Constitutional challenge over commissioner removal could reshape federal regulatory oversight
By David Bland
The Federal Trade Commission (FTC) finds itself in an unprecedented state of regulatory uncertainty, with its traditional bipartisan balance upended and critical direct selling regulations hanging in limbo as constitutional questions swirl around commissioner removal powers.
Under normal circumstances, incoming presidents must wait for commissioner terms to expire before appointing replacements to independent agencies. The FTC’s five commissioners serve staggered seven-year terms with no more than three from the same party, meaning new administrations typically gain control gradually through vacancy appointments confirmed by the Senate.
President Donald Trump’s March dismissal of Democratic commissioners Rebecca Kelly Slaughter and Alvaro Bedoya eliminated the minority party’s voice immediately rather than through the traditional process. Slaughter’s subsequent court-ordered reinstatement and swift appeal in July has triggered a constitutional battle that extends far beyond personnel decisions. The legal challenge centers on whether a president can fire independent agency commissioners at will, or whether they are protected by nearly century-old precedent.
The outcome carries significant implications for direct sellers currently facing proposed earnings claims rules, business opportunity regulations and noncompete restrictions.
The Humphrey’s Executor Foundation
The legal framework governing this dispute traces back to Humphrey’s Executor v. United States, a unanimous 1935 Supreme Court decision that established clear limits on presidential removal power. The case emerged when President Franklin D. Roosevelt fired Federal Trade Commission Commissioner William E. Humphrey over policy disagreements during the New Deal era.
The Supreme Court ruled that FTC commissioners could only be removed for “inefficiency, neglect of duty, or malfeasance in office” as specified in the Federal Trade Commission Act. Justice George Sutherland’s opinion distinguished between purely executive officers and those serving in “quasi-legislative” and “quasi-judicial” roles at independent agencies.
However, legal experts say the landscape has shifted significantly. “There used to be a prevailing sense that even the current conservative supermajority on the Supreme Court would likely preserve Humphrey’s Executor, the landmark 1935 Supreme Court decision that upheld restrictions on the president’s ability to remove FTC commissioners,” said Donnelly McDowell, a partner at Kelley Drye & Warren LLP. “Now, most scholars are bracing for the likely overturning of Humphrey’s Executor.”
“The commission is to be non-partisan; and it must, from the very nature of its duties, act with entire impartiality,” Sutherland wrote, emphasizing that Congress intended to create agencies “free from political domination or control.”
However, the longstanding precedent faces growing skepticism from conservative justices. One instance involves the removal of Gwynne Wilcox from the National Labor Relations Board. President Trump had removed her on Jan. 27 though her term did not expire until 2028. Wilcox fought back and was reinstated in February. The D.C. Circuit twice ruled on her case, with the full circuit ultimately upholding her reinstatement based on Humphrey’s Executor protections. However, the Supreme Court, in a May decision, ruled to stay her reinstatement. The Court’s administrative stay effectively terminated Wilcox again, sending the case back to the D.C. Circuit for further proceedings.
Slaughter’s Legal Victory and Swift Appeal
U.S. District Judge Loren AliKhan ruled July 17 that Trump’s removal of Slaughter from the FTC violated federal law, ordering her immediate reinstatement. The judge rejected the administration’s constitutional arguments, stating that Trump wanted “the FTC to be something it is not: a subservient agency subject to the whims of the President.”
The victory proved short-lived. The D.C. Circuit Court of Appeals granted an administrative stay July 21, preventing Slaughter from returning to work while the case proceeds. The Justice Department argued that the district court’s decision “works a grave harm to the separation of powers and the President’s ability to exercise his authority under the Constitution.”
Slaughter denounced the appeals court’s intervention, stating she would “continue to fight my illegal firing and see this case through, because part of why Congress created independent agencies is to ensure transparency and accountability.” She added that “the Trump administration obtained an emergency stay, preventing me once again from doing the job Congress entrusted to me.”
Former Commissioner Bedoya, who resigned in June after months without pay, avoided the ongoing legal battle but highlighted the financial pressures facing dismissed officials who choose to fight their removals. Bedoya has since joined the American Economic Liberties Project as senior advisor.
Direct Selling Rules in Suspended Animation
The constitutional challenge has created regulatory gridlock at precisely the moment when several high-stakes direct selling matters demand commission attention. Three major rule proposals affecting the industry remain in various stages of development, their fate tied to the commission’s eventual composition.
Earnings Claims Crackdown
The commission’s most significant direct selling initiative involves proposed rules targeting deceptive earnings claims in multilevel-marketing programs. The January proposals would create a new Earnings Claim Rule specifically for network marketing companies while expanding the existing Business Opportunity Rule to cover money-making opportunities such as business coaching.
Under the proposed direct selling rule, companies would face prohibitions on making deceptive earnings claims, misrepresenting opportunities as employment and providing unsubstantiated recruitment materials. Companies would need written substantiation for all earnings claims and must provide that documentation to consumers upon request in the same language used to make the claims.
The expanded Business Opportunity Rule would cover investment opportunities and business coaching programs, requiring sellers to avoid material misrepresentations and maintain substantiation records. However, the proposals specifically exempt direct sellers from this rule since they would be covered under the separate Earnings Claim Rule.
Republican Commissioners Andrew Ferguson and Melissa Holyoak voted against all three proposals, with Ferguson arguing that “the time for the Biden-Harris FTC to issue or propose new rules ended the morning after the presidential election.”
