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Contractor “blacklisting”: The Once and Future (?) Rules

August 31st, 2016  |  Cynthia L. Hackerott  |  Add a Comment

Once upon a time, there was a controversial rule requiring federal contracting officials to take into consideration a prospective contractor’s track record of compliance with multiple federal laws in determining whether to award federal contracts. Alas, that regulation did not withstand the political tides and was revoked without any attempt at implementation. Now, however, it appears a similar rule may successfully re-emerge in the future. Or perhaps, like its predecessor, it will be vanquished by opposition forces.

The federal contractor community is currently abuzz with the news that implementation of an executive order (EO) requiring prospective federal contractors to disclose specified labor law violations is scheduled to occur in phases beginning on October 25, 2016, pursuant to a final rule of the Federal Acquisition Regulatory Council (FAR Council) and a final guidance by the Department of Labor (DOL), both published in the Federal Register on August 25, 2016. The DOL guidance (81 FR 58654-58768) is designed to assist contracting agencies and the contracting community in applying the requirements of President Obama’s “Fair Pay and Safe Workplaces” Executive Order (EO 13673), and the FAR Council regulations (81 FR 58562-58651) integrate the EO’s requirements as well as the provisions of the DOL’s guidance into the existing federal contract procurement rules. Contractors and federal agencies may begin using the DOL guidance on August 25, 2016.

What once was. Many critics of the executive order and its implementing provisions have characterized them as “blacklisting.” Some may recall that the (Bill) Clinton Administration published a somewhat similar, but broader, FAR Council final rule of “contractor responsibility” regulations in its waning days, and detractors of that action also referred to it as a “blacklisting” rule. The Clinton Administration rule would have not only barred companies with poor labor law compliance records (as determined by federal contracting officers) from federal government contracts, but it would have required prospective federal contractors to have a satisfactory record of compliance with tax, environmental, anti-trust, and consumer protection laws as well. However, following the political and legal joust between the Democrats and Republications in the 2000 election year, the Clinton Administration’s final rule was initially suspended, and ultimately revoked, by the successor (George W.) Bush Administration.

Will “might make right”? The rationale behind both the Clinton and Obama Administrations’ actions was/is to prevent the awarding of government contracts to companies with poor track records of compliance with federal laws. Thereby, the proponents reason, increasing efficiency and cost savings in the federal procurement process. Still, both actions have been criticized by employer advocacy groups and legal counsel. Some opponents argue that such rules could be used as weapons for unions, plaintiffs, and various interest groups to demand concessions or settlements from contractors, and, as a result, could also cause unwarranted delays in the procurement process. Another major criticism asserts, if you will, that the “might” of these requirements will not “make right” in terms of the due process rights of prospective contractors. (For a couple of examples, see here and here.)

Obama’s Fair Pay and Safe Workplaces EO. President Obama first issued EO 13673 on July 31, 2014 (79 FR 45309-45315; August 5, 2014). It was amended by EO 13683 on December 11, 2014 (79 FR 75041-75042; December 16, 2014) to correct a statutory citation, and further amended on August 23, 2016, to modify the handling of subcontractor disclosures and clarify the requirements for public disclosure of documents.

It requires prospective federal contractors to disclose labor law violations from the past three years and adds to existing agency guidances on how to consider labor violations when awarding federal contracts. Under the EO, contracting officers must review a contractor’s labor law violations to assess the contractor’s record of labor law compliance during the preaward “responsibility” determination and when making postaward decisions such as whether to exercise contract options. It prohibits covered federal contractors from requiring employees to enter into predispute agreements to arbitrate claims brought under Title VII or tort claims arising from sexual assaults or harassment. In addition, the EO requires contracting agencies to ensure that certain workers on covered federal contracts receive a wage statement that that contains information concerning that individual’s hours worked, overtime hours, pay, and any additions made to or deductions made from pay. Further, it requires covered contractors and subcontractors to inform individuals in writing if the individual is being treated as an independent contractor, and not an employee.

The EO directs the DOL and the FAR Council to issue regulations and guidance to implement the new requirements. The agencies in the FAR Council —the Department of Defense (DoD), the Government Services Administration (GSA) and the National Aeronautical and Space Administration (NASA) — are the federal agencies most heavily involved in entering into contracts to procure goods and services for the federal government. The Federal Acquisition Regulation (FAR) is the principal set of rules in the Federal Acquisition Regulations System, which governs the acquisition process through which the federal government purchases goods and services.

Final regulations and guidance. According to a DOL press release, the guidance creates a process for agencies and the DOL to help contractors come into compliance with labor laws. The DOL noted that contractors are already required to disclose findings of fault and liability made in administrative or civil proceedings. However, current disclosures do not give the whole picture of the contractor’s labor compliance track record, leaving federal agencies at risk of making awards to contractors that “cheat their workers, competitors, and the taxpayers,” the DOL said.

