The opinion of the court was delivered by: Frye, Justice.
On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision of the Court of Appeals, 124 N.C. App. 515, 478 S.E.2d 30 (1996), reversing and remanding an order entered by Stephens (Donald W.), J., on 6 September 1995 in Superior Court, Wake County, which affirmed a decision and order of the State Personnel Commission. Heard in the Supreme Court 10 September 1997.
Both this and a companion case, Powell v. N.C. Dep't of Transp., 552PA96 (opinions filed simultaneously), raise the issue of whether the Governor properly designated certain State employee positions as policymaking exempt under N.C.G.S. § 126-5. In this case, we must determine whether the Court of Appeals erred in reversing an order of the superior court sitting in review of a final decision of a state agency. We conclude that the Court of Appeals did err.
The specific issue in this case is whether the position of Chief of the Internal Audit Section of the Department of Transportation (DOT) comes within the statutory definition of policymaking and may therefore be designated as exempt from provisions of the State Personnel Act (SPA). *fn1 The SPA permits the Governor to designate as exempt certain policymaking positions within departments of state government, including the DOT. N.C.G.S. § 126-5(d)(1) (1995). A policymaking position is defined as "a position delegated with the authority to impose the final decision as to a settled course of action to be followed within a department, agency, or division." N.C.G.S. § 126-5(b).
Glenn I. Hodge, Jr., was employed by the DOT as an internal auditor beginning 1 January 1992. On 23 May 1992, Hodge was promoted to the position of Chief of the Internal Audit Section. In March 1993, under the direction of the Governor's office, a panel of personnel officials compiled a list of positions within the DOT which could be designated as policymaking exempt pursuant to N.C.G.S. § 126-5(d)(1). *fn2 Hodge's position was included on this list. On 12 February 1993, *fn3 and again on 3 May 1993, Hodge was notified by letter that his position was to be designated as policymaking exempt and that he would thereafter serve at the pleasure of the Secretary of the DOT. Hodge filed petitions for contested case hearings in the Office of Administrative Hearings on 15 March 1993 and 14 May 1993, challenging the designation of his position as policymaking exempt. The cases were consolidated for hearing.
A contested case hearing was held before Senior Administrative Law judge (ALJ) Fred G. Morrison, Jr., in November 1993. The evidence presented showed that the position of Chief of the Internal Audit Section of the DOT had considerable independence to direct and supervise audits inside the DOT. The person in this position had supervisory authority within the section over other auditors' work and assignments. The Chief of the Internal Audit Section consulted with the heads of units being audited and with higher-ranking DOT officials and made recommendations for changes based on the results of audits. The decisions made by the person in this position potentially had an impact on policies within the DOT. Importantly, however, the evidence also showed that the Chief of the Internal Audit Section had no inherent or delegated authority to implement recommendations or order action based on audit findings.
ALJ Morrison issued a recommended decision reversing the DOT's designation of Hodge's position as exempt. The ALJ made, inter alia, the following contested finding of fact:
3. As Chief of the Internal Audit Section, the Petitioner exercised broad flexibility and independence. In addition to supervising other auditors, he could decide who, what, when, how, and why to audit within the Department. While he could not order implementation of any recommendations, he was free to contact the State Bureau of Investigation concerning his findings.
The ALJ also found that designation of the position as policymaking exempt was the substantial equivalent of being dismissed and that DOT officials had made no finding that a political confidant of the Governor was needed for the effective performance of this office (finding of fact number 5). Finally, the ALJ found that Hodge's responsibilities included auditing federally funded transportation programs and that applicable federal rules and audit standards require that auditors be free from organizational or external impairments in order to insure objectivity and independence (finding of fact number 6).
The ALJ concluded that the purpose of N.C.G.S. § 126-5(d)(1) is to "allow the Governor to make partisan personnel decisions in order to have loyal supporters who will carry out administration policies." Citing Branti v. Finkel, 445 U.S. 507, 63 L. Ed. 2d 574 (1980), the ALJ stated that when employees challenge these political decisions, the "ultimate inquiry" is whether the hiring authority can demonstrate that party affiliation is an appropriate requirement for the effective performance of the office involved. The ALJ concluded that "this standard must be followed when positions are declared policymaking exempt from the State Personnel Act" and that it had not been followed in this case.
