Rulemaking vs. Adjudication Explained: How Federal Agencies Make Policy

Rulemaking vs. Adjudication Explained: How Federal Agencies Make Policy

Most federal policy isn't made by Congress. It's made by agencies — the EPA, the FDA, the SEC, and dozens of others — using authority that Congress has delegated to them. But agencies don't all exercise that authority the same way. They have two fundamentally different tools, and the one they choose determines what kind of process you get, what kind of notice you receive, and what your options are if you disagree.

The first tool is rulemaking. This is how agencies create general rules that apply to everyone in a category — all power plants, all banks, all food manufacturers. Rulemaking is prospective and public. The agency proposes a rule, the public gets to comment, and the final rule binds everyone equally. The second tool is adjudication. This is how agencies resolve individual disputes — your Social Security claim, your immigration case, an enforcement action against a specific company. Adjudication is case-by-case, fact-specific, and often looks a lot like a court proceeding.

The distinction sounds straightforward, but it shapes nearly everything about how agencies operate. Agencies sometimes choose one tool over the other strategically, and that choice can mean the difference between a public process with broad input and a closed proceeding that sets policy through a single case. Understanding the difference is essential for anyone trying to make sense of how federal agencies affect their lives — whether you're a business navigating a new regulation or a person whose benefits claim just got denied.

In this episode, we explain both mechanisms in plain language, walk through real-world examples of each, and map where agencies have more or less flexibility depending on which tool they use.

Listen Now

Spotify | Apple Podcasts | Listen on our site

What We Cover

Full Transcript

Gwen: Hello, and welcome to Administrative Remedies, because you can't fix what you don't understand. Brought to you in part by the University of Tulsa College of Law. I'm Gwendolyn Savitz, an associate professor here at TU and the associate dean of research and intellectual life.

Marc: And I'm Marc Roark. I'm the dean of the College of Law.

Gwen: We'll be breaking down complex doctrines with real-life analogies and examples to demystify the world of administrative law for everyone trying to understand how government actually works.

Marc: Agencies are the main way the federal government gets things done. It's not through Congress for reasons we'll be addressing over the course of this series.

Gwen: Welcome back to season two of Administrative Remedies. This season, we are looking in-depth at adjudication. But first, Marc, have you ever gotten a speeding ticket?

Marc: That is not something I wish to discuss on the air.

Gwen: All right, fair enough. But think about the limits on the streets near your house. The 25 or 35, whatever it's set at, that isn't decided in the moment by each individual police officer.

Marc: Right. It's set in advance. There's one number, one speed limit for every single person.

Gwen: Exactly. Somebody went through, looked at the type of street it is, at how much pedestrian traffic there is, whether there's a school nearby, the accident history, and set some sort of general standard.

Marc: Yeah, in theory, or they just picked a number out of the blue.

Gwen: Yeah, it could feel that way too. But the idea here is they made one sort of forward-looking rule that applies to everyone, even though it won't fit every situation perfectly. That's rulemaking. We covered that last season.

Marc: Right. So now imagine you're driving on one of the roads near your house at 50 miles an hour and a cop pulls you over. And now I'm in trouble. The cop is applying that rule to me specifically, deciding whether I violated it.

Gwen: So that specific application of the rule to you in that moment, that's adjudication.

Marc: Okay, but hold on. Isn't the cop also making rules in a sense? I mean, the cop decides whether 50 in a 35 is really speeding or just barely over, whether I get a ticket or a warning or a motorcycle helmet violation because he wants to give something.

Gwen: That can be a really common area of confusion. The cop definitely has discretion, but discretion isn't the same thing as making a rule.

Marc: Why not? If the cop always lets people go for five over, isn't that basically a rule?

Gwen: So here's the difference. The speed limit applies to everybody on the road all the time until it's changed. That's general applicability. The cop's decision applies to you right now, based on your particular facts.

Marc: So particular applicability.

Gwen: Yes, and that distinction matters because you have different rights depending on which one the agency is doing.

Marc: Okay, so this season is about what happens when they come after you personally.