The guidance and regulations build on the existing procurement system, and most federal contractors will only have to attest that they comply with laws providing basic workplace protections, according to the DOL statement. Designated Agency Labor Compliance Advisors (ALCAs) will coordinate with the relevant enforcement agency experts to help contractors with reported violations come into compliance. The ALCAs will, or will not, classify the disclosed violations as serious, repeated, willful, and/or pervasive. Only those violations classified as serious, repeated, willful, and/or pervasive will be considered as part of the weighing step and will factor into the ALCA’s written analysis and advice. The ALCAs will also be available to members of the public who have information they feel that prospective contractors should have disclosed about their labor violations.

The Clinton Administration “contractor responsibility” rule. Unlike the Obama Administration actions, the Clinton Administration’s “contractor responsibility” rule did not start with an executive order. Rather, it started with a proposed rule to amend the FAR published in the Federal Register on July 9, 1999 (64 FR 37360-37361) and a revised proposal published on June 30, 2000 (65 FR 40830-40834). The final rule was published in the Federal Register on December 20, 2000 (65 FR 80255-80266), and it was scheduled take effect on January 19, 2001.

However, after President Bush took office, he urged the applicable executive agencies to delay its implementation, and several agencies issued class deviations for a six-month delay (because deviations are internal agency guidance, they do not require public notice or comment prior to issuance). The FAR Council suspended the Clinton Administration rule with a Federal Register notice (66 FR 17753-17756) on April 3, 2001. Along with that notice, the FAR Council published a new interim rule and requested comments on revoking the Clinton Administration rule. The interim rule restored the sections of the federal acquisition regulations that were in effect prior to the Clinton Administration rule. The April 3, 2001 action by the FAR Council suspended the Clinton Administration rule for 270 days or until the interim rule was adopted. On December 27, 2001, the FAR Council published a notice (66 FR 66984-66986) adopting the interim rule as final and, thus, revoking the Clinton Administration rule.

The upcoming battles. Similar to efforts to stop the Clinton Administration rule, legislation has been introduced, and opponents have threatened lawsuits, to stop the Obama Administration’s actions. Should Donald Trump succeed Barack Obama as President, it’s likely that the Fair Pay and Safe Workplaces EO will be rescinded, and the FAR regulations and DOL guidance will be revoked, similar to what the George W. Bush Administration did in regard to the Bill Clinton Administration’s “midnight” regulations. In any event, time will answer to the following question:

Will a modified, albeit narrower, version of “blacklisting” regulations that “once were” in the Bill Clinton Administration, but never actually came to fruition, be the future “blacklisting” regulations enforced by a potential Hillary Clinton Administration?

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Employee’s admission she took birdseed not justification for union to abandon grievance

August 25th, 2016  |  Ron Miller  |  Add a Comment

A reasonable juror could determine that a union’s actions in abandoning a member’s grievance because she admitted taking a bag of birdseed without paying for it were arbitrary and outside the “wide range of reasonableness” afforded unions in the grievance process, ruled the Seventh Circuit in Rupcich v. United Food and Commercial Workers International Union, Local 881. The appeals court determined that an unwritten side agreement between the employer and union could not shield the union from failing to provide the employee even so much as a Step 1 conference under the parties’ grievance procedure.

Misappropriation. A grocery store employee was in a hurry to get home following the end of her shift to care for her sick grandson. In her rush, she wheeled a 25 pound bag of birdseed in a grocery cart past the last cash register without paying for it. The employee’s conduct was totally inadvertent. However, according to her employer, that fact was totally irrelevant. Rather, the employer defined “misappropriation” and theft to be strict liability violations that did not require a showing of intent. As a consequence, the employee was fired from her job of 25 years.

While there was no evidence that the misappropriation definition was communicated to the employee, there was evidence that it was communicated to her union. Pointing to the employee’s admission that she had indeed taken the birdseed, the union decided not to dispute her termination in arbitration or even process it through the grievance procedure. She filed a complaint alleging that the union breached its duty of fair representation (DFR) and that the employer breached the relevant collective bargaining agreement.

Duty of fair representation. To prevail against either the employer or the union, the employee was required to not only show that her discharge was contrary to the contract but also to demonstrate a breach of duty by the union. Here, the employee argued that the union’s actions in her case were arbitrary and in bad faith, but not discriminatory. The employee had to prove: (1) that her “position is not just as plausible as the union’s, but to show that the union’s position could eventually be deemed not even colorable,” and (2) that she “was actually harmed by the union’s actions,” that is, she had to demonstrate “the outcome … would probably have been different but for the union’s activities.”

The Seventh Circuit pointed out that even “a wide range of reasonableness” has bounds, and in this case, a reasonable juror could find the union exceeded them in two ways. There was sufficient evidence for a reasonable juror to find that the union: (1) ignored the plain language of the CBA’s grievance policy and the employee’s contractual rights in processing her grievance, and (2) handled a “substantively similar grievance differently from” the employee’s. Moreover, the employee offered enough evidence for a reasonable juror to conclude that she may have kept her job had the union processed her grievance in accordance with the procedure and pursued her claim in arbitration.

