Agency Discretion to Act through Rulemaking or Adjudication

Legislatures confer discretionary powers on administrative agencies because they possess expertise and specialization to deal with matters delegated by legislature to agencies.  When laws drafted by a legislature are vague in nature, agencies can exercise discretionary power to interpret the laws.  However, exercise of discretionary powers should not be in contradiction to a government policy.

Administrative agencies have discretionary powers to adopt new rules through adjudication or rulemaking, or both.[i] However, an agencies’ exercise of discretionary powers should be in accordance with the legislature’s intention.[ii]

Generally, agencies should hold separate hearings of all contesting cases.  Agencies can deviate from the general rule when cases are based on the same issue.  For example, when cases on the same issue come before an administrative agency, the agency can hear and decide one case on the matter.  The agency can exercise its discretionary power by making the decision a new rule, applicable generally to every case on the same issue.  However, if the legislature has clearly expressed that individual hearings are necessary for every case, administrative agencies are to abide by the legislative intent.

Discretionary power is exercised by an administrative agency in a statutory rule-making procedure or an individual adjudication.[iii] Adjudicative rulemaking is the process of making new rules appropriate for deciding a case before an agency.  While conducting adjudicative function, administrative agencies adopt new rules related to the issue in question because the general rule applicable does not cover the issue[iv].  Therefore, an administrative agency uses adjudication to promulgate new principles even if the principles involve a change from previous policies.  However, agencies should adopt new rules through the rulemaking procedure instead of creating rules while deciding cases.[v]

[i] Ford Motor Co. v. FTC, 673 F.2d 1008 (9th Cir. 1981)

[ii] R & R Mktg., L.L.C. v. Brown-Forman Corp., 158 N.J. 170 (N.J. 1999)

[iii] RCJ Medical Servs. v. Bonta, 91 Cal. App. 4th 986 (Cal. App. 2d Dist. 2001)

[iv] Rodriguez v. Service Lloyds Ins. Co., 997 S.W.2d 248 (Tex. 1999)

[v] Matter of Sheriff’s Officer (PC2209J), 226 N.J. Super. 17 (App.Div. 1988)


Inside Agency Discretion to Act through Rulemaking or Adjudication