Thursday, August 3, 2023: OFCCP Announced “Pre-Enforcement Notice & Conciliation Procedures” Final Rule Ending Agency Transparency in Audits And Clear Expectations
Discrimination settlement negotiations now expected to return to “Pig-in-a-Poke” poker game-style bluffing sessions
OFCCP announced its highly controversial Final Rule on “Pre-Enforcement Notice & Conciliation Procedures” – a/k/a the “PDN Rule” with PDN standing for “Pre-Determination Notice” – on Thursday and published it in the Federal Register the following day. This Final Rule substantially modifies the reform procedures and standards OFCCP has been using since 2020 when issuing pre-enforcement notices and engaging in the conciliation process regarding the agency’s claim that a federal contractor engaged in unlawful discrimination.
What did contractors lose with OFCCP’s gutting of the 2020 PDN Rule?
The 2020 PDN Rule had been one of the most important reforms of OFCCP audit procedures that occurred during the Trump Administration. The Rule was perhaps the cornerstone of the Trump OFCCP’s reforms seeking to bring transparency and predictability of OFCCP enforcement actions to federal contractors undergoing audits spiked with OFCCP claims the contractor unlawfully discriminated. The 2020 Rule fostered transparency to contractors by requiring OFCCP to provide information to them as to the factual and legal basis(es) for any claim OFCCP put forward alleging that the contractor had engaged in unlawful discrimination.
Second, OFCCP’s disclosure had to be sufficiently detailed to not only put the contractor on specific notice of the facts supporting each element of proof OFCCP claimed it could prove in support of one or more legal theories of unlawful discrimination, but also with sufficient detail and underlying data to allow the federal contractor to replicate OFCCP’s statistical and evidentiary analyses leading to the agency’s conclusion that the contractor had engaged in unlawful discrimination.
The now rescinded 2020 PDN Rule had also fostered predictability by defining for both OFCCP and for the federal contractor undergoing the audit how OFCCP would interpret key discrimination terms set out in OFCCP’s regulations. Those Rules at 41 CFR 60-1.3 only generally outline OFCCP’s requirements to go forward with what OFCCP’s Rules refer to as “qualitative” and “quantitative” evidence of unlawful discrimination. (Scroll down to the “Q” section of OFCCP’s alphabetical list of definitions pertaining to its Rules.)
With the demise of the central guts of the 2020 PDN Rule, federal government contractors are now back to being forced to guess at what proof, what data and what analyses have concerned OFCCP and what discrimination law claim the agency believes these secret elements of proof support.
Many leaders of the Affirmative Action federal contractor community immediately privately decried the new Rule. All worried that OFCCP audits would return to the “bad old days” of the Obama OFCCP in which audits were like poker games with federal contractors guessing what “cards OFCCP held in its hand” to prove the agency’s conclusory and bald claims of unlawful discrimination.
Others worried, too, that with no new announcement interpreting the type, volume and quality of (“quantitative” and/or “qualitative”) proof OFCCP would have to pony up in audits alleging discrimination, it was again going to be the “Wild West” in OFCCP audits. Definitions of the legal proof OFCCP feels obligated to adduce will change audit to audit, OFCCP Region to OFCCP Region…and even within Region if the past (before 2020) is prologue.
And OFCCP’s articulated reason for withdrawing its 2020 defitnitions as “too complex” (as Acting Director Hodge argued in her Blog, noted below, accompanying the Final Rule’s publication) left all wondering what definitions OFCCP would now follow? If the written definitions were too complex for OFCCP Compliance Officers, what will they now use to guide them in audits? OFCCP’s Final Rule made no reference to new more simple definitions. Nor did OFCCP’s final Rule make reference to training OFCCP compliance personnel as to how to go forward in the absence of any definitions of the proof they now need to put forward in audits. Clearly contractors will see the definitions bleed out audit-by-audit. That de-centralized architecture brings with it all the confidence such a helter-skelter design deserves that OFCCP will apply homogenous definitions and applications to its coming interpretations of OFCCP’s “complex” discrimination proof requirements across nearly all 50 OFCCP field offices.
Others also worried that OFCCP was increasingly losing its stature as a neutral enforcement agency (“Switzerland”) diligently applying the laws it enforces to the facts it found during its audits. Rather, their worry was that OFCCP was instead increasingly adopting the widely decried regulatory and policy path of the National Labor Relations Board (“NLRB”). NLRB policies and procedures vary with the political party sitting in the White House with rules and procedures to be applied in Democrat Administrations and different ones to be applied in Republican Administrations.
Federal courts and employers for decades now have decried the NLRB’s “flip-flop” approach to policies interpreting the law the NLRB enforces: the National Labor Relations Act (“NLRA”). The constantly changing interprations of the NLRA, they fear, make a mockery of the intent the Congress infused into the NLRA when it passed it in 1935. Many federral courts have just plain refused, as a result, to give much, if any, “deference” to NLRB case decisions yet again interpreting anew the NLRA because of a change only in the composition of the NLRB’s political leadership without any corresponding change in most portions of the now almost 90-year-old NLRA.
OFCCP Speaks
According to OFCCP, this Final Rule “strengthens the agency’s enforcement by rescinding the evidentiary standards and definitions codified in 2020 (“the 2020 Rule”), which hindered the agency’s ability to pursue meritorious cases.” The agency also noted that the new Final Rule now returns OFCCP and federal contractors to the processes and standards under which OFCCP and contractors operated for many years before 2020. NOTE: These are the old Obama OFCCP unwritten “Pig-in-a-Poke”/”poker game” negotiation processes nearly every federal contractor found unacceptable.
