unrelated to her employment, the Board agreed with the WCLJ that the expert’s report and testimony were not credible—in large measure because he was evasive when questioned as to whether work- induced stress could raise a person’s blood pressure high enough to cause an aneurysm to rupture. Notably, the expert acknowledged that high blood pressure could be a factor in the rupture of an aneurysm and conceded that he did not know what claimant’s blood pressure was at the time the rupture occurred. Contrary to the employer’s argument, the Board, which “is the sole arbiter of witness credibility” was not required to wholly credit the expert’s opinion on this point simply because it was the only expert proof presented. The employer’s remaining arguments on this point, to the extent not specifically addressed, have been examined and found to be lacking in merit.

ORDERED that the decision is affirmed, without costs.

Read the full text of the case here: http://law.justia.com/cases/new-york/appellate-division-third- department/2012/512356.html.

Questions to Consider

1. What did the court mean by a “presumption of compensability”? What does this mean? 2. How does the employer overcome this presumption? Did the employer succeed in this case?

Why or why not?

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Cases to Consider: Schmidt v. Falls Dodge, Inc.

Schmidt v. Falls Dodge, Inc. New York State Court of Appeals (2012)

Workers’ Compensation Law §15(6) provides that compensation for any disability, partial or total, shall not exceed a fixed maximum per week. At issue in this case is the application of the cap when an employee has received several awards for different injuries, at least one of which is a so-called “schedule loss of use” award being paid periodically pursuant to the pre–2009 version of Workers’ Compensation Law §25. We hold that in such cases an employee’s total weekly payment may not exceed the cap. The schedule award is not nullified by the other awards, but must be deferred until the time comes when the cap will not be exceeded.

I

Plaintiff worked as a collision shop technician, repairing automobiles. He suffered several injuries on the job, of which three, all occurring in 2005, are relevant to this appeal. On February 21, he slipped on ice, injuring his hip and back. On March 18, he suffered a lower back sprain. He left his job on June 27, and later reported hearing loss beginning on that date, attributable to loud noise at his place of work. He applied for and received workers’ compensation benefits for all three injuries.

For the hip and back injuries, the workers’ compensation carrier for claimant’s employer was directed, in separate awards, to pay claimant a total of $400 per week—the maximum allowed, at the relevant time. . . . Though the disabilities caused by the hip and back injuries were designated as “temporary,” nothing in the record indicates that these $400 weekly payments have ever been discontinued.

On September 21, 2007, a Workers’ Compensation Law Judge made an award for the hearing loss claim. Claimant was found to have a permanent partial disability, entitling him to a schedule loss of use award under Workers’ Compensation Law §15. . . .

The Judge in this case found that claimant’s hearing loss entitled him to 32.145 weeks of benefits at the rate of $400 per week; the award specified a period from September 27, 2005 (the “date of dis- ablement” found by the Judge) to May 10, 2006. After considering the carrier’s objections, the Judge concluded on November 23, 2007 that the schedule award was “currently payable in full,” notwith- standing the fact that claimant had received during the period in question, and was still receiving, $400 per week for his other claims. The Judge found the issue to be controlled by Matter of Miller v. North Syracuse Cent. School Dist. in which the Appellate Division held that because a schedule award “is not allocable to any particular period,” it “cannot be deemed to overlap with” a temporary total disability award.

II

Workers’ Compensation Law § 15(6)(a) says, in relevant part:

Compensation for permanent or temporary partial disability, or for permanent or tem- porary total disability due to an accident or disablement resulting from an occupational disease that occurs . . . on or after July first, nineteen hundred ninety two [and before July one, two thousand seven], shall not exceed four hundred dollars per week.

The Board and the Appellate Division have held in this case that claimant was entitled to receive $800 per week for a period of roughly 32 weeks. That result cannot be squared with the cap imposed by section 15(6). The Appellate Division’s decision in Miller, which upheld a similar award, is incorrect and should not be followed. (continued)

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Workers’ Compensation as the Exclusive Remedy As mentioned above, workers’ compensation serves an important social function by guar- anteeing that workers hurt on the job are taken care of medically and that their bills are paid. There is a trade-off for this guarantee, however. Employees are not allowed to sue their employers for injuries on the job that are a result of the employer’s negligence. Thus, we say that workers’ compensation is the exclusive remedy, meaning it is the only rem- edy available to an injured worker against an employer. If an employer does not put up an adequate guard around a machine and an employee is seriously maimed, the employ- ee’s monetary award is limited to workers’ compensation rather than a lawsuit in court. (However, the employee in such a situation could sue the manufacturer of the machine, who, of course, is not the employer.) (See Chapter 8, Negligence, Strict Liability, and Prod- uct Liability.) This is the maximum amount that an employee could recover under work- ers’ compensation, whereas in a tort lawsuit, the same injury might be worth millions of dollars, figuring in punitive damages, compensation for emotional distress, and so forth. There is usually no choice; workers’ compensation is the only remedy afforded to employ- ees against employers, except in rare exceptions.

One of those exceptions is if the employer intentionally injured the worker, as discussed in the Washington State case Brame v. Western State Hospital, excerpted here with citations omitted:

Cases to Consider: Schmidt v. Falls Dodge, Inc. (continued)

We therefore hold that periodic payments of a schedule loss of use award must be deferred to the extent that those payments, when combined with payments of another disability award, would exceed the cap imposed by Workers’ Compensation Law § 15(6). We hold no more than this, and do not decide what implications, if any, our holding may or may not have for cases governed by the 2009 amendment to section 25(b): that section, as amended, now says that schedule loss of use awards “shall be payable in one lump sum, without commutation to present value upon the request of the injured employee.”

Accordingly, the order of the Appellate Division should be reversed, with costs, and the case remit- ted to the Appellate Division with directions to remand it to the Workers’ Compensation Board for further proceedings in accordance with this opinion.

Read the full text of the case here: http://www.nycourts.gov/ctapps/Decisions/2012/May12/ 76opn12.pdf.

Questions to Consider

1. What different injuries did this employee suffer at work, and what were his workers’ compen- sation awards for each?

2. This case is concerned with the cap that a worker may receive for workers’ compensation. Why does the state impose a cap? And what possible effect does this have on an