OFCCP Week In Review: March 2020

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The DE OFCCP Week in Review (WIR) is a simple, fast and direct summary of relevant happenings in the OFCCP regulatory environment, authored by experts John C. Fox, Candee Chambers and Jennifer Polcer. In today’s edition, they discuss:

  • 2019 Labor Force Characteristics
  • Are They My Employees? NLRB Issued Final Rule Defining Joint-Employer Status Under the NLRA…And The Unions Are Not Going To Like It
    • Bonus Feature: Overview of the Trump Administration’s Government-Wide Redefinition of Who is a Joint-Employer
  • The 9th Circuit Talks about Sex and Biased Factors in Equal Pay Act Claims
  • Update to February 21, 2020 Story: New Boss in Town, Same as the Old Boss: Secretary of Labor Scalia’s Order 01-2020 Allows Secretary of Labor to be Final Arbiter of the Department of Labor’s Decisions

Wednesday, February 26, 2020: 2019 Disability Labor Statistics Released

The Bureau of Labor Statistics released the 2019 Labor Force Characteristics Summary for Persons with a Disability. The report indicates that the annual unemployment rate for Americans with disabilities dropped to a record low of 7.3% in 2019 and that 19.3% of persons with disabilities are employed.

2019 Data Highlight

  • Half of all persons with a disability are age 65 and over, about three times larger than the share of those with no disability.
  • Across all educational attainment groups, unemployment rates for persons with a disability are higher than those for persons without a disability.
  • 32% of workers with a disability are employed part-time, compared with 17% for those with no disability.
  • Employed persons with a disability are more likely to be self-employed than those with no disability.

The U.S. Department of Labor’s Office of Disability Employment Policy (ODEP) sponsors the data collection on persons with a disability through the Current Population Survey (CPS). The survey is a monthly sample of about 60,000 households that provides statistics on employment and unemployment in the United States.

Wednesday, February 26, 2020: Are They My Employees? NLRB Issued Final Rule Defining Joint-Employer Status Under the NLRA…And The Unions Are Not Going To Like It

Continuing the Trump Administration’s rollback of the Obama Administration’s expansions of the reach of the National Labor Relations Act (NLRA) , the National Labor Relations Board (NLRB) issued a Final Rule on the standard for determining joint-employer status. While incorporating some changes in response to those commenting on the Proposed Rule the NLRB issued on September 14, 2018, (we discussed the Proposed Rule in our September 17, 2018 WIR), the language of the Final Rule should not be surprising to those who read our December 16, 2019 story, discussing the NLRB’s decision in McDonald’s USA, LLC, a joint employer, et al., 368 N.L.R.B. No. 134 (2019).

Specifically, the Final Rule rejects the Obama NLRB’s joint employer standard which followed from the litigation involving Browning-Ferris Industries of California, Inc. dba BFI Newby Island Recyclery, 362 N.L.R.B. 1599 (2015). In Browning-Ferris, the NLRB had ruled that a company could be deemed a joint-employer even if its control over the essential working conditions of another employer’s employees was indirect, limited and routine, or contractually reserved but never exercised (perhaps via a vendor contract or via a franchise agreement).

The union concern in these kinds of business arrangements is that the union cannot effectively bargain about the terms and conditions of employment with a vendor company or a franchise operator (when those terms are controlled indirectly by a vendor company’s contract with its customer or a franchisee’s agreement with its franchise owner). Browning-Ferris, supra, 362 N.L.R.B. at 1613-14. The NLRB’s Final Rule, set to go into effect on April 27, 2020, instead establishes that an entity is a joint-employer of a separate employer’s employees only if the two employers “share or codetermine the employees’ essential terms or conditions of employment.” 85 FR 11184, 11235 (February 26, 2020).

