About Us  |  About Cheetah®  |  Contact Us

WK WorkDay Blog

Subscribe to the Employment Law Daily RSS Subscribe

Successor liability for labor and employment violations depends on continuity and notice

October 2nd, 2017  |  Lorene Park

By Lorene D. Park, J.D.

No matter how cleverly a purchase agreement is drafted to avoid the assumption of liabilities, successor companies that have purchased another company may find themselves liable for the predecessor’s labor and employment law violations. Generally, courts consider three things in deciding whether to hold a successor company liable:

  1. Continuity in operations and work force of successor and predecessor employers. Were there changes in staff, office space, equipment, or working conditions? What was the pre-purchase relationship of the parties?
  2. Notice to the successor-employer of the predecessor’s legal obligation.
  3. The ability of the predecessor to provide adequate relief. Is the predecessor defunct?

Importantly, notice may include “constructive notice,” and successors can’t avoid liability by purposefully burying their heads in the sand. As the examples below suggest, courts generally see through this and other clever machinations designed to avoid liability. Before getting to that, however, it bears mentioning that there is some variation by jurisdiction in how the analysis plays out, including the development of a federal common law test that sets a lower bar for liability than the traditional common law test.

Traditional common law vs federal common law

A federal court in New York recently explained the development of the federal test. Under the traditional common law, a corporation that purchases another’s assets is generally not liable for the seller’s liabilities. Some states recognize exceptions for: (1) a buyer who formally assumes a seller’s debts; (2) transactions made to defraud creditors; (3) a buyer who de facto merged with a seller; and (4) a buyer that is a “mere continuation of a seller.” Courts have held that the latter two are “so similar that they may be considered a single exception” (Wang v. Abumi Sushi Inc. dba Abumi Sushi).

As for federal law, most employment statutes do not discuss whether liability may be passed to innocent successor employers, explained the Wang court. However, beginning with NLRA cases, federal courts developed a “substantial continuity” test, which sets “a lower bar to relief than most state jurisprudence” (it doesn’t require continuity of ownership), and was designed to impose liability on successors when necessary to protect important employment-related policies.

So how does this play out? Consider two cases with different outcomes, both focusing largely on whether the purchaser had notice, or “constructive notice” of potential liability.

Playing ostrich won’t preclude notice

In the first case, a debt collection law firm purchased a failing debt collection firm for $15,000. The successor admitted discussing some of the failing firm’s litigation but denied knowing of an employee’s sexual harassment claim until it was named as a defendant in her Title VII suit. Denying the successor’s motion for summary judgment, a federal court in New Hampshire explained that the principal reason for imposing a notice requirement is to ensure fairness by giving a successor “the opportunity to protect against potential liability through the negotiation process.” That purpose is not served if prospective liabilities could be shed simply by “playing ostrich,” the court averred, and here, the purchasers appeared to be engaging in an unspoken but mutually understood game of “don’t ask, don’t tell.”

Noting that precedent is unsettled on whether constructive notice is enough to establish successor liability, the court nonetheless applied the standard here. It explained that the purchasers were sophisticated attorneys. Also, the successor firm had, months before the purchase, hired an individual who was involved in the mediation of the employee’s sexual harassment claim before the EEOC. He testified that he did not discuss her claim with the successor, but the court was unconvinced, particularly since only a cursory review of the predecessor’s records would disclose the suit. The court also found substantial “business continuity.” The successor was using the predecessor’s office, hired most of its former employees, and now performs services for many of the same clients. Indeed, the modest purchase price of $15,000 was more suggestive of a de facto merger than a purchase, in the court’s view (Kratz v. Boudreau & Associates, LLC).

No notice, no liability

In the Wang case, the successor owner of a Japanese restaurant in New York was granted summary judgment against alleged FLSA violations that occurred before it was the plaintiff’s employer. The purchase agreement stated that the new owner bought the stock in trade, good will, and other assets “free and clear” of any debts or encumbrances, and there was no assumption of liabilities. Also, a rider represented that “the business sold herein is being operated in accordance with all laws, ordinances and rules affecting said business.” Nonetheless, a delivery worker employed by both the predecessor and successor claimed both should be liable for wage and hour violations that happened before the restaurant changed hands (subsequent alleged violations were not addressed by the motion).

Disagreeing, the court explained that the employee presented no evidence that the new owner had notice of the lawsuit or of the alleged violations giving rise to the suit. The court rejected the employee’s expansive view of constructive notice, which would impute notice of a predecessor’s violations on an innocent purchaser whenever the violations could have been discovered through diligence. That would “effectively create a duty of due diligence, which in the Court’s view should be imposed by Congress, or at least the Second Circuit, in the first instance.”

