SCOTUS’ Retirement of “Chevron Doctrine” Has Exposed Vulnerability of OFCCP’s Overreaching Interpretations of Some of its Rules

Three things became almost immediately apparent following the U.S. Supreme Court’s (“SCOTUS”) retirement 10 days ago of its 40-year-old fling with the so-called “Chevron Doctrine.” (If you missed the SCOTUS’ Loper Bright Enterprises v. Raimondo decision (“Loper Bright”; our WIR story discussing it is here.) Since Loper Bright (beginning the day SCOTUS published it), federal courts began to cite to it while setting aside already several significant new federal Rules litigants had challenged in the courts, including two in the employment law area (Overtime Tip Credit Rule and the FTC’s Non-Compete Rule). We have written up, below, several of those case decisions already referencing or relying on Loper Bright before the ink was even dry on the SCOTUS’ case decision.

Our three takeaways from Loper Bright are:
1. Now that SCOTUS has returned to Congress its power to rule (as the first Branch of the federal government) and to not allow the Executive Branch of the federal government to either dilute or amplify Congress’ intent, it is now incumbent upon Congress to:

1. stop squabbling;
2. achieve greater legislative consensus on policy issues, and
3. draft much clearer and crisp statutes not filled with ambiguous words forced by policy disagreements (or occasionally by lackadaisical or last-minute time-challenged drafting windows); and

2. The federal Executive Branch agencies are going to have to realize they do not get to make federal policy. Stop right there. That’s it. They do not make policy, rather they implement policy Congress has laid down and delegated to them to implement. This fundamental realization of role and duty now calls for a massive program of re-education among federal employees, especially senior federal managers (who are currently decrying that the sky is falling). For 40 years – during the lifetimes of most current active-duty federal managers – they have thought the Chevron Doctrine gave them the right to “make policy” since nobody could stop them. When the federal courts abdicated their oversight responsibility 40 years ago to review federal agency Rules except where the agency interpretation was “plainly wrong,” it slowly dawned on senior managers in the federal Executive Branch of government that the prison guards had left the prison yard. The inmates (to carry on the analogy) were then on their own to do right or wrong, at their will, and decide what they thought Congress meant or should have meant…because they suddenly could.

Now, senior government managers are going to have to wind it back and realize and internalize that their assigned role in the panoply of the federal government is to follow, not lead. The role of federal agencies under our Constitution is to read, understand, and implement, faithfully, the will of Congress. The federal Executive Branch’s role is not to embroider on the work Congress has begun or to shrink it below the intent of the statute Congress passed and the President signed into law. Rather, senior federal managers need to re-dedicate themselves to only implement the will and intent of Congress as to the statutes Congress has entrusted to and delegated to them to enforce through implementing Rules and responsive programs closely tracking the Congressional intent (for better or worse); and

3. The federal agencies are going to also have to immediately start the hard work of pulling back their many overreaching interpretations that have piled up over the last 40 years. Hopefully, the agencies will do that voluntarily before stakeholders undermine an agency’s credibility by forcing sober reflection and trimming of their overreaching interpretations through lawsuits adjusting the agency’s understanding of the true mission Congress originally assigned them.

What’s on the OFCCP “Shopping List” of Interpretations it Needs to Immediately Withdraw: A Short “Starter Kit”

ISSUE # 1: OFCCP’s quiet about-face as to 52 years of consistent regulatory and audit enforcement interpreting 41 CFR Section 60-4 to require now suddenly:

1. Construction contractors that also sign a Supply and Service contract must build, OFCCP recently has announced (via FAQs) Supply and Service-like Affirmative Action Plans for (apparently) the construction contractor’s Non-Craft Minorities and Women. The effect of this change of interpretation of OFCCP’s Rules was to define the contractor’s obligation by the type of contract it signed, and NOT by virtue of the kind of contractor the company was – as had been true since 1972 (See OFCCP’s Supply and Service Rule at 41 CFR Section 60-2.1(a)) and 1978 (OFCCP Construction Rule at 41 CFR Section 60-4.1 – second sentence).

   And even more oddly, just as soon as OFCCP changed its analytic thinking from “type of contractor” governs the type of Affirmative Action required to “type of contract” governs, OFCCP (now through its demands in audits) has changed its analytical approach to coverage yet again. The latest pronouncement, again without Rulemaking, is to exalt the “type of employee” as the governing compass that dictates the type of affirmative action required, as we will see below. (So, internally inconsistent policy and with poor procedure to get us here).
   Note: OFCCP did not make these two changes by Rulemaking, as it should have done…even if it thought it had the legal authority to make either of these changes at all.