Side agreement. Under the CBA, the employee was entitled to a Step 1 conference. She did not receive one. The union argued that it did not need to do so because of a “long-standing practice of bypassing Step 1 in cases of termination.” However, the appeals court determined that the union’s discretion did not empower it to ignore the plain text of the CBA where doing so alters an employee’s fundamental rights. Rather, had the union wanted to change its grievance procedure to reflect its “long-standing agreement” with the employer, it could have amended the CBA. There was no evidence produced of such a written agreement. Rather, looking to the Second Circuit’s ruling in Lewis v. Tuscan Dairy Farms, Inc., the Seventh Circuit concluded that this side arrangement, which purported to remove contractual avenues of review for grievances at the union’s whim, was the type of side arrangement that “contradicts fundamental terms of a ratified collective bargaining contract.”

Disparate treatment. The employee also argued that the union acted arbitrarily toward her in declining to pursue her grievance to arbitration when it had taken a substantively similar grievance to arbitration. At this juncture, the union’s case really fell apart. A coworker was terminated for violating the same misappropriation policy as the employee, yet the union took her grievance to an arbitrator. The coworker asserted that her failure to pay for flowers was inadvertent, the same defense asserted by the employee. In many ways, the appeals court found that the employee’s case was stronger than the coworker’s. Thus, it agreed that a reasonable juror could conclude that the union’s behavior was arbitrary. Treating similar situations differently without adequate explanation is the very embodiment of arbitrary conduct, explained the court.

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Final ‘blacklisting’ rule and guidance: What do they mean?

August 24th, 2016  |  Pamela Wolf  |  1 Comment

By Pamela Wolf, J.D.

The much anticipated final Federal Acquisition Rule and Labor Department guidance implementing President Obama’s Fair Pay and Safe Workplaces Executive Order have been released and will be published in the Federal Register on August 25. Since Obama signed it in July 2014, EO 13673 has spawned considerable controversy; it was quickly dubbed the “blacklisting” initiative by opponents, who questioned whether it was necessary or even would produce positive results in light of its impact on employers.

Democratic lawmakers pushed the administration to issue proposed regulations that would implement the EO. When issued in May 2015, however, the proposed rule and guidance only seemed to add momentum to the controversy, prompting Republican lawmakers and others to press the Labor Department and Office of Federal Procurement Policy to withdraw the proposals. Most recently, provisions that would block or limit application of the EO were written into drafts of the 2017 Defense Authorization Act; the administration responded with a veto threat.

What’s behind the executive order? The White House has said that EO 13673 would protect both workers and taxpayers by making sure that government contracts are not going to companies that violate federal labor laws. The EO is designed to:

  • Hold corporations accountable by requiring potential contractors to disclose labor law violations from the past three years before they can receive a contract.
  • Give workers better and clearer information on their paychecks, so they can be sure they’re getting paid what they’re owed.
  • Give more workers who may have been sexually assaulted or had their civil rights violated their day in court.
  • Ease compliance burdens for business owners around the country by streamlining all types of reporting requirements across the federal government, the first step in a series of actions to make it easier for companies, including small businesses, to do business with the government.
  • For companies that have violations, rather than emphasizing punishment, give them a chance to follow good workplace practices and come into compliance with the law.

Final rule and guidance. Announcing the final rule and guidance, the Labor Department said they were “designed to increase efficiency and cost savings by ensuring that federal contractors are responsible and provide basic workplace protections.” The guidance in addition creates a process for agencies and the DOL to assist contractors to come into compliance with labor laws. In crafting the final regulations and guidance, the DOL and the Federal Acquisition Regulatory Council received and considered thousands of comments from members of the public, including many in the contracting community.

The DOL noted that contractors are already required to disclose findings of fault and liability made in administrative or civil proceedings. The problem is that current disclosures do not give the whole picture of the contractor’s labor compliance track record, leaving federal agencies at risk of making awards to contractors that “cheat their workers, competitors, and the taxpayers.”

Required disclosure. When the new rules are fully phased in, prospective contractors will have to disclose violations of 14 basic workplace protections from the prior three years, including those addressing wage and hour, safety and health, collective bargaining, family and medical leave, and civil rights protections. The EO also requires that contractors’ employees get the necessary information each pay period to verify the accuracy of their paycheck. Further, it ensures that workers who may have been sexually assaulted or had their civil rights violated get their day in court, putting an end to mandatory pre-dispute arbitration agreements covering these claims at large federal contractors.

The regulations and guidance build on the existing procurement system to help contractors come into compliance with labor laws. The DOL said that most federal contractors will only have to attest that they comply with laws providing basic workplace protections. Designated Agency Labor Compliance Advisors will be available to assist those who do report violations and coordinate with the relevant enforcement agency experts to help the contractors come into compliance.