In discussing whether the federal “substantial continuity” test applied to FLSA cases, the Wang court noted that the Second Circuit has not yet weighed in. However, other Circuits have applied it in FLSA cases, including the Third, Seventh, Ninth, and Eleventh. Here, the Wang court found that the claim failed under both the traditional common law and the federal test. The lack of notice and the ability of the predecessor to provide relief were critical factors in this case, particular considering the goal of striking a proper balance between (1) preventing wrongdoers from escaping liability, and (2) facilitating the transfer of corporate assets to their most valuable users. To hold a purchaser of assets liable as a successor without notice of the potential liability, or where the predecessor is capable of providing relief to the wronged party—simply because it retained substantially the same work force to conduct a substantially similar business—would directly hamper the transfer of corporate assets to their most valuable users, said the court.

Cases where continuity is key

Purchase as a going concern. While the first two examples focused on whether the successor had notice of a claim so as to impose successor liability for a predecessor’s violations of labor and employment laws, the continuity of operations (office, equipment, business model, customers, etc.) is key in other cases.

For example, a company that purchased a troubled business as a going concern could not avoid WARN Act liability through clever drafting of the purchase agreement. Though the asset purchase agreement was written so the purchaser, Celadon Trucking, would avoid WARN Act requirements (stating that non-hired drivers “shall not be deemed . . . employees” of Celadon, that it would not be responsible for the predecessor’s “liabilities or obligations,” including under the Act), the Eighth Circuit affirmed a district court’s ruling that, because the company was purchased as a “going concern,” the laid-off individuals were Celadon’s “employees,” and it was liable for failing to give 60 days’ notice of a mass layoff. The appeals court also found that Celadon could not reduce any damages through the good faith defense (Day v. Celadon Trucking Services, Inc.).

Cherry-picking workforce. Continuity of operations is also key in cases where a purchaser allegedly tries to avoid legal obligations under employment laws by cherry-picking which of the predecessor’s employees to hire or retain after a purchase. In such cases, a court might find the purchaser was a “successor employer” and the refusal to hire was done for an unlawful purpose.

For example, purchasers have been held to be successor employers under ADA, liable for discriminatorily refusing to hire the predecessor’s disabled workers. In one case, a federal court in Florida upheld punitive damages against a successor based on a jury’s finding that it acted with malice or reckless indifference in refusing to a predecessor’s employee who had just taken FMLA leave due to cerebral meningitis. Though the employer claimed she failed to fill out application materials, she testified that she was informed by an employee of the successor, on the very day it assumed operations, that she was rejected due to excessive medical leave. This and other evidence raised a reasonable inference that the successor “used the transition . . . as a ruse to rid itself of certain employees under the guise of declining to offer employment,” said the court (Noel v. Terrace of St. Cloud, LLC).

Bringing work in-house, going non-union. In another case, the District of Columbia Circuit agreed with the NLRB that CNN was a successor employer to outside contractors that it had for years used to provide technicians to operate the electronic equipment at its New York City and Washington, D.C., bureaus. CNN did not contend that it made a significant change in the essential nature of the contractor’s operations; basically, it continued the same operations with employees who performed the same work, at the same locations, using the same equipment. The only question was whether the majority of CNN’s employees were previously employed by the contractor. Here, the overwhelming evidence of anti-union animus on CNN’s part led the Board to presume that a majority of incumbent employees would have been hired but for CNN’s discriminatory hiring practices. In the appellate court’s view, it was reasonable for the Board to infer that CNN planned to hire a sufficient number of former contractor employees to lend an air of impartiality, while avoiding the number that would impose a bargaining obligation. By replacing a unionized contract with a nonunion, in-house workforce, CNN violated the NLRA (NLRB v. CNN America, Inc.).

Successor bar doctrine – let dust settle before challenging union’s majority status. Cherry-picking a workforce is not the only way successor companies have tried to avoid collective bargaining. In an April 2017 opinion authored by retired Supreme Court Justice Souter, the First Circuit found that the NLRB properly applied its successor bar doctrine, under which an incumbent union is entitled to represent a successor employer’s employees for a reasonable period of time (not less than six months) before its majority status may be questioned. In the case at issue, Lily Transportation took over part of a bankrupt employer’s business that distributed parts for Toyota, and the incumbent union soon demanded to be recognized as the drivers’ bargaining rep. Refusing, Lily produced signed statements it claimed were from a majority of drivers saying that they no longer wished to be represented by the union. A law judge found that the company was a “successor employer” because it made a “conscious decision to maintain generally the same business and to hire a majority of its employees from the predecessor.” Applying the successor bar, the Board found that Lily unlawfully refused to bargain with the union (NLRB v. Lily Transportation Corp.).

