On October 9, 2019, President Trump signed two Executive Orders that effectively end the controversial practice of “regulation by guidance.” Regulation by guidance is a practice by which federal departments and agencies attempt to fill gaps in agency-promulgated rules by issuing memos, letters, bulletins, brochures and even blog posts which set forth the regulators’ views as to how those rules should be interpreted. In practice, regulators, administrative judges, and federal judges often rely on guidance documents in determining whether an entity has violated a law. While some view guidance documents as an expeditious method to mitigate regulatory uncertainty and safeguard the public, others believe the process short-circuits the procedural safeguards associated with the formal rulemaking process, unlawfully expands agencies’ authority, and circumvents Congress.
The current Administration has now effectively dismantled the practice. As we previously discussed in our False Claims Act – Year in Review: 2018, available for download here, in November 2017 then-Attorney General Jeff Sessions announced that the Department of Justice would begin to curb the practice. The DOJ formalized its new policy in January 2018 by issuing the Brand Memo, which prohibits federal prosecutors from bringing enforcement actions on grounds that an entity or individual failed to comply with DOJ guidance documents. During 2018 and into 2019, many federal agencies followed suit and made similar policy announcements.
On October 9, 2019, President Trump extended the policy across the entire Executive branch by issuing a pair of Executive Orders that effectively ends the practice of federal departments and agencies relying on administrative guidance in enforcement actions.
The first order, “Executive Order on Promoting the Rule of Law Through Improved Agency Guidance Documents,” requires that each agency post its guidance documents on an indexed, searchable website, with the assumption that omitted documents are rescinded, and to denote clearly that the guidance documents lack the force and effect of law. 1 Additionally, the agency must also finalize regulations or amend existing regulations to establish a clear process for issuing guidance documents, which would necessarily include (i) an express statement that the guidance document is not legally binding except as authorized by law, (ii) procedures for petitioning for the withdrawal or modification of a guidance document, and (iii) a period for notice and comment, approval by a top agency official, and review by the Office of Information and Regulatory Affairs. Effectively, this Executive Order requires that agencies afford the public similar, albeit lighter, rights in the guidance document process as is required in the rulemaking process. This marks a seismic shift from the historical practice in which there were virtually no procedural safeguards in the guidance issuance process.
The second order, “Executive Order on Promoting the Rule of Law Through Transparency and Fairness in Civil Administrative Enforcement Adjudication,” makes clear that “[g]uidance documents may not be used to impose new standards of conduct” on non-Executive branch officials. It further prohibits an agency from pursuing an enforcement action predicated on an interpretation that has not been publicly stated or one that would cause unfair surprise or unexpected penalties. Subject to limited exception in cases of a threat to the health or safety to an employee, this Executive Order further requires an agency to afford an individual or entity that is the subject of an enforcement action an opportunity to be heard regarding the agency’s factual or legal interpretation.
The Executive Orders signal an end to a practice that is widely viewed as agency overreach, that deprives the public of the right to have a meaningful role in crafting rules and, thus, yields unfair authority. The orders clarify that enforcement actions should be based on statutes and legally binding regulation, and that agencies must adhere to a formal notice and comment process if they intend that the rule will be legally binding.
Detractors are, however, voicing concerns that the orders in execution may deprive regulated entities of needed clarity relating to whether regulators view their conduct as violating an agency’s rules or deprive those entities the ability to avoid or remediate violations altogether. It should be noted that nothing in either order precludes an agency from issuing guidance documents, only predicating enforcement actions on guidance documents that have not been subjected to the formal rule-making process.
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1 This Executive Order does not apply to "independent regulatory agencies" as defined in 44 U.S.C. 3502.