Administrative Rulemaking - Module 3 of 5

Module 3: Administrative Rulemaking 

Rulemaking

Rulemaking is the process by which administrative agencies adopt binding rules of general applicability as a means of furthering the statutory mandate of the agency. These rules are sometimes collectively referred to as regulations. In contrast to adjudication, which is retroactive and limited in scope, rulemaking serves a legislative function and is used to implement prospective policies which are applicable to broad ranges of cases. The procedures by which an agency adopts a new rule are set forth in the Administrative Procedure Act (“APA”), as well as in internal agency policies. Since Constitutional “due process” protections do not apply to agency rulemaking, there is no Constitutionality required procedure for the adoption of rules.

The APA prescribes a set of procedures which agencies must adopt when they engage in rulemaking. However, not all proposed rules are treated the same. Unless stipulated otherwise by statute, most proposed rules follow a process known as informal rulemaking, which involves a “notice and comment” period of public participation before a rule may be adopted by the agency. However, the APA also provides for another set of procedures for adopting a rule which is known as formal rulemaking. Agencies employ formal rulemaking when the statute which governs the agency calls for it to hold a “hearing on the record” for adopting certain kinds of rules.[1]

In such cases, in place of the notice and comment process, the agency must provide adjudicatory-type hearings as part of the process of rulemaking. Since such a procedure is lengthy and inefficient, Congress rarely requires formal rulemaking. Similarly, courts have interpreted the “hearing on the record” phrase strictly, so that even if a statute calls for a “hearing” but makes no mention of the rule being made “on the record,” agencies need not employ the formal rulemaking process.[2]

Note that Congress may supplement the APA rulemaking process for specific agencies by adding procedural requirements over and above those applicable under APA rulemaking.

Informal Rulemaking Process

The process of informal, “notice and comment” rulemaking, is designed to promote efficiency and meaningful public participation. 

The first step in the rulemaking process is to publicly issue notice of the proposed rule. The notice must be published in the Federal Register, which is a daily publication of the federal government. The notice must include details regarding the time, place and nature of the proceeding, a reference to the legal authority which gives the agency authority to enact the proposed rule, a description of the substance of the proposed rule and the issues involved.[3]  If all those who would be subject to the new rule are mentioned by name and those people or companies are served with notice, the rule need not be published in the Federal Register.[4]

The next stage in the rulemaking process is the public comment period. During this period, those with an interest in the proposed rule have an opportunity to participate in the process through the submission of written data, views or arguments to the agency.[5] While oral presentation of arguments is not required under the APA, agencies commonly hold open meetings, where interested parties can make presentations in a public setting. Additionally, agencies now generally accommodate participation through electronic communications. The comments may be placed on the agency website so that parties can keep track of the arguments and responses regarding the proposed rule.

Note that agencies must disclose to the public any critical findings or data relevant to the proposed rule so that those who wish to comment can do so in a meaningful and informed manner.[6] If the agency fails to disclose critical material or if the agency learns of new material after the close of the comment period which it fails to disclose, the courts may overturn the rule due to insufficiency of public opportunity to comment.[7] The length of time afforded for the comment period must be reasonable, though that determination  depends on the circumstances.[8]

Agencies may alter the proposed rule from its initial published form in response to public comment. However, agencies are not required to re-issue notice and allow for a further comment period even if the proposal is modified from its original version. Requiring a new comment period would create a disincentive for agencies to incorporate public comment, as it would require multiple cycles of notice and comment before a rule could be adopted. Thus, as long as the changes are considered to be a logical outgrowth of the proposed rule, the agency may proceed without a new round of notice and comment.[9]

Following the notice and comment period and after consideration of the data and the arguments presented by the public, the agency may adopt the proposed rule. When it does so, it must include a statement of the basis and purpose of the rule as part of the final version of the adopted rule.[10] The statement must address significant and material objections raised by the public in the comment period and provide explanations of how the issues raised by the comments were considered and resolved.[11]

Once the rule has been adopted, it typically must be published in the Federal Register thirty days before it goes into effect. However certain rules go into effect immediately upon publication. These include substantive rules which recognize an exemption to a policy, interpretive rules which explain the meaning of words in a statute and policy rules which explain how agencies will exercise discretion in particular areas.[12]

Following the adoption of a rule, agencies must allow interested parties to petition for the amendment or repeal of a rule. The APA does not require the agency take any specific actions; but only that the agency give prompt notice of any denial of such petitions with a brief statement of the grounds of the denial. Such denials are upheld by courts as long as they have a rational basis and the agency has “adequately explained” the facts and policies relied on.[13]

A final course of appeal against an administrative rule is to seek judicial remedy from a federal court. If the court finds that an agency action is substantively or procedurally invalid, it must set aside the rule as unlawful.[14] Alternatively, courts may  remand the case to the agency to re-consider any legally problematic aspects of the rule, which gives the agency an opportunity to remedy and re-adopt the rule using lawful means.[15]

Note that while courts may review agency decisions for compliance with APA procedures, courts may not impose additional procedural requirements on agency rulemaking procedures other than those prescribed by the APA.[16] The reasoning for this limitation is to ensure that agencies have clear and predicable procedures. The concern is that if agencies must anticipate additional procedures being imposed by courts, the agencies would tend to hold more judicial type hearings with extensive procedures, making the rulemaking process less efficient.