You might as well be diligent

The take-away from these cases is fairly clear—courts will not let a purchaser avoid compliance with, or liability under, labor and employment laws through clever contractual language, purposeful ignorance of pending claims, or cherry-picking a workforce. As a consequence, purchasers are well advised to do their due diligence, uncover all the skeletons in the closet, and either factor potential liabilities into the purchase price or walk away.

Upheaval caused by recent hurricanes leads to temporary exemptions/waivers of written AAP requirements, extension of VETS-4212 reporting deadline

September 26th, 2017  |  Cynthia L. Hackerott

Two DOL agencies have modified some government contractor obligations in light of the turmoil resulting from recent hurricanes. First, federal contractors who file their VETS-4212 Reports by November 15, 2017 will not be cited for failure to file a timely VETS-4212 Report or failure to comply with federal regulations, an announcement the DOL’s Veterans’ Employment and Training Service (VETS) webpage for VETS-4212 Federal Contractor Reporting states. The announcement clarifies that it applies to all federal contractors. Second, in light of “the special circumstances in the national interest” presented by the destruction caused by recent hurricanes, OFCCP Acting Director/Deputy Director Thomas M. Dowd has granted, in regard to Hurricanes Irma and Maria, additional limited exemptions and waivers relating to the requirements to develop written affirmative action programs (AAPs) under the laws administered by the OFCCP on top of the one he issued on August 31 as to Hurricane Harvey.

VETS-4212 Reporting. The VETS-4212 reporting cycle for 2017 began as usual on August 1. The filing deadline technically remains September 30 per VETS regulations at 41 CFR Section 61-300.10(c); however, as the announcement indicates, the agency, in order to accommodate the needs of those impacted by Hurricanes Harvey and Irma, is using its discretionary authority to allow late reporting by November 15.

The Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA), 38 USC Section 4212(d), requires federal contractors and subcontractors subject to the Act’s affirmative action provisions in 38 USC Section 4212(a) to track and report annually to the Secretary of Labor the number of employees and new hires that are covered veterans, by job category and hiring location, who belong to the specified categories of veterans protected under the statute. Under the most recent amendments to the statute, those categories are: (1) disabled veterans; (2) veterans who served on active duty in the Armed Forces during a war or in a campaign or expedition for which a campaign badge has been authorized; (3) veterans who, while serving on active duty in the Armed Forces, participated in a United States military operation for which an Armed Forces service medal was awarded pursuant to Executive Order 12985 (61 FR 1209); and (4) recently separated veterans (veterans within 36 months from discharge or release from active duty). The reporting form for this requirement is administered by VETS, and generally, the reporting cycle begins annually on or around August 1 and ends September 30. The coverage threshold for contracts entered into on or after October 1, 2015 is $150,000; for contracts entered into prior to October 1, 2015, the coverage threshold is $100,000.

Reporting period. To determine the “reporting period” for the purposes of completing the VETS-4212 Reports, the contractor must first select a date in the current year between July 1 and August 31 that represents the end of a payroll period. The 12-month period preceding the selected payroll period ending date is the 12-month reporting period. Item 14 of the DOL’s updated FAQ regarding the report clarifies that “[a] contractor that has approval from the [EEOC] to use December 31 as the ending date for the EEO-1 Report may also use December 31 as the ending date for the payroll period selected for the VETS-4212 Reports” (see also, VETS regulations at 41 CFR § 61-300(d)(2)). This will allow contractors to keep in-line with current EEO-1 Reporting requirements, which, pursuant to a September 15, 2017 EEOC notice in the Federal Register (82 FR 43362-43363), provide that employers should count employees during a “workforce snapshot period” between October 1 and December 31, 2017 for the 2017 EEO-1 Report due by March 31, 2018.

Temporary waiver of written AAP requirements. In light of “the special circumstances in the national interest” presented by the destruction caused by recent hurricanes, OFCCP Acting Director/Deputy Director Thomas M. Dowd has granted, in regard to Hurricanes Irma and Maria, additional limited exemptions and waivers relating to the requirements to develop written affirmative action programs (AAPs) under the laws administered by the OFCCP on top of the one he issued on August 31 as to Hurricane Harvey.