What do federal contractors need to know? In a blog posting, Attorney James J. Murphy, shareholder in the Washington, D. C. office of Ogletree Deakins, laid out the contours of the final rules and guidance based on a White House summary and the amended executive order (published on the White House website on August 23):

  • Effective Date. The final rules will take effect on a phased-in schedule starting on October 25, 2016.
  • Pre-Dispute Arbitration Agreements. Prohibitions against requiring employees to enter into pre-dispute agreements to arbitrate claims brought under Title VII of the Civil Rights Act of 1964 or tort claims arising from sexual assaults or harassment will take effect on October 25, 2016. The White House indicates that this prohibition will not apply “where valid contracts already exist and remain unmodified.”
  • Paycheck Transparency. Paycheck transparency provisions of the final rules will become effective on January 1, 2017.
  • One-Year Delay for Subcontractor Disclosures. For the one-year period beginning October 25, 2016, disclosures of labor law violations will be required only for prime contractors. Subcontractor disclosures will not be required until October 25, 2017.
  • Contract Thresholds. For the first six months after October 25, 2016, the requirement for prime contractors to disclose labor law violations will apply only on solicitations valued at $50 million or more. Starting on April 25, 2017, solicitations valued at or above $500,000 will be covered.
  • Three-Year Lookback Window. The three-year lookback period for disclosures will be phased in gradually. Initially, the period of time covered by the disclosure obligation will be limited to one year preceding the date on which a contractor submits a bid on a covered solicitation. Presumably, that window will increase from one to two years as of October 25, 2017, and then to the full three-year window as of October 25, 2018.
  • DOL to Handle Subcontractor Disclosures. Once subcontractor disclosures are required, the DOL will be responsible for determining whether and how labor law violations will affect subcontractor access to work on covered federal contracts. Subcontractors will make their disclosures directly to the DOL, rather than to prime contractors; and prime contractors will be able to rely on the DOL’s review.
  • Equivalent State Laws. The final rules do not contain any timeframe for rulemaking concerning labor law violations involving “equivalent” state laws. The White House indicates that this requirement will be “phased in at a later time” (with the exception for OSHA-approved state plans, which will take effect in accordance with the above schedule).
  • Early Assessment Opportunities. Starting September 12, 2016, the DOL will offer a pre-assessment” process, which will allow contractors to come forward to the DOL “to discuss their history of compliance with labor laws” and secure guidance on whether “additional compliance measures are necessary.”
  • Helpful Citizens. The White House fact sheet highlights the opportunity for the public to make reports to contracting agencies, a point that largely has escaped notice until now. According to the White House, Agency Labor Compliance Advisors “will also be available to members of the public who have information they feel that prospective contractors should have disclosed about their labor violations.”

Behind the regulatory curtain … Murphy also gave Employment Law Daily his take on the final rule and guidance, calling them “a solution in search of a problem” from the start. “Federal contractors already are subject to rigorous disclosure requirements calling for them to disclose court rulings and adjudicated rulings that they violated federal laws—including the 14 labor laws covered by the final rules. What the final rules do is throw preliminary ‘findings’ by agency staffers into the mix even though there has been no adjudication of the issues before a neutral third party.”

Looking at it from the standpoint of federal contractors, Murphy called the changes to subcontractor reporting and the new phase-in schedule “undeniably positive developments.” However, he added that “they do not do a thing to cure the core deficiencies of the Department of Labor’s framework.”

The management-side labor and employment attorney pointed to another downside for federal contractors. The final rule and guidance “will allow unions and plaintiffs’ lawyers who represent or seek to represent employees of contractors to wield the specter of the barest findings of labor law violations as a weapon with which to demand concessions or settlements from contractors,” he suggested. “Because settlements that precede a finding of a violation are not reportable, unions and plaintiffs’ lawyers are the people wearing the broadest smiles this morning.”

A sword for plaintiffs … “To appreciate the full impact of the final rules, you need to focus on the five agencies that enforce the underlying labor laws—the NLRB, EEOC, OFCCP, OSHA, and Wage Hour Division—and their enforcement agendas,” Murphy said. “The NLRB is notorious for expanding federal labor law in conflict with rulings of the federal courts. It is not uncommon for contractors and these agencies to disagree over how the labor laws should apply, and contractors often have to look to the federal courts for a resolution. The unstated premise of the final rules is that contractors will be putting their contracts at risk if they fight for their day in court.”

Another perspective. In response to the final regulations, David Madland—Senior Fellow for the Center for American Progress Action Fund’s American Worker Project—said “Until now, contractors have continued to receive federal contracts worth billions of dollars despite long track records of committing rampant wage theft, creating unsafe working conditions, or discriminating against workers on the job.” He continued that “Since research has shown that companies with long records of violations frequently deliver poor-quality services to the government, the administration’s actions will also mean that taxpayer dollars will go to businesses that produce a good value for the government.”

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A sign of the times? Justices asked to decide the threat-level of a hangman’s noose placed in a black employee’s work station

August 18th, 2016  |  Pamela Wolf  |  Add a Comment

In the current political climate, in which many assert that dog-whistle politics have paved the way for divisiveness and racial discrimination more common in times that many Americans hoped were safely relegated to the past, the Supreme Court has been presented an opportunity to rule on just how powerful one particular symbol of racism—a hangman’s noose—remains today.

