The Sarbanes-Oxley Act of 2002 created the Public Company Accounting Oversight Board, an agency with broad authority to regulate accounting firms that perform audits of publicly-traded corporations. The Board is formally placed under the Security and Exchange Commission, but the Commission may only remove Board members pursuant to a stringent good cause requirement.

In Free Enterprise Fund v. Public Company Accounting Oversight Board (.pdf), the Supreme Court considered a challenge that the good cause removal provision violated separation of powers principles by creating a second level of employment protection for Board employees. (The majority opinion found that the SEC members themselves were removable only for good cause). The five-member majority, in an opinion authored by Chief Justice Roberts, held that the ability to remove inferior officers was an important part of the President’s power and obligation to ensure the faithful execution of the laws. The double layer of good cause protection for Board members effectively insulated them from presidential oversight, violating separation-of-powers principles.

Having won the battle, Petitioner then lost the war. The Court held that the invalid removal provisions were severable from the remaining provisions of Sarbanes-Oxley. Consequently, the Board action that Petitioner complained of was not invalid.

The dissenting opinion, authored by Justice Breyer, argued that the removal-for-good-cause provision was a valid exercise of legislative authority and that the majority’s ruling would call the authority of numerous other federal agencies into question.