These exemptions and waivers are detailed in three memoranda, posted on the OFCCP’s website, which are addressed to all federal government contracting agencies. Federal contractors will continue to be subject to the nondiscrimination requirements under the three laws that the OFCCP enforces—Executive Order 11246, as amended, Section 503 of the Rehabilitation Act, as amended, and Section 4212 of the Vietnam Era Veterans’ Readjustment Assistance Act, as amended (VEVRAA).

The memoranda also provide three equal employment opportunity clauses that federal contracting agencies may utilize in covered contracts entered into to provide hurricane relief. Each of the exemptions and waivers are for a period of three months from the date of the corresponding memorandum, subject to an extension “should special interests in the national interest so require,” and pertain only to the three programs administered by OFCCP.

Notwithstanding these exemptions and waivers, the following regulatory requirements will continue: (1) posting of the “Equal Opportunity is the Law” notice under all three laws; (2) record keeping and record retention under all three laws; and (3) employment listings with appropriate employment service delivery system as required under VEVRAA.

The Hurricane Harvey memo, originally issued on August 31 and revised on September 1, 2017, provides that exemption and waiver will run from September 1 to December 1, 2017.

The Hurricane Irma memo, issued on September 7, states that exemption and waiver will run from September 8 to December 8, 2017.

The Hurricane Maria memo, issued on September 20, provides that exemption and waiver will run from September 21 to December 21, 2017.

Corresponding FAQs regarding each of the three exemptions and waivers are posted on the OFCCP website.

For questions or additional clarification on a specific contract, contractors are instructed to contact Marika Litras, Director of Enforcement at (202) 693-0101 or litras.marika@dol.gov.

In September 2005, then OFCCP Director Charles James, Sr. issued a similar waiver and exemption in light of Hurricane Katrina.

Kraft retirees had no vested right to health care benefits beyond termination of CBAs

September 21st, 2017  |  Ron Miller

In a number of recent court decisions, it has consistently been determined that collective bargaining agreements do not provide a source for lifetime medical benefits for retirees and their surviving spouses and beneficiaries if there is not explicit contractual language stating that such benefits survive expiration of the agreement. However, in a recent decision, Gruss v. Kraft Heinz Foods Co., Inc., Kraft retirees sought to establish that the company violated ERISA when it terminated retiree health care benefits for former hourly workers,

Nevertheless, the same result was obtained as a federal district court in Wisconsin agreed with the employer that under binding ERISA caselaw, the retirees had no vested right to health care benefits upon retirement. Kraft had argued that no language in the relevant collective bargaining agreements, memorandum of agreement (MOA), or summary plan descriptions (SPD) promised to provide medical benefits to retirees that would continue beyond the termination of the CBA in effect when they retired.

Retiree healthcare benefits. The retirees worked as hourly employees at an Oscar Meyer meat packing plant until they retired. While employed, the retirees were represented by a union, and the terms and conditions of their employment was governed by a series of CBAs between the union and employer. The employer and union did not negotiate over healthcare benefits for retired employees before entering into a 1989 CBA. Over time, Kraft provided health and prescription drug insurance to employees and retirees represented by the union in accordance to the terms of its CBAs.

During negotiations leading up to the 2000 CBA, Kraft proposed converting all existing medical coverage to its “Kraft Chose Plan.” Thereafter, the union agreed that proposal. Ultimately, the 2004 CBA contained no reference to retiree medical benefits. A separate document provided that retiree medical coverage would not be provided for those hired after December 1, 2004.

Plan termination. By letter dated September 2, 2015, Kraft notified retirees that effective January 1, 2016, their current retiree health and prescription drug insurance plans would be terminated. For certain retirees, it provided an option of participating in a privately operated Medicare insurance exchange. Retirees would pay all premiums, with Kraft making annual contributions to a health reimbursement account (HRA) in an amount equivalent to the cost of obtaining health and prescription coverage.

Kraft did not negotiate with the union about these changes, and the union did not agree to the termination of the prior health and prescription drug plans. Accordingly, the retirees and union allege that these unilateral changes in coverage constitute a breach of the applicable CBA, and a violation of ERISA.

Vesting of retiree benefits. The retirees’ claims rested on the contention that they had vested rights to the pre-2016 health and prescription drug insurance coverage. Thus, the ultimate issue was whether the retirees’ health care benefits survived the termination of the CBAs. The parties agreed that the benefits at issue are welfare benefits governed by ERISA. Unlike pension benefits, ERISA does not mandate the vesting of welfare benefits. Rather, employers and unions may choose to enter agreements for welfare benefits to vest. Under Seventh Circuit precedent, any agreement for the vesting of welfare benefits under ERISA “must be contained in the plan documents and must be stated in clear and express language.”