A senior HVAC mechanic at the University of California, San Francisco, has asked the highest court in the land to tell the Ninth Circuit that it was wrong when it affirmed a district court ruling that, as a matter of law, “an operational hangman’s noose purposefully hung in an African-American employee’s work area by his non-African-American supervisor is insufficiently ‘severe’ or ‘extremely serious’ to constitute a racially hostile work environment in violation of Title VII”—as the petition for certiorari characterized the court’s ruling. The case may be emblematic of a persistent racial divide felt so strongly by many blacks, and barely perceptible, if at all, to some of their white counterparts.

The Ninth Circuit affirmed summary judgment for the employer because the employee had failed to make a prima facie case—the noose, as it turns out, was not clearly enough targeted to the employee to be one of those single acts of harassment that are threatening enough to create a hostile work environment—at least in the eyes of the district court and the Ninth Circuit.

Symbol of racial violence. The employee asserts that the Ninth Circuit’s ruling is in direct conflict with the holdings of the Seventh, Tenth, Eleventh, and D.C. Circuits, which have “expressly recognized that a hangman’s noose—a devise historically used to lynch, murder, and terrorize African-Americans—stands apart as a self-evident symbol of racial violence, akin to a swastika.” The Ninth Circuit has effectively reduced the racially violent symbol to the status of a stray remark, according to the petitioner in Henry v. Regents of University of California (Dkt. No. 16-167).

The employee alleges that the record below shows he suffered a “plethora of racially harassing conduct,” including physical assault and being called a “n—-r” and a “monkey.” However, the “gravamen” of his case at summary judgment was that in July 2012, his supervisor had hung an operational hangman’s noose in a maintenance warehouse. When he and another African-American coworker discovered the noose, the employee felt intimidated, harassed, and threatened. The employee said the university acknowledged that the operational noose was hung by his supervisor, whom he already knew to harbor discrimination against African-Americans.

The district court acknowledged that a single, harassing incident may be enough to be “extremely severe” if it included violence or the threat of violence. Here, however, the noose could not serve as a threat of violence because it was not hung in the petitioner’s personal work area (such as a locker) and lacked a note or picture or other indication that the petitioner was the target of the display.

Hangman’s noose not inherently racial? The district court and the Ninth Circuit concluded that, as a matter of law, there is nothing inherently racial about the operational hangman’s noose that the employee encountered in his employer’s warehouse, thus creating a circuit split, according to the petition. The Court should take up the question, not only to resolve the circuit split, but “because the federal judiciary should not deny all remedy to a Title VII plaintiff merely because a symbol of racial violence appears to be anonymized and general.” The fact that the perpetrator did not adorn the noose “with exceptionally obvious indicia of his animus, or place it in an equally obvious location,” should not alone determine “severity.” To hold otherwise, would give incentive and leeway to those who harbor violent racist tendencies “to promulgate racial terror in the workplace so long as the violent objects appear non-specific or generalized,” the petition argues.

Question presented. The petitioner would like the Justices to resolve this question: “Is an operational hangman’s noose intentionally placed in an African-American employee’s work area by his non-African-American supervisor sufficiently ‘severe’ as a matter of law to constitute race harassment under Title VII?”

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Updates to OFCCP sex discrimination regulations present some compliance conundrums

August 17th, 2016  |  Cynthia L. Hackerott  |  Add a Comment

The OFCCP’s definition of “similarly situated” for the purposes of evaluating compensation differences in its new sex discrimination regulations is so broad that it provides little guidance for federal contractors and goes beyond Title VII standards, two attorneys who handle OFCCP compliance matters recently told Employment Law Daily. The final rule, published in the Federal Register on June 15, 2016 (81 FR 39108-39169), replaces the guidelines at 41 CFR Part 60-20 with new sex discrimination regulations. The regulations, which implement the prohibition against sex discrimination contained in Executive Order (EO) 11246, took effect on August 15, 2016. Section 60–20.4(a) of the new regulations prohibits contractors from paying “different compensation to similarly situated employees on the basis of sex.” But the standard to which the OFCCP will hold contractors in assessing exactly which employees are “similarly situated” is far from clear, the attorneys stated.

“The final rule focuses on ‘similarly situated employees,’ but offers little in the way of concrete guidance except to say that the determination of similarity is ‘case specific,’” observed Gretchen W. Ewalt, a shareholder in the Raleigh, North Carolina, office of Ogletree Deakins and a member of the firm’s Affirmative Action/OFCCP Compliance Practice Group. “[It] lists factors such as skills, effort, and level of responsibility, among others, as relevant to the determination, but states that employees may be similarly situated where they are comparable on some of these factors, even if they are not similar on others. Although the OFCCP contends that it will follow Title VII case law when evaluating contractor’s compensation systems, this flexible standard appears to be broader than  numerous Title VII cases that define similarly situated as requiring the employees to be similar in all material respects.”