Moreover, President Trump’s regulatory freeze executive order has effectively paused progress on these rules. Ferguson, now FTC chair, closed public comment periods on the proposals following the order, leaving their future uncertain.
Business Opportunity Rule Evolution
The commission also issued an Advanced Notice of Proposed Rulemaking (ANPR) seeking input on additional requirements for multi-level marketers. The ANPR considers mandating earnings data disclosure, implementing waiting periods before recruits can join or pay, and prohibiting misrepresentations about expenses and compensation plans.
The proposals would require direct selling companies to provide clear information about typical earnings and consider banning “gag clauses” that prevent participants from sharing negative information about their experiences. These provisions could significantly alter how direct selling companies structure their recruiting and retention practices.
Noncompete Rule Complications
The commission’s noncompete ban adds another layer of uncertainty for direct sellers. The rule, which would prohibit most noncompete agreements nationwide, faced immediate legal challenges after its April announcement.
A federal judge in Texas blocked the rule’s implementation in August, ruling that the FTC exceeded its authority. The decision prevented the September effective date and created ongoing litigation that parallels the Slaughter reinstatement battle.
Direct selling companies had expressed concerns about losing key protections against unfair competition and intellectual property misuse. However, the court’s decision provided temporary relief while broader questions about FTC authority remain unresolved.
Commission Composition Drives Policy Direction
The commission’s current composition heavily favors Republican priorities, with three Republican commissioners controlling the agenda in Slaughter’s absence. Chair Ferguson has signaled intent to roll back many Biden-era initiatives while taking a more business-friendly approach to enforcement.
However, the constitutional crisis extends beyond immediate policy disputes to fundamental questions about commission structure. The outcome could determine whether future presidents gain sweeping power to reshape independent agencies by removing commissioners without cause.
Currently, the commission operates with three Republican commissioners: Chair Ferguson, Commissioner Melissa Holyoak and newly confirmed Commissioner Mark Meador. Trump’s March nominee Meador was confirmed in April, creating a 3-0 Republican majority even without Slaughter’s participation.
The Slaughter case affects agencies with multi-member commissions protected by for-cause removal statutes, including the FTC, Federal Communications Commission and Consumer Product Safety Commission. However, traditional executive agencies like the Food and Drug Administration remain unaffected, as FDA commissioners already serve at the president’s pleasure without removal protections.
Moreover, Slaughter’s term runs until September 25, 2029, meaning her potential reinstatement would provide Democratic representation through the end of Trump’s presidency. Holyoak’s term expires September 25, 2025, creating another potential vacancy within the year.
Commissioner Melissa Holyoak joined Ferguson in opposing the earnings claims proposals, creating a reliable conservative majority. The pair have criticized expansive rulemaking efforts and advocated for more targeted enforcement actions instead of broad regulatory changes.
However, Slaughter’s potential return would restore some balance to commission deliberations. Her experience with direct selling issues and support for aggressive earnings claims enforcement could complicate Republican efforts to abandon the proposed rules entirely.
The uncertainty extends beyond individual commissioners to fundamental questions about agency independence. If the Supreme Court ultimately weakens or overturns Humphrey’s Executor, future presidents could reshape regulatory agencies much more dramatically than current law allows.
Constitutional Stakes Beyond Direct Selling
The Slaughter case represents part of a broader conservative effort to limit independent agency authority. Project 2025, the conservative policy blueprint, specifically targeted Humphrey’s Executor for potential reversal.
Legal scholars note that weakening independent agency protections could affect far more than direct selling regulation.
The implications extend far beyond regulatory policy, McDowell noted. “The ramifications would be momentous for the FTC and broader administrative law and executive power,” he said. “The ability of any president to unilaterally remove commissioners who publicly disagree with their policy positions is likely to have a significant chilling effect on public discourse.”
Moreover, the case arrives as the Supreme Court has shown increasing skepticism of agency authority in recent decisions. The court’s conservative majority has consistently favored executive power over agency independence in close cases.
The ultimate resolution could determine whether independent agencies maintain their quasi-judicial character or become more directly subject to presidential control. For direct sellers, this constitutional question may prove more consequential than any individual rule proposal.
Timeline for Resolution
The D.C. Circuit Court of Appeals has not announced a timeline for resolving Slaughter’s reinstatement appeal. Legal experts predict the case will eventually reach the Supreme Court regardless of the appellate outcome, given the constitutional significance of the issues involved.
However, the immediate impact depends on how quickly the appeals process moves. Slaughter’s continued absence gives Republican commissioners time to reshape pending matters while legal challenges proceed.
The commission faces several upcoming deadlines for finalizing rules and responding to court orders in various enforcement cases. The regulatory gridlock could force delays or prompt settlement discussions in cases where commission votes are required.
McDowell warned that such changes could fundamentally alter agency culture. “It makes the FTC and other independent agencies inherently more political by making commissioners think twice about any actions or statements that could lead to their removal,” he said. “It is also likely to make such positions inherently less appealing to the party not currently in power.”
Combined with the landmark June 2024 Supreme Court decision overturning the Chevron doctrine—which required courts to defer to federal agencies’ interpretations of ambiguous laws—the outcome of this court battle could completely alter the regulatory framework governing American commerce.
Meanwhile, direct selling companies continue operating under existing rules while preparing for potential changes. The industry’s future may be impacted not just by regulatory outcomes, but by fundamental questions about the balance of power in American government, which the Slaughter case has brought into sharp focus.