In response to commenters seeking clarification, the NLRB modified the Proposed Rule to define “share or codetermine” in the Final Rule as possession and exercise of such “substantial direct and immediate control over one or more essential terms or conditions of their employment as would warrant finding that the entity meaningfully affects matters relating to the employment relationship with those employees.” Id. To ensure further clarity, the Final Rule specifically defines relevant terms of art used in the preceding joint-employer definition as follows:

  • “Substantial direct and immediate control” is “direct and immediate control that has a regular or continuous consequential effect on an essential term and condition of employment.” at 11236. Thus, an entity’s actions are not substantial if the entity exercises its control only on a sporadic, isolated, or de minimis basis. Id.
  • An “essential term and condition of employment” is explicitly limited to “wages, benefits, hours of work, hiring, firing, discipline, supervision, and direction.” No other aspect of employment would constitute an essential term and condition of employment.

The Final Rule overrules the holding of Browning-Ferris, by among other things, greatly limiting the value of indirect or contractually reserved control which is not exercised. Rather, the Final Rule identifies such indirect or contractually reserved control as being factors in joint-employer analyses, but “only to the extent they supplement and reinforce evidence of the entity’s possession or exercise of direct and immediate control over a particular essential term and condition of employment.” In other words, a party asserting joint-employer status can use indirect control evidence to buttress its argument that joint-employer status exists; but importantly, such indirect evidence, by itself, is insufficient to establish joint-employer status.

The Final Rule further narrows the impact of the Browning-Ferris ruling by redefining what constitutes “indirect control,” “contractually reserved but never exercised control,” and “limited and routine control.” First, the “indirect control” and “contractually reserved but never exercised control” must be related to an essential term and condition of employment to be a relevant factor in buttressing evidence of possession or exercise of direct and immediate control. Thus, control related to one or more matters involving the objectives of the contract, basic ground rules, and expectations for a third-party (i.e., the “routine components” of a company-to-company contract) are irrelevant, such as setting minimal hiring standards, minimal standards of performance or conduct, refusing to allow another employer’s employee to continue performing work under a contract, entering into a cost-plus contract, maintaining standards that are required by government regulation, and permitting another employer to participate in its benefit plans.

Second, the Final Rule deletes “limited and routine” control as a general qualifying term to determine whether an entity shared or codetermined an employee’s essential term and condition of employment. Instead, the new definition of control applies only when an entity substantially controls the supervision of employees (since supervision is an essential term and condition of employment). Thus, the Final Rule completely disregards “limited and routine” control as even being a factor that could buttress evidence of an entity’s possession or exercise of direct and immediate control.

What does it all mean?

It means that a party asserting joint-employer status against an entity must put forward evidence of actual control over an employee’s wages, benefits, hours of work, hiring, firing, discipline, supervision, and direction. Evidence of only indirect control (i.e., via a vendor company’s or a franchisee company’s contractual obligations with the vendor’s customer company or with the franchisee’s franchisor) is not evidence of “actual control.” Thus, a company enforcing the terms of its contract with a vendor company or with a franchisee company (the companies which employ the employees of interest) as to what work should be performed, and the timeline during which the work must be completed, is not exerting control over a vendor company’s or franchise’s employee’s wages, benefits, hours of work, hiring, firing, discipline, supervision, or direction.

Additionally, an entity offering criticism or input as to the performance of the vendor or franchisee under the contract, including how a vendor’s or franchise’s employees satisfy the terms of the company-to-company contract, is not exerting direct and substantial control over essential terms or conditions of employment. Rather, in practice, it is only when the entity involves itself in the day-to-day aspects of an employee’s employment (the employee’s specific work schedule, rate of pay, doing the actual hiring or firing of a specific employee, or actually completing an employee performance evaluation) does that entity become a joint-employer under the NLRB’s Final Rule.

Thursday, February 27, 2020: The 9th Circuit Talks about Sex and Biased Factors in Equal Pay Act Claims

The U.S. Court of Appeals for the Ninth Circuit (San Francisco) drove the first nail in the coffin regarding a prospective employer’s desire to use an applicant’s prior salary history to set current pay. (The Court did not strike down, however, the use of employer inquiries about prior pay, as noted below). In Rizo v. Yovino, Case No. 16-15372 (9th Cir. February 27, 2020), the Ninth Circuit issued an en banc decision holding that an employer may not use a worker’s prior pay history as an affirmative defense under the Equal Pay Act justifying unequal compensation rates between female and male employees performing the same type of work.[1]

While many believe this issue has been decided by the Courts, this is actually one of the first Courts to address the issue, and the very first to hold that “prior pay” is NOT a “factor other than sex” (one of the Equal Pay Act’s four defenses which otherwise allow sex-based compensation) because this defense allows and requires only “job related” employer considerations. See below. The decision does not address Title VII standards and specifically notes that the analysis is different under Title VII. Also, The Equal Pay Act only protects men and women from sex-based decision-making in the workplace but does not protect minorities generally, as does Title VII, against unlawful national origin, color or religious discrimination.