Gwen: Yes. And we're talking about it because there's a whole world of complexity in how agencies make these individual determinations. Who hears them? What kind of procedures apply? Whether you get a real hearing or a letter that just says denied, that's what we're talking about.

Marc: Okay, so let's get technical. What do the statutes actually say about adjudication?

Gwen: All right, so we're going to start with the Administrative Procedure Act. That's the basic governing law for all agencies. It defines both rulemaking and adjudication in this definition section. Do you want to read the definition of a rule?

Marc: A rule means the whole or a part of an agency statement of general or particular applicability and future effect designed to implement, interpret, or prescribe law or policy.

Gwen: So the key phrases there are general applicability and future effect.

Marc: It says general or particular, so a rule can apply to specific people.

Gwen: Yes, it does say that. A rule can be super narrow. Like it could say nuclear power plants within 50 miles of an earthquake fault line. That's only a handful of plants, but it's still prospective. It's setting the standard for the future. The key to rulemaking is this forward-looking quality.

Marc: Okay, so now what about adjudication?

Gwen: The APA doesn't itself define adjudication. It just calls the results of adjudication an order. So can you read the definition of an order?

Marc: Order means the whole or a part of a final disposition, whether affirmative, negative, injunctive, or declaratory in form, of an agency in a matter other than rulemaking, but including licensing.

Marc: So other than rulemaking. That is a pretty circular definition. If it's not a rule, it's an order.

Gwen: Yes, that's right. So the APA basically says all agency action falls into two buckets. They're either making general rules for the future or they're deciding current specific cases about past or present conduct. And the distinction determines what procedures the agency has to follow.

Marc: And what rights you have.

Marc: Why not just give everyone the same protections regardless?

Gwen: Totally fair question. So why shouldn't everyone get a hearing before the government does something that affects them? Seems more fair. It could, yes. So if the EPA wants to set air quality standards, but before they can do that, they need to give a personal hearing to every single person or entity in the U.S. who would be affected by air quality.

Marc: That's basically everyone.

Gwen: Yeah. If we're just talking about the people, we're already at 340 million hearings.

Marc: Okay. That's impractical. But there has to be a line somewhere.

Gwen: There does. And there is. So the Supreme Court drew this line over a century ago in two cases. They're both from Colorado. This is one of those really nice sets of cases where the facts line up really well, so you can really see the difference. These were decided just seven years apart.

Gwen: The first one is Londoner v. Denver from 1908.

Marc: Before the Administrative Procedure Act existed.

Gwen: Way before. Denver wants to pave a street. They decide to charge the cost to the property owners along the street. They're making a special assessment for these property owners. And each owner would pay based on how much their property benefited.

Marc: So they're dividing up the bill among specific people.

Gwen: Yes. And some of these owners objected and they wanted a hearing before they got hit with the bill.

Marc: Well, I mean, of course they did. I mean, the city is taking their money.

Gwen: Yes. And the Supreme Court agreed. So here, read what the court said about why individual determinations require different procedures.

Marc: A hearing in its very essence demands that he who is entitled to it shall have the right to support his allegations by argument, however brief, and if need be by proof, however informal.

Marc: So the property owners weren't challenging whether to pave the street.

Gwen: Right. They weren't challenging the action of paving the street. They were just challenging how much each of them personally should have to pay to do it. So that was an individual determination about these identified people, the people on that street. Due process required giving them an opportunity to be heard.

Marc: Okay. So that makes sense. You said that there was a second case, though.

Gwen: Yeah. So the next one is Bi-Metallic Investment Company v. State Board of Equalization. This is from 1915. Also Colorado. Again, these are really nice facts.

Gwen: This time, the State Board of Equalization decided to increase the valuation of all taxable property in Denver by 40%.

Marc: All property, not just specific parcels?

Gwen: Right. They said that everything in the city was being strategically undervalued, so Denver wouldn't be paying as much in taxes. They fixed that by just raising the value of everything across the board.

Marc: Okay, so Bi-Metallic Investment Company owns property in Denver, their taxes are going up, and they say, wait, we want a hearing too, just like those property owners in Londoner.