By a decision and order entered 22 November 1994, the State Personnel Commission (Commission) adopted the ALJ's findings of fact and conclusions of law as its own and ordered that designation of the position as policymaking exempt under N.C.G.S. § 126-5(d) be reversed. The DOT objected to the above findings of fact and Conclusions of law, and to the final decision and order of the Commission, and petitioned for judicial review. On 6 September 1995, Judge Donald W. Stephens affirmed the Commission's decision and order.
The Court of Appeals reversed the superior court order, deciding that the Commission erred by applying an incorrect legal standard and that the superior court, in turn, erred by concluding that the Commission's decision was not affected by an error of law. The Court of Appeals held that the Commission's findings, as supported by substantial record evidence, could "only support the legal Conclusion that Hodge's position was properly designated as policymaking exempt" and that the superior court erred by affirming the contrary Conclusion reached by the Commission. N.C. Dep't of Transp. v. Hodge, 124 N.C. App. 515, 520, 478 S.E.2d 30, 32 (1996). The case was remanded with the mandate that the position of Chief of the Internal Audit Section be designated as policymaking exempt. On 7 March 1997, this Court allowed Hodge's petition for discretionary review.
Whether the position of Chief of the Internal Audit Section of the DOT was properly designated as exempt under N.C.G.S. § 126-5(d)(1) first requires a determination of whether the position met the statutory definition of policymaking under N.C.G.S. § 126-5(b). After an examination of the entire record, we conclude that it did not. Therefore, it was unnecessary in this case for the ALJ to reach the question of the constitutional definition of policymaking under the Branti v. Finkel decision.
Substantial evidence presented by both parties showed that the position of Chief of the Internal Audit Section carried considerable independence and responsibility. However, this is not sufficient to make it "a position delegated with the authority to impose the final decision as to a settled course of action to be followed within a department, agency, or division." N.C.G.S. § 126-5(b). As defined in N.C.G.S. § 143B-11, a division is the principal subunit of a department, and a section is the principal subunit of a division. The Court of Appeals correctly recognized that, "ontrary to the DOT's assertions, the record does not show that, as Chief Internal Auditor, Hodge headed a division within the DOT." Hodge, 124 N.C. App. at 519, 478 S.E.2d at 32. Even after a departmental reorganization in February 1993, the Internal Audit Section did not function as a division of the DOT. While we emphasize that the statutory definition of policymaking does not require that the person holding the position actually head a department, agency, or division, he or she must nonetheless have the authority to impose a final decision as to a settled course of action to be followed at the department, agency, or division level.
As noted above, Hodge, as Chief Internal Auditor, could recommend action on audit findings, but the decision to implement changes based on those recommendations or findings rested with the head of the audited unit and the Secretary of the DOT. Hodge had no authority to "impose" a final decision as to a settled course of action within the DOT or any division of the DOT, and his authority at the section level did not rise to the level of authority required by N.C.G.S. § 126-5(b) to be considered policymaking. The substantial evidence in the record amply supports a finding that the Chief of the Internal Audit Section had final decision-making authority within that section but did not have final decision-making authority to impose a settled course of action to be followed within a department, agency, or division. We hold that the Court of Appeals erred to the extent that it held that the Commission's findings, as supported by substantial record evidence, compelled a conclusion that the position was properly designated as policymaking exempt.
In summary, the Commission adopted the ALJ's findings of fact and conclusions of law, which were based unnecessarily upon constitutional standards that consider when political affiliation is an appropriate factor in determining which positions are policymaking. This was not the proper legal question and need not have been reached, if at all, until a determination was made as to whether the position met the definition of policymaking under N.C.G.S. § 126-5(b). Nonetheless, the Commission's final decision, that the position of Chief Internal Auditor was not policymaking, was correct based on an application of the statutory definition alone. Accordingly, we reverse the Court of Appeals as to this issue. Because the Branti standard was prematurely applied by the Commission and the statutory definition of ...