In Rizo, plaintiff Aileen Rizo alleged a violation of the Equal Pay Act (as well as sex discrimination claims under Title VII and California’s Fair Employment and Housing Act—which were not at issue in this decision). Ms. Rizo brought her claim after working at the County for several years and then discovering by chance that her pay, as a math teacher, was less than the pay of male math teachers in the Fresno County Office of Education. She further discovered that this was true despite the fact she had more education and experience than her higher-paid colleagues. (The County did not dispute those facts and agreed Ms. Rizo was more qualified than her male comparators). The County argued that its policy of setting employees’ wages based on the employees’ prior pay with other employers was premised on “a factor other than sex,” and as such was a valid affirmative defense to an Equal Pay Act claim.[2] Rizo alleged that the use of prior pay to set prospective wages, by its nature, perpetuates the gender-based pay gap that allegedly continues to exist in America to continue indefinitely.

In considering the County’s defense, the Ninth Circuit broke new legal ground in the country by holding that the Equal Pay Act’s allowance for pay differentials due to “any other factor other than sex” was meant to be limited to “job-related” factors for two independent reasons:

  1. the fact that the other three affirmative defenses to the Equal Pay Act clearly pertained to “job-related” factors meant that the court should interpret the “any other factor other than sex” language to also encompass only “job-related” considerations; and
  2. the Second, Fourth, Sixth, Tenth, and Eleventh Circuit Courts of Appeal have held that the “any other factor other than sex” affirmative defense is limited in scope and does not encompass an unlimited number of exceptions as the Seventh Circuit Court of Appeals uniquely believes. Thus, the question is not whether the County’s use of prior pay is a “factor other than sex,” but rather whether a person’s prior pay history is a “job-related factor other than sex.”

As to that question, the Ninth Circuit held that a person’s prior pay history is not a job-related factor other than sex because:

  1. a person’s pay history is irrelevant to his or her current employment given that prior pay relates to a completely different job; and
  2. the Court assumed historically lower pay for women exists in the same jobs and concluded from that assumption that such lower pay is perpetuated if employers rely upon prior pay to set current pay. And, given that assumption, an employer is unable to meet its burden to show that sex plays “no role” in the wage disparity. Given the foregoing, the Ninth Circuit affirmed the District Court’s denial of the County’s Motion for Summary Judgment on Rizo’s Equal Pay Act claim, and remanded the case to the District Court for trial on Ms. Rizo’s Equal Pay claim, along with her Title VII and California state law claims.

There are several points to take away from the Rizo decision going forward:

  • First, employers should already be cautious when using a candidate for hire’s prior work history to hire and to set compensation levels. In the last few years alone, dozens of states and cities have begun banning salary history inquiries in job interviews to combat pay disparities believed to be based on sex. Indeed, thanks to the long history of the Rizo litigation, Fresno County does not have to worry about proactively analyzing the ruling’s future impact since the County eliminated in 2015 the very salary history-based pay structure at issue in Rizo.
  • Second, this is not to mean that employers may never use prior pay history in employment decision. Indeed, the Ninth Circuit specifically noted that its ruling does not prevent employers from inquiring about and considering a person’s prior pay history for other purposes.[3] Furthermore, five of the 11 judges in Rizo concurred with the majority in Rizo, even while writing that the majority went too far to hold that prior salary history can never be used as a defense in an Equal Pay Act lawsuit (though they all joined in affirming the District Court’s denial of the County’s Motion for Summary Judgment in this case, given Fresno County provided no other basis for its salary decision other than Rizo’s prior pay history alone). Nonetheless, the word of the day for employers using prior pay history is “Caution.” If an employer insists on using prior pay to set current pay, those employers will have to do so in jurisdictions which do not prohibit the practice and which are outside the Ninth Circuit (although this case could go up to the U.S. Supreme Court given the continuing confusion among the Circuit Courts about the scope of the Equal Pay Act’s “factors other than sex” affirmative defense. At the same time, this case decision is not an ideal case for Supreme Court review given that it is the first to hold prior pay can never fit within the “factors other than sex” defense).
  • Third, the Court’s ruling in Rizo has no impact on whether Title VII, and thus by extension OFCCP’s nondiscrimination requirements for federal Government contractors, prohibits use of prior pay to set current pay. The Equal Pay Act is a “strict-liability” statute; there is no requirement for a plaintiff to show any discriminatory intent on the part of the employer. (The Equal Pay Act flatly says that if there is a difference (i.e. any difference…of even a penny) between the pay of similarly situated men and women, the burden shifts to the employer to explain that difference away using one of the Act’s four affirmative defenses). As such, the analysis under Title VII law (which OFCCP relies upon in evaluating federal Government contractors’ compliance with their nondiscrimination requirements) is fundamentally different from the analysis under the Equal Pay Act. As the Ninth Circuit succinctly put it, Equal Pay Act claims require just two steps to determine whether a violation exists (plaintiff bears the burden to establish a prima facie showing of a sex-based wage differential, and if successful, the burden then shifts to the employer to show an affirmative defense). Title VII analyses, on the other hand, place the additional burden on a plaintiff to show that any legitimate non-discriminatory reason(s) for any adverse action the employer puts forward is pre-textual (i.e. false).
  • The Ninth Circuit’s ruling in Rizo is limited to the conclusion that prior pay history is not an affirmative defense to an Equal Pay Act violation (which is why the decision undertakes no analysis as to Rizo’s Title VII and California state Fair Employment and Housing Act claims). Employers may therefore thus far continue to rely on prior pay history to defend compensation discrimination claims OFCCP may allege based on compensation analyses during Compliance Evaluations, unless that use is fueled by discriminatory intent or creates a Disparate Impact on one or more Protected Groups absent a legitimate need for the business to have that impact.

[1] An en banc decision means it is a decision of the “full” court; the U.S. Circuit Court of Appeals generally hear and rule on appeals from U.S. District Courts as part of a “panel” initially (less than the full number of judges sitting on the Circuit Court of Appeals), after which a majority of the judges may decide to hear or rehear a case en banc. Uniquely, because the Ninth Circuit Court of Appeals has 29 judges in total due to the size of the geographical area the Ninth Circuit covers, Ninth Circuit rules allow an en banc hearing with as little as 11 judges. This is why recent Trump Administration appointments meant to “moderate” the Ninth Circuit’s more liberal tendencies had little impact, if any, on the holding in Rizo; not only because of the reduced number of judges sitting en banc on the ruling, but also because the recency of most of the Trump appointments have precluded them from “ramping up” to full caseloads so as to be able to have a greater impact on the court until 2021 at the earliest. See Los Angeles Time Article for more details.

[2] The Equal Pay Act was enacted as an amendment to the federal Fair Labor Standards Act, and prohibits an employer from paying wages to employees at a rate less than the rate at which the employer pays wages to employees of the opposite sex for equal work. The statute identifies four exceptions to the equal pay requirement: (1) when payment is made pursuant to a seniority system; (2) when payment is pursuant to a merit system; (3) when payment is pursuant to a system which measures earnings by quantity or quality of production; or (4) when the pay differential is based on any other factor other than sex.

[3] However, the Ninth Circuit’s example of a legitimate use of prior pay history (during negotiation of job offers) seems to run contrary to the very reasoning the Ninth Circuit relied upon in rejecting prior pay history as a factor other than sex, since negotiation of job offers is the type of market force that could result in unequal comparable pay. For example, if Susan negotiates for $10/hour, but Bob is only willing to negotiate as low as $13/hour, doesn’t hiring both create the very disparity the Ninth Circuit seeks to prevent? See Rizo, Case No. 16-15372 at pp. 13, 21 (the Rizo court noted with approval the U.S. Supreme Court’s reasoning in Corning Glass Works v. Brennan, 417 U.S. 188, 190 (1974), that “market forces” is too broad a term that could lead to improper justifications for unequal pay for comparable work).