Gwen: Exactly, and they lost.

Marc: Why? Their taxes went up as well. So the nature of this kind of decision was different.

Gwen: Here's what Justice Holmes wrote about it.

Marc: Where a rule of conduct applies to more than a few people, it is impracticable that everyone should have a direct voice in its adoption. The Constitution does not require all public acts to be done in town meeting or an assembly of the whole.

Marc: General statutes within the state power are passed that affect the person or property of individuals, sometimes to the point of ruin, without giving them a chance to be heard. Their rights are protected in the only way that they can be in a complex society, by their power, immediate or remote, over those who make the rule.

Marc: So, wait, I mean, sometimes to the point of ruin without giving them a chance to be heard? Holmes, is he really okay with that?

Gwen: He's not saying it's ideal or that it's pleasant. He's saying it's necessary. If the government is about to make a rule affecting lots of different people, each person can't get an individual hearing.

Marc: So then your remedy is political. Vote out the people who made the decisions.

Gwen: Right. What he says, their power immediate or remote over those who make the rules. That immediate power would be if this is some sort of act passed by legislation. The more remote version would be an agency.

Marc: Okay, so back to our speed limit example. Setting the limit at 35 miles per hour is Bi-Metallic, a general rule where no hearing is required.

Marc: But deciding whether I was speeding and what fine I should pay, that's Londoner. That's about me specifically, so I should get to tell my side.

Gwen: Yes, this is the constitutional foundation. Londoner and Bi-Metallic, decided over a century ago, still define this line today.

Marc: Okay, this is where we bring the babysitter in, right?

Gwen: We sure can. So, we have the babysitter. Yay, she's back. And now she's announced a new house rule, no jumping on the furniture ever. This applies to everyone.

Marc: Okay, that's rulemaking, general applicability, future effect, Bi-Metallic.

Gwen: Yes. Now the babysitter catches Riley jumping on the couch later that night and says, Riley, you violated the rule. You're losing TV time tomorrow.

Marc: That's adjudication. Specific person, backward looking, specific consequence, Londoner.

Gwen: Yeah. So here's what gets interesting. Riley could protest and say, I wasn't jumping. I was barely bouncing. I was just moving my body. That's different.

Marc: He wants to be heard before he loses his TV time.

Gwen: Right, but did he get to vote when the babysitter was making the rules? Did he get a hearing about whether jumping should be banned before it was banned?

Marc: I don't think so.

Gwen: So that seems unfair, huh? A little bit. I mean, I guess it would be impractical for the babysitter to hold a referendum every time she wants to set a household rule.

Marc: Right, the kids would be voting for unlimited candy and no bedtimes. The ballot box of the household doesn't work so well when the electorate is seven years old.

Gwen: Yes, that's Bi-Metallic. General rules don't require hearings. Riley's remedy is to complain to his parents when they get home.

Marc: But when the babysitter is deciding whether Riley specifically violated that rule and what should happen to him specifically...

Gwen: Now we're back in Londoner territory. Now he has a much stronger claim to be heard. He should get to explain himself before he's punished.

Marc: Okay, but what if the babysitter says Riley and only Riley is no longer allowed to climb trees because of what happened last week? Is that a rule or is that...

Gwen: All right, that's a really hard case. It's targeted at one person, so it feels like an adjudication, but it's also prospective, so it feels like a rulemaking. And in the definition of a rule, it can be specific. But courts often wrestle with this kind of hybrid situation.

Marc: So the categories aren't really all that clean.

Gwen: There is a fuzzy middle area, but the paradigmatic cases are absolutely clear. Making general rules for everyone going forward, Bi-Metallic, that's rulemaking. Deciding what happens to a specific person for what they already did, that's Londoner, that's adjudication.

Gwen: So we've established when somebody gets a hearing, but there's another question that's just as important.

Marc: Okay, what question?

Gwen: What law applies when the agency is deciding your case? Up to this point, we've been assuming that there's already a rule on the books, like a speed limit exists. And the question is whether you violated it.