   No, No. Rather, OFCCP just published an Answer to FAQ # 7 (Construction Compliance FAQs) it created and one day silently published to create the first leap from “type of contractor” governs to “type of contract” governs. Here is what that FAQ says:

   • “7. If a prime contractor has both a construction and a supply and service contract, which employees are covered under 41 CFR part 60-2 and which employees are covered under 41 CFR part 60-4?”
     • ANSWER: “A contractor’s obligation to comply with 41 CFR part 60-2 and/or 60-4 requirements will depend on the type of contract(s) it has.”
   • Now, to add to the confusion, that FAQ Answer conflicts with OFCCP’s Answer to FAQ # 4 (Construction Compliance FAQs):
     • “4. Are federal construction contractors required to develop a written affirmative action program (AAP) under Executive Order 11246?”
       • ANSWER: “No, OFCCP does not require construction contractors to develop a written AAP under Executive Order 11246”; AND
2. Construction contractors that have not signed Supply & Service contracts must nonetheless develop Supply & Service-like AAPs for Minorities and Women as to the contractor’s Non-Craft workforce now says OFCCP. You will not find even an FAQ on this latest dip of the roller coaster ride OFCCP is taking us on. Rather, OFCCP is only announcing this “Non-Craft employees go into Supply & Service-like AAPs for Minorities and Women” interpretation of its 60-4 Rules in audits with no public notice.

Of course, this interpretation of OFCCP’s Rules renders OFCCP’s prior interpretation (above, as to construction contractors that also sign Supply & service contracts) wholly unnecessary. While few oppose change following proper procedure and based on clear and beneficial policy determinations, the remarkable thing as to these changes is the fact that the OFCCP seems to believe that the ten (10) previous Democrat and Republican OFCCP Directors just did not have it right for five decades. “It is better to learn late than never” must be the OFCCP’s new guiding mantra.

OFCCP predicates this new and emerging policy position on the premise that the contractor operates a “hybrid” workforce. By that, OFCCP means that the contractor operates a workforce composed of:

• “Construction craft employees” (who perform their work on-site and are thus subject to the 60-4 “Construction Contractor Rules” in OFCCP’s view); and
• Non-Craft employees who do not work on-site (and are thus subject to OFCCP’s 60-2 Supply & Service Rules in OFCCP’s new view).

Yes, of course, this is true of every construction company since they have CEOs, bookkeepers, estimators, receptionists, schedulers, and necessarily many other types of Non-Craft employees needed to run their front and back-end office depending on their size and their market.

But please notice that this new OFCCP “audit position” is now suddenly an abandonment of the very recently announced OFCCP position that the “type of contract” defines the type of Affirmative Action required (see issue A., above). Now OFCCP announces a new OFCCP operating “Rule”: the type of employee you are defines the type of Affirmative Action required.

WOW! This confirms the wisdom and the necessity of Rulemaking to allow the public to help define and align the sometimes (as described here) confused misthinking of federal government policymakers.

NOW, a Word About FAQs: The OFCCP is improperly using FAQs to announce new policies, as opposed to communicating information about existing policies and procedures OFCCP has properly developed and deployed. This goes back to the re-education reset that now needs to occur following the Loper Bright case decision discussed above.

Knowing a bit about history helps explain how OFCCP got to this current precarious position. Previously, from the Johnson Administration to the end of the Obama Administration, OFCCP and its predecessor agencies operated internally through written orders, later known as “Directives.” These written documents contained the OFCCP Director’s instructions to OFCCP staff. Since Directives were public documents, federal contractors often read Directives to know in advance how OFCCP was ordered to behave as to any particular policy or enforcement issue. (It always felt a little sinful to read OFCCP Directives since it felt like reading the other football coach’s playbook.) Of course, Directives, even though in writing, did not either aim at contractors or have the binding force and effect of law on contractors, and thus, of course did not bind federal contractors/subcontractors…just OFCCP personnel obedient to the OFCCP Director. Rather, OFCCP Directives were merely internal (to OFCCP) operating instructions.

The Trump OFCCP then unwittingly muddled things. It published several Directives that wandered off the path a bit by (aberrationally and suddenly) speaking directly to contractors in the Directive tool previously aimed only at the in-house OFCCP audience. (See notably OFCCP’s Compensation Directive, discussed below as to other issues).