The rule “rewrites Title VII’s definition of ’similarly situated’ employees,” John C. Fox, a former OFCCP official and current president of Fox, Wang & Morgan P.C. in Los Gatos, California, said. “’Similarity situated’ does not mean ‘similarly’ situated,” rather, suddenly “[i]t means whatever the OFCCP wants it to mean.”

Ewalt and Fox provided their insights on the final rule in separate interviews with Employment Law Daily. Discussing topics including pregnancy accommodation, sex stereotyping, gender identity, and limitations periods, the attorneys identified several legal and compliance concerns presented by the new regulations.

Overview of changes. The OFCCP’s outdated sex discrimination guidelines had not been substantially updated since 1970, and the new regulations are intended to align with current law and address the realities of today’s workplaces. The OFCCP says that it enforces the nondiscrimination obligations under EO 11246 by following Title VII and the case law principles that have developed interpreting Title VII.

There are two important ways in which the final rule updates EO 11246’s discrimination law prohibitions, Fox explained. First, it catches EO 11246 up to the 1978 Pregnancy Discrimination Act (PDA) amendment to Title VII. Second, it incorporates into the EO 11246 program the amendment to Title VII made by the Lilly Ledbetter Fair Pay Act of 2009 (FPA) which revises the statute of limitations as to compensation claims. These two amendments to OFCCP regulations are important, Fox said, because EO 11246 itself has not been amended in parallel with the amendments to Title VII made by Congress.  For example: While President Obama amended EO 11246 to make “gender identity” discrimination unlawful, the President did not make a parallel change to EO 11246 to also make pregnancy discrimination unlawful. Rather, in the case of pregnancy discrimination, Fox said, the OFCCP amended only its regulations implementing EO 11246, but EO 11246 itself still does not make pregnancy discrimination unlawful. Accordingly, there may be a legal argument that the OFCCP has improperly amended its regulations without a necessary authorizing amendment to EO 11246 as to pregnancy discrimination prohibitions. As such, he said, the portions of this new rule that the agency may be able to enforce are a “checkerboard.”

Expanded definition of “sex.” The final rule contains a new and broad definition of the term “sex,” Fox points out. In Section 60-20.2(a), it states that “[t]he term sex includes, but is not limited to, pregnancy, childbirth, or related medical conditions; gender identity; transgender status; and sex stereotyping.”

Section 60-20.2(b) of the new regulations lists 14 examples of prohibited disparate treatment sex discrimination that the OFCCP believes its existing rules already outlaw, and Section 60-20.2(c) list four examples of disparate impact discrimination already made unlawful, Fox notes. However, he reports that the majority of concerns contained in these lists have never been prosecuted by the OFCCP in the agency’s history, including during the current administration.

Pregnancy accommodation is a gray area. Section 60–20.5(c) of the final rule requires that federal contractors provide workplace accommodations, such as extra bathroom breaks and light-duty assignments, to an employee who needs such accommodations because of pregnancy, childbirth, or related medical conditions, in certain circumstances where those contractors provide comparable accommodations to other workers, such as those with disabilities or occupational injuries. The OFCCP rejected comments to require accommodation of pregnant employees as an “Affirmative Action” requirement, Fox notes. Therefore, the final rule doesn’t require pregnancy accommodation, he explained; rather, in order to avoid unlawful discrimination, contractors are required to accommodate pregnant workers in certain circumstances where the employer has made accommodations to non-pregnant workers with impairments.

The final rule’s provisions regarding pregnancy accommodation are “a reasonable restatement” of the U.S. Supreme Court’s March 2015 holding in Young v. United Parcel Serv, Ewalt said.

In Young, the Court held that an individual pregnant worker who seeks to show disparate treatment under Title VII through indirect evidence may do so through application of the McDonnell Douglas framework, but such plaintiffs are not required to show that the employer’s policy rationale was intentionally biased; rather, the employee can satisfy her burden of showing pretext by demonstrating that the policy put a “significant burden” on pregnant employees and that the employer’s reasoning was not sufficient to justify that burden.

“There is much litigation to come under the Young standard,” Fox predicts, adding that “there is lots of potential liability out there” because the circumstances requiring accommodation are a gray area. There are not “wooden rule” yes or no answers regarding when an accommodation may be necessary. Accordingly, employers will need to get an employment discrimination lawyer to advise them as to each accommodation request, he recommended.

Disparate impact defense. Under Title VII, as amended by the Civil Rights Act of 1991, an employer may defend a disparate impact claim by proving that a challenged specific and neutral practice or policy (not intended to discriminate) is “job related and consistent with business necessity” (the “business necessity” defense). The business necessity defense is incorporated into the OFCCP’s new regulations. However, Fox explained that EO 11246 has not been amended in parallel with the Title VII amendments made in the Civil Rights Act of 1991 to encompass that entirely new definition of what constitutes a business necessity defense. Therefore, federal contractors faced with disparate impact claims under EO 11246 may choose to avail themselves of the defense contained in the Supreme Court’s 1989 decision in Wards Cove Packing Co. v. Atonio. Specifically, contractors need only show that a challenged practice “serves, in a significant way, the legitimate employment goals of the employer.” While the contractor’s justification must be substantial, there is no requirement that the challenged practice be “essential” or “indispensable” to the employer’s business for it to pass muster, as is now the case under Title VII as amended.