Marc: Right. The rule is 35 miles per hour. Did I go faster than that?

Gwen: Yes. But what if there isn't a rule? What if the agency announces the standard for the first time in the very case that's deciding your fate?

Marc: Wait, so they could do that?

Gwen: They can. And that raises a whole different set of fairness concerns. Agencies can actually announce new rules while deciding someone's case.

Marc: Yes. An agency can choose to announce a new standard through notice and comment rulemaking, or they can announce the same standard for the first time when deciding a specific case.

Marc: So an agency could be adjudicating my case, and in the middle of deciding whether I violated the rules, they announce a new rule?

Gwen: Yes, and then find you liable for violating it.

Marc: That seems deeply unfair. I mean, I'm being judged by a standard that didn't exist when I acted.

Gwen: So a couple of points here. One, this is how negligence law works in general. You don't know for sure that you weren't supposed to do that exact thing until you've gone and been told you weren't supposed to do that exact thing. This is also one of the most persistent criticisms in administrative law. But this is from a Supreme Court case. This is SEC v. Chenery from 1947. Here's what the court said there.

Marc: The choice made between proceeding by general rule or by individual ad hoc litigation is one that lies primarily in the informed discretion of the administrative agency.

Gwen: The informed discretion. The agency gets to choose which approach it wants to use. The SEC in that case, they could have done the rulemaking, but decided to announce a new standard in a specific enforcement action.

Marc: And the court said that's fine?

Gwen: Yes. Agencies need flexibility. They can't always predict in advance what situations they'll face.

Marc: But hold on. When an agency makes policy through rulemaking, the rule applies prospectively. Going forward from now, here's the standard. Everyone knows the rules before they act. But when an agency makes policy through adjudication, the parties in that case are being judged by a standard that didn't exist when they acted. The new rule applies retroactively to conduct that happened before the rule was announced.

Gwen: Yeah. In this case, the parties are functionally guinea pigs. They're being punished under a rule that is announced for the first time in the very decision finding them liable for violating the rule.

Marc: It's like the babysitter deciding tonight that jumping on the couch is against the rules and then punishing Riley because he did it last week before anyone told him it was a problem.

Gwen: Yes. And under Chenery, that's allowed.

Marc: How exactly do courts justify this?

Gwen: When the court decided it, they acknowledged that it might seem unfair, but said agencies need a lot of flexibility to be able to develop policy. This was a period of time when the general public viewed agencies in a much more favorable light. An agency can't always anticipate every situation in advance. And the same way that common law courts had been developing doctrine for centuries, how common law courts had announced legal principles when deciding specific disputes, agencies could do the same thing.

Marc: But common law courts aren't also the prosecutor. They're neutral. The agency is both making the rule and enforcing it against you.

Gwen: That is a massive tension in the system. And different agencies handle this very differently. The NLRB, the National Labor Relations Board, makes almost all its policy through adjudication. They rarely do notice and comment rulemaking.

Marc: So if you want to know labor law, you have to read a bunch of NLRB decisions and then piece together what the standards are.

Gwen: Pretty much. And that's what you're paying for when you hire labor law experts. Meanwhile, the EPA tends to prefer rulemaking, detailed regulations that go through the notice and comment period. Same government, same APA, completely different approaches.

Marc: Sometimes, though, Congress makes this choice for them, right?

Gwen: Yes. Congress can, and often does, mandate that agencies undertake a rulemaking when deciding something in a new law. Chenery only applies when Congress hasn't specified what the agency has to do. If Congress leaves the door open, the agency can choose to walk through it however it wants.

Marc: I'm going to need to see how this actually works, because in the abstract, this sounds like it could be abused pretty badly.

Gwen: Here's a good example. You probably have already had experience with this. Have you ever had your credit card number stolen in a data breach?

Marc: Yeah, for sure.

Gwen: So what law required that company to protect your credit card information in the first place?

Marc: I don't know specifically. Maybe some data security regulation.