With the Dawn of the Online Era, OFCCP Realized it Could Then Speak for the First Time to the Entire Nationwide Affirmative Action Community. The Biden OFCCP Then Drove the Train Off the Track by Turning Online FAQs & Their Answers into a New Vehicle to Seek to Impose New Substantive Requirements Directly on Federal Contractors.

We see this in the above welter of confusion as to what construction contractor requirements are supposed to be. At this point, OFCCP needs to review all of its almost 50 FAQs and make sure they do not announce new policy “requirements” not already in OFCCP’s Rules. Moreover, OFCCP needs at this time to quality control check all its interpretations of its existing Rules to ensure they are faithful to the OFCCP Rule they are designed to implement. Finally, OFCCP must ensure that all Rules it has implemented are faithful to the Congressional statute (or Executive Order) OFCCP is tasked to implement and enforce.

After wandering alone and off-leash for 40 years, as OFCCP was entitled to do until 10 days ago, one cannot simply assume a presumption of regularity. Indeed, every OFCCP Rule issued in the last 40 years, as with all other agencies, now comes laden with a presumption AGAINST its validity since written in an era when cheating a statutory delegation up or down WAS the rule of law.

ISSUE # 2: OFCCP’s sudden about-face interpreting 41 CFR Section 60-2.17(b)(3) to require contractors to develop elaborate analyses to “evaluate” their “compensation systems”

Since the OFCCP Rule came into effect (in 2000; published in final in 1999 near the end of the Clinton Administration) until the Biden OFCCP, the agency had always interpreted this Rule to allow contractors to adopt any form of review of its compensation systems, including merely: “We investigate all employee complaints regarding their compensation,” or “We periodically benchmark our jobs against the marketplace,” or “We annually conduct spot check “cohort analyses” of the pay of employees in several job titles to ensure they are properly paid per our compensation guidelines,” or “We periodically review our compensation and financial benefits policies  to ensure they are not-unlawfully discriminatory.”

OFCCP had approved tens of thousands of contractor AAPs that said just that. Through these audits finding either the contractors compliant (or later) finding no violations of OFCCP’s Rule, the agency approved of these limited “evaluations” of pay as consistent with OFCCP’s 60-2.17(b)(3) requirement “to evaluate” the contractor’s “compensation systems.”

The Trump OFCCP then published both a Directive interpreting OFCCP’s 17(b)(3) “compensation system” “evaluation” requirement and an FAQ then interpreting its Directive (that you may find here.) Fine and good so far. However, the Directive suddenly spoke directly to contractors—and not just to OFCCP personnel—AND took it upon itself to suggest to contractors they consider undertaking much more extensive and elaborate systemic analyses that contractors could undertake…BUT NOT requiring same. OK, so good, so far even though leading Directives in the dangerous direction of speaking directly to contractor duties.

The Trump OFCCP FAQ spoke directly to contractors (and not to OFCCP). The FAQ redirected contractors to the hortatory advice (the “Helpful Hints from Heloise”) OFCCP had set out in its Directive:

“OFCCP does not dictate a particular method of analysis for meeting this regulatory requirement [referring to the 60-2.17(b)(3) requirement]; however, contractors may find the principles discussed in DIR 2018-05 useful in developing self-audits.” (Ok, still good so far).

Ah, but then the other shoe dropped. No sooner than the Trump OFCCP Director was out the door, Biden OFCCP officials in public presentations began advising contractors that OFCCP’s 17(b)(3) “evaluation” meant that the Contractor had to not only undertake a review of every compensation system, but every compensation decision made. Then, in OFCCP audits contractors began to receive demands that they undertake comprehensive systemic reviews of every compensation decision.

So, you see the embroidery and the creep from a mere “suggestion” to an audit-based “requirement.” In the new post-Chevron world, OFCCP’s interpretation would immediately fail in court as not a reasonable or fair interpretation of the Congressional will or intent, let alone of its Rule, as published. Indeed, without a Rule change, OFCCP’s 20+ year interpretation of the 60-2.17(b)(3) requirement as reflected in OFCCP audit resolution documents entirely belies OFCCP’s current interpretation.

Conclusion: That is enough for this writing. We will leave to another day the much more fascinating “money issue” of OFCCP’s linguistic gymnastics to try to make the word “Applicant” mean something far different and broader than what Title VII says it is. Have you seen them stretch taffy at Coney Island? Think about that for a bit….

THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.