Introduction to Agencies

Administrative Agencies

Administrative Agencies and Their Laws

Congress delegates to administrative agencies the power to make rules and regulations in their areas of specialty. Examples include the Securities and Exchange Commission (SEC) and the Environmental Protection Agency (EPA).

The legislative branch of the U.S. government created administrative agencies. An administrative agency is an organization that Congress, state legislatures, or local lawmakers task with implementing legislative acts. The U.S. Constitution permits the federal government to establish administrative agencies so that Congress, state legislatures, and other local lawmakers can manage serious issues of public interest and national concern. Issues of public interest and national concern are those that affect people in the workplace, such as poor labor standards, unpaid overtime, safety hazards, and matters within the financial market, like insider trading and other fraudulent practices. Before an agency can act, it must have properly delegated authority from the legislative body creating it. This delegation puts boundaries on agency power. Congress, the legislative branch of the federal government, creates administrative agencies. After creation, agencies then operate under the executive branch and must follow the Administrative Procedure Act (APA) of 1946 to then establish their own regulations, investigative processes, and penalties for noncompliance, using the public comment and notice guidelines set forth in the APA. Many states have adopted rules similar to those established by the federal government.

Administrative law governs the creation and operation of all administrative agencies. Members of administrative agencies are experts in their respective fields, and they can create their own rules and regulations, which can in turn be enforced as law. This particular process helps dispose of cases without the involvement of the court system, which is a significant aid to the courts.

An independent agency is one that is still established and governed by Congress as an administrative agency. However, an independent agency works outside of the executive governmental departments in a supervisory capacity and can be classified as a public authority or government agency. Independent agencies are constitutionally part of the executive branch, but the power of that branch and the president is limited with that particular agency. An executive agency has the power to enact laws within the scope of their authority, conduct investigations, and enforce the laws. Executive agencies have a single administrator or director, who is appointed by the president, compared to independent agencies, who have a commission or board of several members who run the agency.

Some U.S. Administrative Agencies

Independent Agencies Executive Agencies
  • Commodity Futures Trading Commission (CFTC)
  • Central Intelligence Agency (CIA)
  • Environmental Protection Agency (EPA)
  • Federal Communications Commission (FCC)
  • Federal Deposit Insurance Corporation (FDIC)
  • Securities and Exchange Commission (SEC)
  • Small Business Administration (SBA)
  • Department of Agriculture (USDA)
  • Department of Commerce (DOC)
  • Department of Defense (DOD)
  • Department of Education (DOE)
  • Department of Homeland Security (DHS)
  • Department of Housing and Urban Development (HUD)

There are a number of U.S. agencies categorized as either independent or executive.

The independent and executive agencies engage in rulemaking, a process by which stakeholders, or interested parties, are consulted and rules are drafted. Their rulemaking authority and function come from a federal law called the Administrative Procedure Act (APA). The agency proposes the rules, which are published in the Federal Register, a daily publication of the federal government that issues proposed and final administrative regulations of federal agencies. This publication exists because of the Federal Register Act, established in 1935 to require agencies to publish more information related to rulemaking documents. Interested parties can file written comments, and then a final draft rule is published, including a statement of purpose and a cost-benefit analysis for the rule. Prior to adopting, amending, or repealing a rule, administrative agencies must provide notice and an opportunity to comment. Following this notice and comment period, the agency determines whether the final draft should be implemented as a law or modified. A similar process exists at the state level, but rules are not published in a federal register.

As companies continue to experience challenges with ethical standards in labor practices and fraudulent matters within the financial industry, for example, the need for administrative agencies' involvement increases. Discriminatory practices have continued in spite of companies losing lawsuits, so the involvement of the Equal Employment Opportunity Commission (EEOC) is important, as it offers employees an opportunity to fight for their rights against unfair corporate practices. Banks that have been lenient with their lending policies, causing customers to lose money on deposit, have been regulated by the Federal Deposit Insurance Corporation (FDIC), which offers consumer protection through a guaranteed protection amount of depository insurance.

These administrative agencies may adjudicate, or make a judgment about, any disputes related to their rules and regulations. An administrative law judge presides over administrative hearings to adjudicate claims and disputes governed by administrative law.

Judicial review of rulemaking and adjudicative proceedings ensures that any constitutional challenges are addressed. Judges determine whether the delegation of legislative authority in the enabling act is too vague or too limited. They also make sure that the agency action does not violate a constitutional standard and that it was not beyond the scope of power granted.

Many states have adopted administrative agencies within their borders that operate similarly to federal agencies regarding establishment and creation through the state constitution and regulation by the executive/governor and legislative branches. The state agencies can create laws, but this power is based upon how the respective state chooses to grant the lawmaking powers. If conflicts arise between a similar state agency and a federal agency, the federal agency guidelines will prevail.

Why Does the Government Regulate Business through Administrative Agencies?

Government regulates business for many reasons, including public safety, consumer safety, environmental protection, protection of particular industries, and generation of tax revenue. This regulation limits what businesses can do, generally in a way that benefits the common good.

The government has a responsibility to guarantee that products and services meet minimum standards of consumer protection and are created in healthy and safe working conditions. Administrative agencies help establish benchmarks of good business practices and the framework for ethical business norms.

In the early years of the United States, the business world was predominantly agricultural and somewhat simple. As the economy developed, businesses became more complex, so the need for greater regulation arose. As industry increased in size and volume, the process of running businesses changed, since it began to involve more lending of varied types, as well as more labor forces in different capacities. These types of changes increased the level of complexity, and the need for regulation increased due to a lack of expertise and transparency.

During the Great Depression in the 1930s, administrative agencies helped stabilize the economy and addressed the excesses of an unregulated market system. For example, Congress created the Securities and Exchange Commission (SEC) in 1934 and tasked it with overseeing transactions in the stock market. The National Labor Relations Board (NLRB), created in 1935, safeguards unions and their members from workplace abuse by employers.

In recent years, many businesses have pushed back, believing that regulations create unreasonable burdens on them. Deregulation is the reduction or elimination of government power or restrictions in a particular industry, usually enacted to enhance competition within the industry. Efforts toward deregulation have existed since the 1980s, but regulation still exists.

Businesses complain that government regulations impede progress, reduce profit, and waste time and effort. However, government involvement has been necessary in response to financial and business crises. Congress passed the Sarbanes-Oxley Act (2002) in response to major corporate fraud in huge companies such as Enron and WorldCom. This act governs accounting, auditing, and corporate responsibility. Many business leaders opposed the bill because of its compliance standards and rules and the costs these imposed.

The Environmental Protection Act (EPA) is another common target of businesses, since businesses believe strict requirements for emissions, energy usage, and disposal of waste, for example, reduce profits. However, the EPA is also a response to citizens' desires for clean water, air, and land.

Thousands of conflicts such as these erupt between the government and businesses. Businesses are not always open to government involvement and regulations, because they interfere with free enterprise and do not allow the businesses to expand globally because of heavy regulations and rules. However, not all administrative agency actions have created rules that businesses may not want. Some actions have enabled the offering of low-interest loans and expert advice to small and large companies.