Gwen: Except that there isn't one. Not in the way you're thinking. Not in the way we were talking about rules last time. Here, the FTC has authority under Section 5 of the FTC Act to go after unfair or deceptive business practices. That's it. Just those words. Nothing in the statute about encryption or firewalls or how to store credit card numbers or when to notify customers after a breach.

Marc: So how did unfair or deceptive turn into actual cybersecurity requirements?

Gwen: Through enforcement and adjudication. The FTC sues companies with terrible security practices, like a hotel chain that was storing credit card numbers in plain text, businesses without any sort of firewalls, companies that were ignoring obvious vulnerabilities in the system. Each case adds another piece to what these requirements are.

Gwen: And now if your company doesn't encrypt customer data and there's a breach, the FTC will say the failure was an unfair practice based on standards they built through this case-by-case approach.

Marc: Okay, so there's no rulebook I can read. I have to piece together what reasonable data security means from 20 years of enforcement actions.

Gwen: Yes, that is Chenery in action. Agencies building policies through adjudication instead of rulemaking. And the companies in those early cases were the guinea pigs. They were judged by standards that didn't exist until the decision that found them liable.

Marc: So this isn't just some abstract legal doctrine. It's shaping things that actually affect people.

Gwen: Yes. I do want to point out that they're at the very highest level being judged by the statute that's in place. It's just how you're going to interpret the statute. That's what the agency is doing.

Gwen: So this happens every day in different situations. But to really see how it works, to see the political stakes, the reversals, let's look at the idea of joint employment because this has been fought over for decades. We're going to do that by talking about Browning-Ferris Industries.

Gwen: This is a 2015 NLRB case that shows how powerful this adjudication-as-rulemaking can be.

Marc: Okay, so what happened?

Gwen: Browning-Ferris ran a recycling facility in California. The workers on the sorting lines, the ones physically doing the sorting work, they weren't hired or paid directly by Browning-Ferris. They were employed by a staffing agency.

Marc: So on paper, the staffing agency was the employer.

Gwen: Yes, on paper. But Browning-Ferris controlled the workplace in some pretty significant ways. They set the speed of the conveyor belt. They set the productivity quotas. They determined the hours of operation. They determined when the break times were. And under the contract, they could also require the staffing agency to remove any worker from the facility.

Marc: Okay, so even though they didn't sign the paychecks...

Gwen: Yeah, even though they weren't signing the paychecks, they were controlling a lot of what was going on. So here was the issue. When the workers are trying to unionize, who counts as their employer? Is it just the staffing agency, which has very little control over their actual day-to-day working conditions? Or is it also Browning-Ferris?

Marc: Okay, so why does that matter for unionizing?

Gwen: You can only bargain with your employer. If Browning-Ferris isn't your employer, you can't demand they come to the table and bargain. You're stuck negotiating with a staffing agency, even though it doesn't actually control any of your working conditions.

Marc: All right. That seems like a problem for workers.

Gwen: Yeah, it was a huge problem. And under the NLRB's then-existing test, Browning-Ferris probably wasn't the employer. The old test required direct and immediate control over the essential terms of employment. Hiring, firing, discipline, actual day-to-day supervision. Browning-Ferris wasn't doing that stuff directly.

Marc: So what did the NLRB do?

Gwen: They didn't write a rule changing the standard. They didn't go through notice and comment. They decided this one case. And in deciding it, they announced that indirect control and reserved authority, that contractual right that Browning-Ferris had to control the workers, even if they chose not to exercise it, that was now enough to make them somebody's joint employer.

Marc: So a single adjudication then changed the legal standard nationwide.

Gwen: Yes, overnight.

Marc: And Browning-Ferris itself was being judged by this new standard, the one the board announced in the same decision that found them liable.

Gwen: Yes. I do want to point out that what's at stake here is just whether they have to bargain with the workers. So we're not saying that anybody is going to jail. We're saying you weren't sure if you had to bargain with the workers. You didn't think you had to bargain with the workers. But actually, it turns out you do.

Gwen: This is Chenery in action. The board has the discretion to announce a new standard through adjudication rather than rulemaking.