Sex stereotyping, gender identity, and transgender status. The final rule reflects the OFCCP’s view that adverse treatment of employees based on failure to conform to particular gender norms and expectations about their appearance, attire, or behavior is unlawful sex discrimination. Moreover, sexual orientation and gender identity were expressly added to the categories protected from discrimination under EO 11246 on July 21, 2014, when President Obama signed EO 13672 which applies to covered contracts entered into or modified on or after April 8, 2015 (the effective date of the OFCCP’s regulations promulgated under EO 13672).

“This is certainly the trend seen in a lot of Title VII cases as courts seem more receptive to the argument that discrimination due to sex stereotyping is prohibited by Price Waterhouse v. Hopkins, and discrimination against people because they do not conform to traditional expectations on gender in terms of dress or behavior is actionable under Title VII,” Ewalt noted.  “Most arguments being asserted now on discrimination against transgender individuals are couched as sex-stereotyping because the individual does not conform to traditional notions of how a man or a woman would dress or act,” she continued.  “Of course, many contractors are already covered by EO 13672, which explicitly prohibits discrimination based upon gender identity.”

A potential legal impediment to enforcement of the OFCCP’s inclusion of sexual orientation and gender identity in the final rule is the fact that Congress has not explicitly delegated legal authority to the President to protect employees from discrimination based on sexual orientation or gender identity, Fox said. Still, in regard to gender identity, Fox—similar to Ewalt—points out that the U.S. Supreme Court’s 1989 decision in Price Waterhouse interpreted Title VII’s sex discrimination prohibition to include a hidden prohibition on “gender” discrimination and specifically outlawed, under Title VII, sex stereotyping. As a result, federal courts have regularly been allowing gender identity claims to proceed under Title VII since Price Waterhouse.

In contrast, courts have not generally recognized claims based on sexual orientation as cognizable under Title VII. The OFCCP notes the weakness of federal court support of Title VII protection against sexual orientation discrimination in the preamble to the final rule, Fox observed.

[ELD Note: Recently, the Seventh Circuit, in Hively v. Ivy Tech Community College (July 28, 2016), reaffirmed its earlier rulings that sexual orientation is not a protected category under Title VII. On top of the fact that Seventh Circuit precedent has been unequivocal in holding that Title VII does not redress sexual orientation discrimination, this precedent is in line with all other circuit courts to have addressed the matter, the Seventh Circuit noted, citing decisions from the First, Second, Third, Fourth, Fifth, Sixth, Eighth, Ninth, and Tenth Circuits, as well as the D.C. Circuit. These holdings reflect the fact that despite multiple efforts, Congress has repeatedly rejected legislation that would have extended Title VII to cover sexual orientation, even in the face of “an abundance of judicial opinions recognizing an emerging consensus that sexual orientation [discrimination] in the workplace can no longer be tolerated,” the Seventh Circuit wrote. Two of the three judges on the Hively panel further wrote to call out the illogical result, in other court decisions, of denying sexual orientation discrimination claims under Title VII but allowing nearly indistinguishable gender non-conformity claims (based on Price Waterhouse and its progeny).]

Do contractors have to pay for sex reassignment surgery? The rule requires contractors to allow workers to use bathrooms, changing rooms, showers, and similar facilities consistent with the gender with which the workers identify. Additionally, the preamble to the rule states that an explicit, categorical exclusion of coverage for all care related to gender dysphoria or gender transition is facially discriminatory because such exclusion singles out services and treatments for individuals on the basis of their gender identity or transgender status.

Under the final rule, contractors may have to pay for sex reassignment surgery, Fox said. The rule uses the term “transition-related medical services” to encompass sex reassignment surgery and/or non-surgical treatment, such as hormone therapy and other medical services. Pursuant to the Young standard, contractors that pay for every other major medical procedure in their company health plans may have to pay for transition-related medical services, unless they can provide a “legitimate nondiscriminatory reason” for excluding such coverage.

Limitations periods. The applicable limitations periods depends on whether the enforcement action is a compliance evaluation or a complaint investigation. In the preamble to the final rule, the OFCCP notes that both federal and administrative courts have held that the regulations at 41 CFR Part 60–1.26, which govern OFCCP compliance evaluations, contain no statute of limitations. Thus, the agency claims that, in compliance evaluations, it may go back in time to investigate and prosecute any unlawful acts back to the beginning of a contractor’s first federal contract, Fox noted. As to enforcement actions arising from individual complaint investigations, the OFCCP states in the preamble that those are governed by 41 CFR Part 60–1.21, which contains a 180-day statute of limitations.