Here, the court pointed out that the CBAs were each silent on the continuation of health care benefits for retirees past the agreement. Silence indicates that welfare benefits are not vested. Moreover, considering all of the documents, the relevant SPDs both expressly provide a right to “amend or terminate” the health plan at any time, and the 2004 SPD specifically provided that coverage ends on “the date retiree coverage under the plan terminated.” If the CBAs and the plan documents provide that the benefits can be modified or revoked, then the benefits do not vest as a matter of law.

Finding no ambiguity in the various CBAs or related documents, the court declined to consider extrinsic evidence offered by the union in an effort to demonstrate vested rights. Accordingly, the court was compelled to conclude as a matter of contract interpretation and ERISA that none of the plan documents vested retiree health care benefits past the respective termination dates of each of the three CBAs at issue.

Save Local Business Act: Is tanking the revised joint-employer standard the right move?

September 14th, 2017  |  Pamela Wolf

On September 13, 2017, the House Education and the Workforce Subcommittee on Workforce Protections and the Subcommittee on Health, Employment, Labor, and Pensions held a joint legislative hearing to examine the Save Local Business Act, which would tank the National Labor Relation Board’s revised joint-employer standard. The legislation, H.R. 3441, would roll back what proponents see as an “extreme joint-employer scheme” and clarify that two or more employers must have “actual, direct, and immediate” control over employees to be considered joint employers. The billl’s opponents contend that by creating a new, narrow definition of a “joint employer” under the National Labor Relations Act and the Fair Labor Standards Act, H.R. 3441 would dismantle legal protections that workers have relied upon for decades, creating chaos and uncertainty for workers.

The bill, which enjoys some bipartisan support, would get rid of the revised joint-employer standard articulated in the 3-2 Browning-Ferris Industries decision, in which the NLRB returned to its pre-1984 standard for determining joint-employer status under the NLRA. In that ruling, the Board announced that it would no longer require that a joint employer not only possess the authority to control employees’ terms and conditions of employment, but also exercise that authority. Nor would the Board require that to be relevant to the joint-employer inquiry, a statutory employer’s control must be exercised directly and immediately. If otherwise sufficient, control exercised indirectly—such as through an intermediary—may establish joint-employer status.

Tanking the NLRB’s revised definition. Proponents of H.R. 3441 see it as the vehicle through which the NLRB’s revised joint-employer standard should be undone. “To most Americans, the question over who their employer is seems to be an obvious answer. It’s the person who hired them, the one who signs their paycheck,” Representative Bradley Byrne said at the hearing. “As a former labor attorney, I can tell you it used to be very clear in legal terms how you become someone’s employer. But that’s no longer the case since the [NLRB] stepped in.”

“It’s time to settle once and for all what constitutes a joint employer—not through arbitrary and misguided NLRB decisions and rulings by activist judges—but through legislation,” Representative Tim Walberg (R-Mich.) added.

Costing small businesses more. Tamra Kennedy testified on behalf of the Coalition to Save Local Businesses. She is a business owner who started out as a secretary for a local Taco John’s franchise and went on to own several of her own restaurants. Kennedy expressed her concern that the revised joint-employer rule may rob her of the success and independence she worked so hard to achieve. “After two years operating under the expanded joint-employer standard, the impact on my business is clear: joint employer means I must pay more to run my business, and earn less in return, all while worrying if the unclear joint-employer liability rule will continue to erode my autonomy to run my business,” she said.

Kennedy pointed out that her franchisor used to provide standard employee handbooks to franchisees, but because of the expanded joint employment liability, no longer does so, even though the franchisor has the expertise and best practices that would be most helpful for her and her employees. Kennedy said she now must hire an outside attorney to write an employee handbook, which cost her business $9,000 to have outside counsel prepare. She also needs attorneys to update her handbook each time the law changes.

The small business owner also noted that she no longer receives a job application form from her franchisor. She must create her own application and keep it updated. Moreover, Kennedy said, she must recruit employees on her own. For years, her brand company produced and provided franchise owners employee recruiting kits with banners, brochures, fliers, and an employment application form for use in the restaurants.

“All of the materials were created by the brand and presented a unified, consistent quality to our potential employees,” Kennedy said. “Today, because of the fear of joint-employment liability, these essential recruitment tools are no longer available to franchisees. While we are welcome to produce our own materials—both incurring the cost of design and printing—we can no longer expect this support from our brand company. It also creates another barrier to hiring great people, so unfortunately, I’m creating jobs in my community slower than I otherwise would.”