Exceptions to the Notice and Comment Requirements

Not all policy determinations made by federal agencies require the government to engage in informal rulemaking. Rules concerning agency organization, procedure or practice need not follow the notice and comment provisions of the APA. These may simply be adopted with notice to the public. However, if a procedural rule or policy statement impacts a substantive legal right, the exemption does not apply, and the agency would be required to follow the rulemaking process.[17]

For example, the FDA announced a new policy under which it would no longer pursue enforcement actions against food producers if the amount of harmful substances in corn grown by the producers was under a certain quantifiable amount. Since the FDA considered this a policy announcement regarding discretionary enforcement, it did not provide for a comment period prior to adopting the rule. However, the DC Circuit Court held that, in practice, the new policy would set a standard for enforcement which would not allow for FDA discretion. Thus, in effect, it constituted a new substantive rule which required a notice and comment process.[18]

The APA also recognizes a good cause exception, under which an agency may enact a policy without notice and comment if it finds that such a process would be impractical, unnecessary or contrary to the public interest. The agency must include an explanation of the good cause it relied on in deciding to proceed without the comment period.[19] One type of rule which could meet the criteria for a good cause exception would be a rule regulating matters of health or public safety in emergency conditions, which may proceed without employing the full requirements of informal rulemaking.[20]

The APA also sets forth a number of exceptional cases in which the government may proceed without applying the rulemaking provisions. These include circumstances in which military or foreign affairs are involved in government action. Likewise, matters relating to agency management or personnel or public loans, grants or benefits are exempted from the APA rulemaking procedures.[21] As an example of the latter category, the government may limit the total amount a hospital can charge Medicare patients without engaging in informal rulemaking, as this falls under the category of public benefits.[22]

Ex Parte Contacts

While adjudicatory hearings are judicial-type proceedings, including rules regarding the impartiality of the decision-makers, the rulemaking process is more akin to legislative proceedings and is not as restrictive on the conduct of the decision-makers. One example is the permissibility of contacts between outside parties and agency officials involved in the rulemaking process. While such ex parte contact is prohibited when agencies are engaged in adjudication, there is no prohibition of ex parte contact when it comes to rulemaking. Thus, unless otherwise prohibited, interested parties may engage agency officials regarding a proposed rule outside of the context of submitting comments on the public record.

However, there are limits to the permissibility of ex parte contact in rulemaking. When the outcome of a rulemaking is closely tied to resolving a dispute between two parties, the courts may consider this to be closer to an adjudication. In such circumstances, ex parte contact between one party and the agency may result in the court overturning the resulting rule.[23]

Likewise, if it appears that a rule adopted by an agency is the result of an agreement between a party and a federal agency in which the public had little real opportunity to affect the outcome, the rule may be subject to court challenge.[24] To remedy potentially unfair consequences of ex parte contacts, some agencies require that any contacts during the rulemaking process be disclosed to the public.

Other Rulemaking Procedures

When a statute does stipulate that a proposed rule requires a hearing on the record, the APA provisions for formal rulemaking apply. As with informal rulemaking, the formal rulemaking procedure begins with a publication of the proposed rule in the Federal Register, with a description of the substance of the rule and the details of when and where the proceedings will be held.[25]

Instead of the comment period, the process of formal rulemaking calls for a judicial-type hearing to determine whether the rule should be passed. In such a hearing, an Administrative Law Judge or another presiding agency representative has broad powers to facilitate the proceedings, including issuing subpoenas, ruling on evidentiary matters and requiring the parties to attempt to resolve any disputes through alternative dispute resolution.[26]

Parties to the case are entitled to submit oral or documentary evidence to bolster their case or to rebut evidence and to cross-examine witnesses.[27] All evidence, submissions, and testimony become part of the official record, which forms the basis for the presiding officer to make a decision on whether the rule should be passed. The decision, along with the findings and reasons for the conclusions, are part of the record for potential judicial review of the agency’s determination.[28] Finally, unlike informal rulemaking, ex parte contact is not permitting during the process of formal rulemaking.[29]

Congress has also provided another track for agency rulemaking called negotiated rulemaking. In this process, the agency can invite interested parties to work together with agency representatives to devise new rules. For example, agencies may pursue negotiated rulemaking when there are a limited number of identifiable interests that will be impacted by the rule and the agency believes it can convene a committee of people who can adequately represent these interests.[30] Thus, negotiating the rule prior to broader public consideration is likely to increase the acceptability of the new rule and shorten the time required to reach a final rule.

Should an agency pursue such a track, it must publish notice of negotiated rulemaking in the Federal Register, including details of the proposed committee, as well as an agenda and timetable for the negotiation process. A 30-day public comment process addressing the details of the proposed negotiated rulemaking and committee composition then follows.[31]

If the committee comes to an agreement regarding the terms of a proposed rule, it is then published as a proposed rule in the Federal Register, and the usual notice and comment process proceeds. Note that agencies are not bound to propose and adopt the rule proposal agreed to by the committee. The agency is free to disregard the negotiated rulemaking process and propose an alternative rule after the negotiation process is completed, which can then be proposed through the other rulemaking procedures.[32]

In our next module, we’ll turn to adjudication, the other major function of administrative agencies.