Update to February 21, 2020 Story: New Boss in Town, Same as the Old Boss: Secretary of Labor Scalia’s Order 01-2020 Allows Secretary of Labor to be Final Arbiter of the Department of Labor’s Decisions

Secretary of Labor Eugene Scalia stamped his imprint on the U.S. Department of Labor (USDOL) by substantially altering the process by which USDOL determines its final decision on a wide range of labor and employment cases heard by the department’s Administrative Review Board (ARB).[4] Specifically, since the ARB’s creation in 1996 when then-Secretary of Labor Robert Reich delegated the Secretary of Labor’s authority to issue final decisions on certain labor and employment matters to the ARB, the ARB has served as the DOL’s final decision-maker and arbiter on claims brought to the DOL…as a delegate of the Secretary.

However, with the concurrent publication of Secretary Scalia’s 01-2020 Order, and USDOL’s newly available Direct Final Rule regarding discretionary review, and USDOL’s newly available Notice of Proposed Rulemaking regarding discretionary review, Secretary Scalia has placed authority back with the Secretary of Labor and provided that he, and all subsequent Secretaries of Labor, shall have discretion to issue the final decision of the DOL regarding matters the ARB decides in the first instance. With power to issue USDOL’s final decision resting once again with the Secretary of Labor, Secretary Scalia has reinstated the practice that existed before creation of the ARB.

Secretary Scalia’s Order 01-2020, effective immediately, establishes the process by which the DOL takes final action on a matter before the DOL. Specifically:

  • The ARB retains jurisdiction to sit, hear, and render decisions on appeals from Recommended Decisions and Orders Administrative Law Judges (the “trial” judges) issue within USDOL. The ARB shall sit, hear cases, and render decisions in panels of two or three Members; unless the Chair of the ARB specifically directs that a review shall be decided by the whole ARB, or the parties request disposition by a single Member that the Chair approves.
  • Generally, a decision of the ARB shall become the final action of USDOL after the passage of 28 calendar days from the date the ARB issues its decision.
  • HOWEVER, there are two ways by which a Secretary of Labor may review an ARB decision before it becomes final: either a party to the case files a petition with the ARB requesting further review by the Secretary of Labor within 14 calendar days of the ARB’s issuance of a decision and the ARB rules in favor of the petitioning party for Secretary of Labor review, or the Secretary of Labor at his or her own discretion directs the ARB to refer the ARB decision to the Secretary of Labor for review within the 28 calendar days before the ARB’s decision becomes final.

Thus, any petition to the ARB for further review by the Secretary of Labor acts like an additional appeal within the DOL. First, the party requesting further review must file such request within 14 calendar days, and has a maximum 15-page limit in which to provide a statement of the legal issue or issues for which the party is seeking review, and why the case involves a matter of exceptional importance requiring review by the Secretary of Labor. Any opposition to the request for further review may be filed within 10 calendar days after filing of the petition, and must also not exceed a 15-page limit.

The ARB may then render a decision whether further review by the Secretary of Labor is appropriate within 21 calendar days of the date on which the petition was filed. However, even if the ARB rules in favor of the petition and determines the Secretary of Labor should further review the ARB’s decision, the Secretary of Labor may decline, accept, or take no action on the ARB’s referral. Should the ARB rule against the petition for further review, or the Secretary of Labor declines to take on review despite the ARB’s decision to grant the petition, the ARB decision becomes final. Furthermore, if the Secretary of Labor decides to do nothing on the ARB’s referral, then the ARB’s decision is the final decision of USDOL within 28 calendar days after the filing of any petition requesting further review.

