December 6, 2010
Pay Czar is Constitutional, OLC Rules
The Office of Legal Counsel released a memo late last month opining that the "Pay Czar" is an inferior officer and therefore not subject to Senate advice and consent under the Appointments Clause. The upshot: The Pay Czar is constitutional.
The Pay Czar--or, formally, the Special Master for Troubled Asset Relief Program Executive Compensation--was created by the Treasury Secretary pursuant to the Emergency Economic Stabilization Act and the Troubled Asset Relief Program, or TARP. Under the TARP legislation, the Secretary had the power to set executive compensation and corporate governance standards for TARP fund recipients. The Secretary issued interim final rules on June 15, 2009, and established the office of the Pay Czar to set and implement standards.
The Pay Czar came under fire last year from those who claimed that the Obama administration was governing under the table with secretive appointed "czar" positions. Some also came under fire as violating the Appointments Clause. That Clause reads as follows:
[The President] . . . shall nominate, and by and with the Advice and Consent of the Senate, shall appoint Ambassadors, other public Ministers and Consuls, Judges of the supreme Court, and all other Officers of the United States, whose Appointments are not herein otherwise provided for, and which shall be established by Law: but the Congress may by Law vest the Appointment of such inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.
Officers thus fall into two categories: Principal officers (subject to Senate advice and consent); and inferior officers (subject to appointment as Congress may authorize). If the Pay Czar is a principal officer, the appointment violated the Appointments Clause (because there was no Senate advice and consent). If, however, the Pay Czar is an inferior officer, and if the TARP legislation reasonably provided for its appointment, there's no Appointments Clause problem (because inferior officers do not require Senate advice and consent).
The Supreme Court set out factors for determining when an officer is a principal officer in Morrison v. Olson and considerations for this determination under Edmond v. United States. The OLC opined that the Pay Czar is an inferior officer under either approach. Under Morrison, the OLC opined that the Pay Czar is subject to at-will removal by the Secretary, the office's duties are limited and defined, the jurisdiction is limited to TARP recipients' executive compensation and corporate governance, and the tenure stops when TARP funds are repaid.
Under Edmond, the OLC opined that the Pay Czar is removable at-will by the Secretary, and Pay Czar decisions are reviewable by the Secretary. (The OLC wrote the longest on this latter consideration. The interim rule makes the Pay Czar's decisions "final and binding," suggesting that the Secretary cannot review them. But the OLC, looking at Department interpretation of the rules and precedent, opined that the Secretary could review them.)
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