Marc: So Browning-Ferris was the guinea pig.

Gwen: Yes. And so this means that every other company that's using staffing agencies or contractors needs to be on alert. Because once this board announces the standard in Browning-Ferris, it applies to everyone.

Marc: How did the business community react?

Gwen: How do you think the business community reacted?

Marc: Well, I can imagine that they freaked out.

Gwen: They absolutely did. Think about what this means for all the franchise models. McDonald's doesn't employ most of the workers at a local McDonald's. The franchisee does. But McDonald's controls a ton of the actual work environment. They have operations manuals. They have required equipment. They're the people supplying the food. They have branding standards. So the franchises were even required to use McDonald's scheduling software.

Marc: That's partly what you're paying for when you become a franchisee is all of that control exerted by McDonald's.

Marc: So under the new Browning-Ferris standard...

Gwen: Yeah. So now there's suddenly a real question about whether McDonald's could be the joint employer of every franchisee worker in America. Same with Subway, same with hotel chains, same with any company using staffing agencies or subcontractors.

Marc: So that's millions of workers potentially affected by one adjudication.

Gwen: It is. So unsurprisingly, after this, the business community went to war. Trade associations filed lawsuits, lobbyists descended on Congress, and later NLRB boards, under different presidents, tried to undo or modify the standards.

Marc: Also through adjudication?

Gwen: So initially through adjudication, eventually through rulemaking. The Joint Employer Standard has ping-ponged back and forth multiple times since this case was decided. Each administration has tried to lock in its preferred approach.

Marc: This one case launched years of legal and political warfare.

Gwen: That's the power and the problem of making policy through adjudication. There's no notice period when industry could organize opposition. There's no requirement to respond to public comments. They just need to decide the case. And by doing that, suddenly you've reshaped a huge sector of the economy.

Marc: Which explains why this choice, rulemaking versus adjudication, is so strategic.

Gwen: Yes, and why a lot of critics of the administrative state hate Chenery. They say it lets agencies avoid accountability and surprise regulated parties with these retroactive rule changes.

Marc: Are there any limits at all on when agencies can choose adjudication over rulemaking?

Gwen: The Supreme Court has said there are theoretical limits. At some point, this would be so inconsistent that it could be an abuse of discretion. But they've never said that line was crossed. So as a practical matter, agencies have a huge degree of discretion under Chenery.

Marc: Okay, so let me make sure I've got all this. Agencies do two fundamentally different things. They make general rules like legislatures, and they decide individual cases like courts.

Gwen: Yes, and these two functions get very different procedures, going back to Londoner and Bi-Metallic over a century ago.

Marc: And general rules affecting everyone. No individual hearing is required. Your remedy is political.

Gwen: Yes, but if we're talking about an individual determination about specific people based on their specific facts, now due process kicks in and you have a right to be heard.

Marc: Except agencies can also blur the line under Chenery. They can announce new policy in the course of deciding individual cases.

Gwen: And that means that when that happens, the first parties that face the new standard get judged retroactively by a rule that's announced in the decision finding them liable for violating it.

Marc: And we saw with Browning-Ferris how a single adjudication can reshape entire industries overnight.

Gwen: Yes, without notice, without a comment period, without the procedural protections of rulemaking.

Marc: Okay, so what procedural protections do you get in adjudications?

Gwen: So that's where we're going next. There's a huge range. Some adjudications give you something like a full trial with witnesses, with cross-examination, a neutral decision maker, the works.

Marc: That sounds reasonable.

Gwen: Others will just give you a letter that says denied with almost no explanation. Same government, same APA, completely different processes.

Marc: That sounds less reasonable.

Gwen: Yes, it can. Next episode, we'll be talking about all the different kinds of adjudications.

Marc: So that does it for today's episode on Administrative Remedies. Thank you for joining us today. Please, if you enjoy this podcast and enjoy this episode, give us a like on Spotify, iTunes, or whatever platform you're listening on. And be sure to tune in next time where we'll continue to dive into the contours of administrative law, because remember, you can't fix what you don't understand.


Related Guides