Will small businesses get hurt? Not everyone agrees that H.R. 3441 would help small businesses—some predict that it would hurt more than help. “The proposed narrow definition of ‘joint employer’ would have seriously negative impacts on workers and on small business owners,” according to Michael Rubin, Partner at Altshuler Berzon LLP. “[H.R. 3441] would also leave small business owners in the untenable position of facing the risk of being held solely responsible for labor law compliance and collective bargaining even when they lack the authority or means to fulfill that legal responsibility. . . I am convinced that H.R. 3441 will [not] benefit local businesses.”

Subcontracting in the construction industry. Granger MacDonald, who appeared on behalf of the National Association of Home Builders and is a second-generation home builder from Kerrville, Texas, explained the importance of contracting in his industry, and how the joint-employer scheme limits the ability to contract with other companies.

“Without [contractors], my company and many other family-owned home building firms like it would simply cease to be viable operations,” MacDonald said. But “simply by applying responsible everyday business practices, we could still be held accountable for the labor and employment practices of third-party vendors, suppliers, and contractors over whom we have no direct control.”

MacDonald added that the joint-employer threat to contracting undermines the housing market recovery.

“Congress should consider policies that support a continued housing recovery, starting with undoing the harmful precedent set by the NLRB’s expanded joint-employer doctrine and other policies that reduce labor market flexibility,” he said.

Collective bargaining problem. Employment lawyer Zachary Fasman, a partner in the law firm of Proskauer Rose, LLP, called Browning-Ferris “nothing short of a disaster.” He said the key problem of the Browning-Ferris decision is that it “sweeps virtually every contracting relationship within its boundaries. In practice, it is no standard at all.” He cited the Browning-Ferris dissent: ‘[n]o bargaining table is big enough to seat all of the entities that will be potential joint employers under the majority’s new standards.’

As to H.R. 3441, Fasman disputed claims made by critics, saying, “This bill would not deny any employee the right to join and form a union or to bargain with his or her employer. It would merely establish that the proper employer for bargaining is the employer that actually sets the terms and conditions of employment in the workplace, and not some affiliated entity which has a commercial relationship with the employer.”

Undermining employer accountability. But Representative Mark Takano (D-Calif.) saw it differently. “For decades, joint-employment standards have ensured workers can hold employers accountable for violating wage and hour laws or refusing to collectively bargain. This bill represents a significant and dangerous break from that precedent that would undermine the rights of American workers,” he said. “This legislation rewards companies that rent employees from staffing agencies instead of hiring them directly, and allows them to evade responsibility for upholding the rights of those employees, even though they profit from their work.”

Opponents of H.R. 3441 also contend that it gives unscrupulous employers a roadmap for evading the obligations they owe to workers under current law. Employers can outsource one of the bill’s listed terms of employment, such as determining work schedules, to another entity and evade all responsibilities to collectively bargain with workers or to pay wages owed to workers. Similarly, because a joint employer must exert control “directly, actually, and immediately” under the bill, an employer can convey all employment directions through a third party without ever being considered a joint employer, Subcommittee Democrats suggested.

“This bill is simply an excuse for top corporations to remove any responsibility to their workers. They are subcontracting their consciences to put profits over people,” said Representative Donald Norcross (D-N.J.). “This bill would leave countless hardworking Americans without a voice in their workplace at a time when Congress should be helping to lift up workers by raising wages and improving workplace conditions.”

The “Save Local Business Act” represents a blank check for powerful franchisors to dictate small franchisees’ employment practices, while at the same time leaving franchisees on the hook for any legal violations,” according to opponents of the measure.

Joint-employer liability narrowed out of existence? It’s worth considering whether under H.R. 3441, joint-employer responsibility would be narrowed to the point of nonexistence, and whether that’s a good thing. Rubin said that the practical impact of the bill would be “to eliminate joint-employer responsibility under the NLRA and FLSA altogether.” He explained that the proposed definition of “joint employer” under the bill “so dramatically narrows the common law standard under the NLRA and the ‘suffer or permit’ standard under the FLSA that it will prevent any entity, other than the direct employer itself, from being a ‘joint employer.’” The result would be that H.R. 3441 would “effectively overrule hundreds of court decisions, going back to well before the Supreme Court’s first major joint-employer decision in 1947, which held that a slaughterhouse owner was the statutory employer of the meat deboners it hired through an independent staffing contractor.”