If the Secretary of Labor does undertake review of an ARB decision, the ARB shall notify the parties in writing and supply the Secretary of Labor with the administrative record and all petitions and briefs filed by the parties. The Secretary of Labor’s decision and review of the matter shall be limited to the administrative record, all petitions and briefs filed by the parties, and any amicus briefs the Secretary of Labor may accept for consideration. The Secretary of Labor’s decision shall be in writing and transmitted to the ARB for the ARB to publish and transmit to the parties.

The Direct Final Rule, and the contemporaneous Notice of Proposed Rulemaking, issued by DOL merely revises the language in the relevant sections of the Code of Federal Regulations to ensure compliance with Secretary Scalia’s 01-2020 Order, and ensure references to final decisions of the ARB in the Code of Federal Regulations are modified or removed so there is no contradiction to the terms in Secretary Scalia’s 01-2020 Order.[5] In other words, the substance of the changes derive from Secretary Scalia’s 01-2020 Order.

Federal contractors should consider several different issues related to this new process:

  • Whether a Federal contractor should seek review by a Secretary of Labor as to any adverse decision by the ARB is very much a practical concern tied to the political leanings and biases of the administration in power. If the administration has a pro-labor ideology that trickles down to the Secretary of Labor in power, Federal contractors may quickly realize the attorneys’ fees and costs associated with any petition to the Secretary of Labor would be a waste of resources if the Federal contractor is appealing an adverse decision by the ARB. In other words, Federal contractors would be better served letting the ARB decision become final so the contractor may immediately appeal to the appropriate Federal District Court. Conversely, a Federal contractor may be happy to expend resources to get “another bite of the apple” from a Secretary of Labor that is pro-business before going to the court system.
  • Of troubling concern to Federal contractors is the fact that the USDOL, through its Solicitor’s Office, may now have an appellate forum for any decision that is adverse to USDOL. Historically, if a Federal contractor were to successfully defend a claim before the ARB (as rare as that has been), USDOL was foreclosed from appealing since the ARB rendered the Final decision of USDOL. However, the language of Secretary Scalia’s 01-2020 Order notes that a petition may be filed by “a party,” and thus is not limited in scope to just Federal contractors. Thus, OFCCP may now appeal to the Secretary of Labor any ARB decision favorable to the contractor or private employer.
  • Federal contractors and businesses interested in taking advantage of this new process of review before the Secretary of Labor must have their track shoes on; the entire petition process is calculated to take no more than 35 calendar days after the issuance of any ARB decision (and even 28 calendar days should the ARB deny the petition or if the Secretary of Labor decides not to undertake a review). In other words, the petition process is a sprint, not a marathon.
  • It is unclear whether the ARB, or even any Secretary of Labor, has the resources or ability to move as quickly as Secretary Scalia’s 01-2020 Order contemplates; given the ARB is already a year-plus behind schedule in issuing decisions on appeals of ALJ decisions. This added procedural responsibility may be a bridge too far for the already over-burdened and over-taxed ARB. In other words, it would not be surprising to see in practice (at least in the foreseeable future) the ARB merely deciding not to make any decision on petitions requesting Secretary of Labor review, and letting the time limits expire so that the ARB decision becomes the final decision of the DOL without any Secretary of Labor intervention. In reality, for now it is more likely than not that any Secretary of Labor review will only occur through Secretary Scalia’s use of his discretion to proactively request referral from the ARB, rather than the ARB granting any petition by a party.

[4] Secretary Scalia’s 01-2020 Order, the Direct Final Rule, and the Notice of Proposed Rulemaking alter the final decision process for both the ARB and the Board of Alien Labor Certification Appeals (BALCA), but for purposes of this WIR we will concentrate on the Order and rules’ effect on ARB decisions only.

[5] The Direct Final Rule and the Notice of Proposed Rulemaking issued by the DOL have exact mirror language of each other, so the DOL could expedite the finalization of the proposed rule. Specifically, DOL issued both concurrently so that if there is no significant adverse comment, the proposed language can go into effect immediately through the Direct Final Rule. If there is significant adverse comment, then the DOL will merely withdraw the Direct Final Rule and use the Notice of Proposed Rulemaking to address the adverse comments and proceed with the consideration of such comments. This streamlines how quickly DOL can finalize the proposed revisions to the language in the Code of Federal Regulations.

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