For compensation claims, the new regulations adopt the limitations period provided for in the FPA. The final rule states that a contractor violates EO 11246 and these regulations “any time it pays wages, benefits, or other compensation that is the result in whole or in part of the application of any discriminatory compensation decision or other practice” (Section 60-20.4(e)).

“The Ledbetter Amendment has now arrived at the OFCCP,” Fox said, referring to the FPA. This means that the OFCCP’s two-year statute of limitations on liability is no longer applicable in compensation investigations. For example, an unlawfully discriminatory initial wage pay decision made 10 years ago is not untimely and is still actionable today in 2016, he explained. Yet, Fox again notes that the portion of the final rule adopting the FPA may not be enforceable because, although the FPA amended Title VII, it did not amend EO 11246, and President Obama has not (yet) similarly amended EO 11246 to allow for and apply the Ledbetter amendment.

Still, both attorneys point out the Title VII’s two-year limit on back pay (i.e. damages) is still in place for OFCCP enforcement actions.

“OFCCP states in the preamble to the final rule that it will follow the FPA in enforcement actions arising from individual [compensation] complaints under 60-1.21,” Ewalt notes. “The vast majority of OFCCP enforcement actions, however, arise out of compliance evaluations and are not governed by a specific statute of limitations, although the OFCCP’s own regulations currently limit the back pay recovery period to two years from the date of the scheduling letter,” she said.

Importantly, the OFCCP’s focus on current pay does not comport with the Supreme Court’s 2007 ruling in Ledbetter v. Goodyear Tire & Rubber Co., both attorneys asserted. While the FPA extended the Title VII charge filing period indefinitely when an employee challenges compensation, it did not change the requirement in Ledbetter that Title VII claimants must identify and challenge discrete pay decisions. Accordingly, the OFCCP cannot claim pay discrimination under the relevant legal standard unless it identifies a specific pay decision (meaning an event that impact pay such hiring, promotions, pay freezes, bonuses, and demotions) and proves that decision is discriminatory, Fox said.

“Although the FPA reversed the timeliness portion of the Ledbetter decision, it did not change the crucial portion of the majority decision, namely that Title VII focuses solely on discrete decisions, not current pay. To the extent OFCCP focuses on current pay disparities instead of identifying specific discriminatory pay decisions, OFCCP’s approach may be at odds with controlling Title VII law,” Ewalt stated.

The OFCCP’s focus on current pay, rather than pay decisions, will lead to the OFCCP missing some compensation discrimination incidents, Fox explains. For instance, the OFCCP won’t recognize a situation where a one-time payment was unlawfully denied in 2006, but did not carry forward into 2016.

Recommendations. Fox provided the following recommendations of actions contractors should take now:

(1) Conduct a “quality control check” of your company’s pregnancy leave /accommodation policy against the new Young legal standard that the OFCCP has now adopted. Start by cataloguing ALL of your leave allowances and policies allowing employees to be away from work or to transfer to different duties (i.e. “light duty”). If there is perceived or confirmed variance from Young’s accommodation requirements, consult with an employment lawyer to discuss before meeting with policy/decision-makers to determine next steps.

(2) Review your practices/policies/medical benefits plan/restroom use practice/policy to identify where, if anywhere, company policy/practice is inconsistent with the OFCCP’s final rule regarding transgender workers. If there is variance, meet with policy/legal team to determine whether the company wants to comply or fight.

(3) Change all your company’s written references (EEO policies/employee handbooks; Affirmative Action Programs (AAPs) for minorities and women, EEO training materials; etc) to capture the OFCCP’s ever broadening definition of “sex” discrimination to include—if you have not already done so—sexual orientation and gender identity (unless you are going to resist either or both expansions of the OFCCP’s claimed legal authority). You may also chose (but are not required) to make clear to employees that the OFCCP’s newly expanded definition of “sex” includes pregnancy, childbirth or related medical conditions, transgender status, and sex stereotyping.

(4) Consider advising supervisors/managers what to do if employees confront them with pregnancy accommodation requests or the issue of transgender access to the bathroom of choice. Do you want to train them as to specific contingencies? Should they consult HR in every situation? Should you beef up/expand harassment training to include pregnancy/sex-stereotyping/child rearing/sexual orientation and/or transgender modules?

(5) In light of the Ledbetter amendment, have a policy meeting to decide going forward: (a) what you wish to do as to compensation data recordkeeping, and (b) how you are going to analyze compensation if you are doing a compensation equity study.

(6) Review the names of your job titles, if you have not done so lately, to see how many you may make gender-neutral. Then devise a conversion plan and timeline which will not confuse the compensation group. Consider whether to discuss with the union(s). Identify what document sets need to be changed within the company to capture the new titles (Collective Bargaining Agreements; AAPs for minorities/women (Workforce Analysis/Job Group Analysis); compensation group documents; insurance documents; training materials; recruiting documents; job listing documents, etc)

(7) Review all leave policies and practices to insure they are sex-neutral. Are you affording leave to men on a basis equal to the leave you afford women for birth/child rearing/family leave?

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