Senate Appropriations Committee rejects White House proposal to merge OFCCP into EEOC, calls on OFCCP to ‘right size’

September 11th, 2017  |  Cynthia L. Hackerott

The Senate Appropriations Committee has rejected the White House’s proposal to merge the OFCCP into the EEOC and has recommended OFCCP funding at a level significantly higher than the levels recommended by the Trump Administration and the House Appropriations Committee earlier this year. Nevertheless, the Senate Appropriations Committee recommended cutting the OFCCP’s budget, and “strongly urge[d]” the agency to “find efficiencies and cost savings,” instructing it to provide the Committee with an inventory of its current infrastructure and a plan to consolidate and “right size” the agency.

On September 7, 2017, the Committee approved, 29-2, the Fiscal Year (FY) 2018 Labor, Health and Human Services, and Education and Related Agencies Appropriations Bill. The bill calls for $103,476,000 in FY 2018 funding for the OFCCP. By comparison, the White House’s FY 2018 budget proposal, released on May 23, 2017, calls for $88 million in funding for the OFCCP. On July 19, 2017, the House Appropriations Committee approved its draft FY 2018 Labor, Health and Human Services, and Education funding bill which would allot the OFCCP $94.5 million.

In its report on the bill (at page 30), the Committee stated that it “strongly urges OFCCP to find efficiencies and cost savings, including the consolidation of offices, within its current budget structure. This should include a review of the current OFCCP office locations and infrastructure across the country and whether these offices align with current workload needs. OFCCP is directed to report to the Committee with an inventory of current infrastructure and a plan to consolidate and right-size the agency 180 days after enactment of this Act.”

The White House’s FY 2018 budget proposal also calls for the OFCCP to consider reducing the number of its field office locations. Its proposed funding level would include 440 full-time equivalent (FTE) employees, down from the current FY 2017 estimate of 571 FTEs.

The House Appropriations Committee report on its bill is silent as to the merger, instead focusing it comments (on page 12) on a Government Accountability Office (GAO) report issued on September 22, 2016, in which the GAO identified and discussed multiple deficiencies with OFCCP enforcement. Noting that the OFCCP accepted the GAO’s recommendations, the Committee instructed the agency to report to it on its efforts and the status of implementing each of the recommendations.

Congressional action necessary to complete proposed merger. The White House proposed the merger in its Fiscal Year (FY) 2018 budget, released on May 23, 2017, in which the Appendix section detailing the proposed DOL budget provides that the two agencies would work collaboratively to coordinate this transition to the EEOC by the end of FY 2018. Because the EEOC does not currently have the authority to do a number of things that the OFCCP does, Congressional action is an essential component of the merger. To that end, the

DOL’s budget justification as to the OFCCP calls on the agency to draft and review: (1) legislative proposals to amend the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA) and Section 503 of the Rehabilitation Act (Section 503); and (2) a new Executive Order (EO) amending EO 11246. The OFCCP would also need to draft/revise its EO 11246, VEVRAA, and Section 503 regulations to implement the transfer of authority.

Outreach to business community lacking, expert says. From the start, the Administration did not engage in necessary outreach to the business community,” Mickey Silberman, a Shareholder with Fortney & Scott, LLC and Chair of the firm’s Affirmative Action & Pay Equity Practice Group, told Employment Law Daily on September 8. “And when the business community announced their opposition to the proposed merger, it went on life support. With the Senate Appropriations Committee’s clear rejection of the proposal, it’s now dead. Whether its buried for the remainder of Trump’s term is not certain, but I predict it will not be revised by this administration.

“OFCCP anticipated this outcome, announcing several times in the past few months it hopes to work with contractors in a more cooperative and productive way and will consider reforms to the agency’s structure and enforcement methods.”

‘Rugby scrum,’ over OFCCP’s fate continues. “The political Rugby Scrum over the fate of OFCCP is now operating at full power,” said John C. Fox, former OFCCP official and current President of Fox, Wang & Morgan, P.C., in comments to Employment Law Daily the evening of September 7. “Were the Senate Appropriation Committee’s budget proposal for OFCCP to be adopted, it would not be devastating to the agency, but would still render OFCCP too small, in my opinion, to be able to function as an effective federal agency.”

“The Senate Appropriation Committee’s $2 million reduction in proposed budget (from OFCCP’s last year’s approximately $105 million plus budget), combined with about $2 million of increased expenses at OFCCP (pensions and rent increases, etc), would mean a loss, in effect, of approximately 40 compliance officers,” Fox explained, noting that OFCCP compliance officers costs are about $100,000 per employee, or about 10 for $1 million. “Accordingly, OFCCP would shrink, under the Senate Appropriations Committee’s proposal, from 571 authorized positions (at the end of FY 2017) to approximately 530 or so authorized positions by the end of coming FY 2018.”

