District Court Sides With DOL in Dispute Over Whether Healthcare Providers Are Government Contractors

by BakerHostetler
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In a significant victory for the U.S. Department of Labor (DOL), the U.S. District Court for the District of Columbia recently found providers of healthcare services are subject to federal equal employment opportunity mandates applicable to government contractors and subcontractors even though the intent of the contract seemed to be not to treat the hospital as a government subcontractor. The decision, if it stands, will give the DOL a free hand to enforce the equal employment opportunity mandates against certain healthcare providers through the Office of Federal Contract Compliance Programs (OFCCP).

The plaintiffs, hospitals affiliated with the University of Pittsburgh Medical Center (UPMC), provide medical services to federal government employees through a contract between the UPMC Health Plan, an HMO, and the Office of Personnel Management (OPM). The DOL concluded that, by virtue of that contract, the hospitals were federal government subcontractors and, in view of that status, they must comply with the equal employment opportunity mandates: they must take affirmative action to hire and retain employees without regard to race, color, religion, sex or national origin, and they must submit to compliance audits conducted by the OFCCP.

The case made its way to the district court after the hospitals refused to provide information requested by the OFCCP and enforcement proceedings were brought before the DOL's Administrative Review Board (ARB). The DOL claimed that the OFCCP's authority was established by Executive Order 11246, by § 503 of the Rehabilitation Act of 1973, 29 USC § 793 (Rehabilitation Act) and by the Vietnam Era Veterans' Readjustment Assistance Act of 1974, 38 USC § 4212 (VEVRAA). After the ARB sided with the DOL and ordered UPMC to comply with the OFCCP audit request, UPMC challenged the proceedings in district court. The court issued its decision on cross-motions for summary judgment.

In arguing that UPMC was a government subcontractor, the DOL relied on its own regulations, under which equal employment opportunity mandates are deemed a part of nonexempt government contracts and subcontracts. UPMC argued that it was expressly exempted from government contractor status under the language of the contract between UPMC Health Plan and the statutes invoked by DOL; these statutes covered contracts for "personal property," clearly not at issue, and for "nonpersonal services." UPMC contended that medical services were personal services and thus excluded from coverage.

The court, which accorded a high level of deference to the DOL's interpretation of its own regulations, rejected each of UPMC's arguments. DOL regulations require that the equal opportunity mandates in the statutes and executive order must be read into any covered government contract or subcontract, even if they are not expressly incorporated into the contracts.

In addition, the DOL argued, and the court agreed, that the reference to "nonpersonal services" was intended only to exclude situations where the government entity would have an employer-employee relationship with the individuals providing the services. In support of this conclusion, the court looked to the definition of "subcontractor" contained in the Federal Acquisition Regulations, which define a personal services contract as creating an employer-employee relationship between the government and the contractor's employees.

The effect of the district court's decision may be quite broad. The DOL already is trumpeting it on its website as confirming its authority over healthcare providers such as UPMC. And beyond having to comply with OFCCP audits and adopting affirmative action plans, government contractors subject to OFCCP jurisdiction are required under a separate executive order to post notices of employee rights under the National Labor Relations Act. For further details regarding Executive Order 13496, which requires the posting of the notices, please refer to the Executive Alert titled "DOD, GSA and NASA Issue Final Rule Requiring Posting of Employee Rights Under the NLRA."

One troubling fact is that UPMC's agreements with the UPMC Health Plan predated the contract between UPMC Health Plan's contract with OPM. But because the hospitals had subsequently renegotiated their agreements with UPMC Health Plan, the equal employment opportunity mandates became part of the subcontract at that time, even though the hospitals likely were unaware that they were subject to them. This raises the specter that healthcare providers may not know of their government contractor status, although the court's decision makes clear that healthcare providers may not negotiate that away.

Healthcare providers with questions about the impact of this decision are well advised to consult with legal counsel. For more information, please contact Ellen Shadur Gross, egross@bakerlaw.com or 310.442.8816; or any member of the BakerHostetler Healthcare Industry Team.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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