Earlier this year the world in general, and the federal contracting community in particular, were breathless in anticipation of two Supreme Court cases expected to upend affirmative action in college admissions. The Court did upend affirmative action, and federal contractors openly wondered what those decisions meant for affirmative action in employment.
The answer? Those cases meant very little to federal contractors, actually.
Years ago employers argued for “lighter” affirmative action obligations for themselves and stronger obligations for higher education in order to address the “pipeline problem.” Employers could not effectively diversify their workforces, the argument went, if colleges and universities were not training tomorrow’s diverse workforce. And so “strong” affirmative action was applied to college admissions, and federal contractors mainly just had to make sure their Job Group Analysis was formatted correctly.
Fast forward a few generations and the Supreme Court decided to bring college admissions affirmative action in line with employment, where any use of sex or race as factors when making decisions is pretty strictly prohibited.
We said at the time that the college admissions cases were not the ones contractors or the OFCCP should be concerned about. Rather, there were a slew of cases slowly making their way through the federal judicial system that more directly challenged OFCCP authority. One of those cases has hit the Supreme Court docket.
The case is Securities and Exchange Commission v. George R. Jarkesy, which is on appeal from the Fifth Circuit. What does an SEC case have to do with the OFCCP? Potentially quite a lot.
The SEC charged Jarkesy in 2013 with fraudulently valuing assets. The case did not go before a federal court and jury, however. It was heard by an SEC administrative law judge (ALJ). The ALJ sided with the SEC and imposed a financial penalty and barred Jarkesy from the securities industry. On appeal, Jarkesy argued that the SEC acted unconstitutionally. More to the point, that the SEC’s delegation of the case to an ALJ and the SEC’s administrative adjudication process more broadly are unconstitutional. The Fifth Circuit eventually agreed, and the SEC now wants this Supreme Court to weigh in and save them.
By now, what an SEC case has to do with the OFCCP should be coming into focus. While the SEC’s and the OFCCP’s administrative adjudication processes are not identical, the case could have more direct impact on the OFCCP and the Department of Labor than the college admissions cases.
There are plenty of differences between SEC laws and regulations and the OFCCP’s, but we will not parse them all here. The point is, foundational principles of law that underpin Executive Branch and administrative authority are being challenged, and the OFCCP’s authority lies on some pretty shaky ground, particularly with regard to the foundation for sex and race affirmative action—Executive Order 11246.
The differences between OFCCP and SEC enforcement are still enough that the Jarkesy case is unlikely to have a direct impact on the OFCCP one way or the other, but the case is a harbinger of more to come that very well might.
Over the last 50 years the OFCCP has steadily increased the scope of its authority and arguably abused the administrative adjudication process. So much so that the agency has on a number of occasions come perilously close to facing serious constitutional challenges. In each case the agency either settled the case or the contractor pulled back.
The agency knows it is vulnerable to certain constitutional challenges, and two things have primarily prevented those challenges from seeing the light of day in a federal court. The first is money—the agency has relied heavily over the years on the fact that court challenges are expensive and most contractors are simply not equipped to mount a years-long legal battle. The second is actually the humanity of federal contractors. Those that are equipped to mount a years-long legal battle understand that doing so could upend an entire industry and put thousands of federal and private workers out of a job, including the author of this post.
And when the settlement amounts being asked for by the OFCCP are in the five- or even six-figure range, settlement can still be seen as a bargain by federal contractors. But when those settlement figures stretch into seven figures and beyond, the cost-benefit analysis begins to flip.
The OFCCP is currently on a crusade that could spell the end of the agency: “pay equity.” They are not the only entity interested in pay equity issues, they are just the one proceeding in the most dangerous way.
We have pointed out for years that the OFCCP has no “pay equity” mandate; their mandate is nondiscrimination. And despite the fact that for the last several years the OFCCP has insisted that its regulations contain a requirement that contractors perform annual, statistical analyses of their pay data, we have pointed out that that is simply not the case and the OFCCP is literally making up law. That has not stopped the agency from charging ahead with pay equity/discrimination cases that can easily stretch damages into the millions, flipping the cost-benefit analysis in favor of going to court.
And we are living in an age of disruption and celebrity. All it takes for the OFCCP and the Department of Labor to find themselves arguing for their own survival in front of an unsympathetic Supreme Court is for the OFCCP to drop a seven-figure compensation settlement “request” on the wrong CEO.
We get it, issues like the Seventh Amendment right to a jury trial, the “nondelegation doctrine,” and the appointments clause of Article II of the Constitution are boring and seem well-settled. But all three things are currently at issue before a Supreme Court that shows no hesitation at upending decades and decades of precedent.
And the Jarkesy SEC case is not the only one, it is just one of the first major cases in this vein to reach the summit. Regardless of how Jarkesy is decided, more are sure to follow.
Just a handful of years ago it was not uncommon for OFCCP audits to take years to complete, even when no violations were actually found. In one notable case, the OFCCP audit “went dark” for a year and a half with zero communication from the agency. When the agency did wake up and continue the audit, they demanded data, documents, and information for those intervening 18 months and a brave contractor pushed back, willing to go to federal court to define the temporal scope of an audit. Rather than risk that happening, the OFCCP settled the case in the eleventh hour and changed their practices. We all have a lot more to thank Frito-Lay for than snack chips.
Fifty years ago the scope of an OFCCP audit was the extent to which a covered employer was complying with regulatory requirements. Today, the agency itself would tell you the scope is virtually unlimited and an audit is simply an entry point into a broader investigation looking for any level of “discrimination.” But the stakes are much higher now and the next “Frito-Lay” risks bringing down the whole house of cards.
So while we are watching the Supreme Court docket for cases like SEC v. Jarkesy, and recommending you do as well, we sincerely hope that the OFCCP and the broader Department of Labor is doing the same, and taking notes.
To the extent that the OFCCP is open to suggestions, we highly recommend that the agency stop trying to create and enforce new policy through information collections and unenforceable sub-regulatory guidance, and do the hard work of updating their regulations instead. And in doing so, we highly recommend that the agency be mindful of little things like constitutional separation of powers and Executive Branch authority, keeping in mind that while they are a federal “law enforcement agency,” they are not the FBI.
Federal contractor affirmative action requirements are unlikely to be challenged directly, but the legal framework that allows for those requirements is absolutely under attack. So far, the spotlight is on higher-profile agencies and agency activity like the Securities and Exchange Commission and the Environmental Protection Agency, but the farther the OFCCP tries to stretch its authority and the harsher the penalty for not playing along, the more likely the spotlight will swing to them. And when it does, it won’t be a matter of whether or not this or that company has the resources to fight—activist groups will fund the campaign.
We are currently the person on the street corner holding a sign that reads, “The end is nigh.” Please, please, OFCCP, do not turn us into a prophet.