Reduction in OFCCP offices. “Currently, OFCCP’s employees are spread across approximately 59 brick and mortar offices, including a Headquarters Office (National Office) in Washington D.C., 6 Regional Offices, 49 District Offices and perhaps 3 Area Offices (which operate without an on-site manager),” Fox noted. “That would leave fewer than nine OFCCP employees per office, on average. Currently, most District Offices are already between one-third and one-half empty as the agency has stair-stepped down annually in headcount over the last 8 years from 785 authorized positions in the first year of the Obama Administration to the current 571 authorized positions.”

Number of on-site audits down. “The GAO has recommended for years consolidating offices since OFCCP no longer automatically comes on-site to audit covered government contractors,” Fox continued. “Indeed, OFCCP currently only comes ‘on-site’ to a contractor’s establishment to audit in about 3-5 percent of the agency’s increasingly fewer audits (perhaps only 1,000 or so audit completions by the end of this FY 2017, down from the 4,000-5,000 per year only a few years ago.). The resulting thirty to fifty OFCCP on-site audits we expect to see reported in this FY 2017  (or even 250 on-site audits per year) hardly justifies having dispersed OFCCP offices throughout the United States and the concomitant leasehold expense.”

Operating changes have reduced travel needs. “[In addition], OFCCP must travel from its existing dispersed offices to contractor sites to conduct audits in over half of their existing on-site audits, so the advantages of ‘offices near the contractor’ have now been overtaken by the change in OFCCP’s operating philosophy (in 1996 in the Clinton Administration) to no longer automatically and routinely go on-site in each and every OFCCP audit, and by advances in technology,” Fox observed. “Rather, OFCCP today carries out most audits (about 95-97 percent depending on what year one examines) via telephone and via e-mail without any on-site presence at the contractor’s establishment. As a result, there is a strong operational argument to consolidate OFCCP offices, as the Senate Appropriations Committee is urging OFCCP to do, with its shrunken budget. However, there is an even more compelling argument to immediately close all OFCCP District and Area offices, and to perhaps close all OFCCP Regional Offices, too, and thus, house all OFCCP personnel in one office in the Washington DC area. Standing against that common sense operational and budget result is the political issues of Members of Congress losing federal investments in their states and cities and the hardship to the over 500 OFCCP employees who would have to either move, quit or be fired.”

Hashing out the differences between the House and Senate bills. “Given the rumors of the last several days coming out of The White House that President Trump may delay a threatened federal government shutdown on October 1 in hopes of negotiating by December 1 an agreement to fund the building of ‘The Wall’ on the Mexican border, it appears that a two-month Continuing Resolution might soon be in the offing as of October 1,” Fox said. “If that were to occur, the Senate and the House would have an additional two months to hash out their large differences in approach to OFCCP’s budget and future direction. The Senate Appropriations Committee’s proposed OFCCP budget is approximately $9 and a half million higher than the House’s proposed budget for coming FY 2018 ($103,476,000 versus $94,000,000). That approximately $9 million difference represents another 90 lost OFCCP positions. However, if the House and the Senate were to ‘split the baby in half’ and agree upon a $99 million budget for OFCCP (or about a $6 million loss from OFCCP’s current over $105,000,000 funding level), OFCCP’s FY 2018 headcount would shrink about 60 heads from its current 571 authorized level to about 510 authorized positions, nationwide. At that level, OFCCP is approaching an average of only about 8 employees per office. While one could operate an agency that small in size, the number of audits would shrink drastically since a large Headquarters staff is necessary to hire and train compliance officers, do the accounting and bookkeeping and carry out a regulatory agenda. If the OFCCP were to shrink to below 550 employees in size, nationwide, not only would office closures/consolidations be absolutely necessary, but the idea of merger suddenly becomes much more tantalizing to OFCCP personnel in need of quality and continuous training and supervision.”

Difficulty of winding down the OFCCP. According to Fox, “[t]he federal government does not ‘sunset” agencies or federal programs well. What we are witnessing is the writhing of an anguished Congress struggling to find a way to wind down OFCCP in a graceful and orderly way. There will be little agreement among principals about the ‘right way’ to wind down OFCCP, even while all recognize that it must be done and is being done, little by little: death by a thousand small lashes….like watching a mortally wounded Titanic sink under the waves….in ultra-slow motion.”

[Wolters Kluwer Note: For an in-depth discussion of the merger proposal, see the September 8 post on this blog.]