OFCCP also maintains that the PDN Final Rule will institute a streamlined, effective, and flexible pre-enforcement and conciliation process that promotes greater consistency with Title VII of the Civil Rights Act of 1964. Several federal contractor thought leaders could not restrain their laughter upon reading that passage and just shook their heads in disbelief.
The Rule is scheduled to take effect on Tuesday, September 5, 2023.
The agency set up a landing page with a link to the Final PDN Rule and links to:
OFCCP Retained Some Provisions of the 2020 Rule
OFCCP explained that the final rule does retain some provisions from the 2020 rule that will provide additional certainty and efficiency for contractors during the course of compliance evaluations.
First, the final Rule retains the requirement that OFCCP will issue a Predetermination Notice and Notice of Violation to contractors in all matters in which the agency has made preliminary findings of potential discrimination and findings of discrimination, respectively.
NOTE: The whole point of a PDN was to pour deep content about OFCCP’s proof of unlawful discrtimination into it so the contractor could have a meaningful opportunity to rebut, if it could. With the OFCCP transparency components of the 2020 PDN Rule now removed, there is no utility for a PDN which distinguishes it from an OFCCP Notice of Violation “NOV”. OFCCP has now only kept the name of the PDN Rule while gutting its purpose and substance that formerly distingushed it from an NOV. (NOVs are crisp documents which only briefly identify the allegations being alleged, almost bullet-point style).
Second, the final OFCCP Rule published last week retains the early resolution provisions allowing OFCCP and the contractor to resolve identified issues without the need for OFCCP to issue a Predetermination Notice and Notice of Violation if the contractor so chooses.
Final Rule Largely Adopts Provisions of the Proposed Version
The Final PDN Rule adopts most of the revisions outlined in the proposed version, with some minor adjustments. The agency summarized those changes to its March 2022 proposal as follows:
“First, the final rule replaces the term ‘indicators of discrimination’ with ‘preliminary findings of potential discrimination’ to describe what is necessary in order to issue a Predetermination Notice. […] Second, consistent with OFCCP’s longstanding practice and the 2020 rule, the final rule includes a clarification that the agency may issue a Show Cause Notice without first issuing a Predetermination Notice or Notice of Violation when the contractor has failed to provide access to its premises for an on-site review, or refuses to provide access to witnesses, records, or other information. Finally, the proposed language in the regulation on Predetermination Notices stated that if there was insufficient rebuttal evidence to the Predetermination Notice, the agency would ‘proceed with its review.’ The final rule makes two minor clarifications. It first adds language to clarify that OFCCP’s determination on whether there was sufficient rebuttal evidence would be determined by the contractor’s response and any additional investigation undertaken by the agency, to clarify that the agency may conduct an additional investigation after issuing the Predetermination Notice and as a result of the contractor’s response to the Predetermination Notice. It also amends this provision to clarify that it will proceed ‘to issue a Notice of Violation,’ which is the intended, more specific meaning.”
Acting Director Asserted Final Rule Allows for Flexibility & Strategic Use of OFCCP Resources
Michele Hodge, OFCCP’s Acting Director said in a statement that the Final PDN Rule will allow the agency “to use [its] resources more strategically.”
How We Got Here
The Trump-era OFCCP published the 2020 Rule – “Nondiscrimination Obligations of Federal Contractors and Subcontractors: Procedures To Resolve Potential Employment Discrimination“ – on November 10, 2020. (See our story on the November 2020 Final Rule here). The 2020 Rule took effect on December 10, 2020.
On March 22, 2022, OFCCP published its Notice of Proposed Rulemaking (“NPRM”) to change the 2020 Rule in the Federal Register. Shortly after its publication, John Fox discussed the NPRM in a bonus blog, “OFCCP’s Proposed NPRM Walks Backwards Promising Less Transparency in Audits and Unknown, But Different (to come), Evidentiary Standards in Discrimination Investigations.” The NPRM comment period closed on April 21, 2022, and OMB received twelve comments.
OFCCP submitted the Final Rule to the White House Office of Management and Budget (“OMB”) for approval on December 21, 2022.
OMB then approved the Final Rule on April 5, 2023.
Two months later in its June 15, 2023 Spring 2023 Regulatory Agenda, the U.S. Department of Labor set the target date for publication of the Final Rule to occur momentarily thereafter– in the two weeks after the Department published its Spring 2023 Regulatory Agenda. The then ensuing 6-week delay in getting the Rule published in Final only last week is yet another sign of the caution the Biden White House exercized in June and July as it mounted one last push to get Julie Su confirmed as the next Secretary of Labor. Substantive transactions at USDOL almost came to a standstill while Julie Su awaited a possible confirmation vote. The White House did not want to risk publishing a Rulemaking, like the Final PDN Rule, that could offend a United States Senator then “on-the-fence” as to whether to vote to confirm Julie Su. Now that the Senate has declined to even schedule a vote for her nomination, let alone confirm her, the reality of Julie Su’s failed run at the Secretary of Labor job is now setting in. USDOL is thus now settling in given this new awkward development, getting back to business and proceeding ahead.
Expect many other USDOL Proposed Rules otherwise ripe to go to Final, to do so in the next three months.