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 J. Chambers and Cynthia L. Hackerott. In today’s edition, they discuss:

• Court Held That Workday Was an “Agent” to Employers Licensing its AI Applicant Screening Tools: Other Bases of Potential Liability Rejected
• EEOC Commissioner Sonderling Announced His Departure
• NLRB Voluntarily Asked Fifth Circuit to Dismiss its Appeal of Lower Court Ruling That Struck Down Board’s Joint Employer Rule: Shenanigans Afoot
• Looking Ahead: Upcoming Date Reminders

Friday, July 12, 2024: Court Held That Workday Was an “Agent” to Employers Licensing its AI Applicant Screening Tools: Other Bases of Potential Liability Rejected

Case Also Narrowed to Require Workday to Defend Only Plaintiff’s “Disparate Impact” But Not Intentional Discrimination Claims

No Distinction Between AI & Human Actions, Judge Concluded

Judge Rita F. Lin of the United States District Court for the Northern District of California (San Francisco) ruled that a rejected job seeker could proceed with some, but not all, of his Title VII, ADA and ADEA claims against Workday, Inc. Significantly, Judge Lin concluded that “Workday is an ‘employer’ [subject to non-discrimination laws] based on an agency theory.”

Workday must now stand trial for unlawful hiring discrimination that employer use of Workday’s algorithm-based applicant screening, or “AI” (“Artificial Intelligence”) tools allegedly caused. “Drawing an artificial distinction between software decisionmakers and human decisionmakers would potentially gut anti-discrimination laws in the modern era,” Judge Lin wrote. The case is Mobley v. Workday, Inc. (No. 3:23-cv-00770).

The case is just beginning as the court has now decided only (a) that Workday may not be dismissed from Plaintiff Mobley’s lawsuit (b) the legal basis (“agency”) to hold Workday in the case as a defendant “employer,” and (c) which types of Mobley’s claims Workday must defend based on Plaintiff Mobley’s Complaint.

There has thus far been no finding that Workday’s software unlawfully discriminated against Plaintiff Mobley or any Jobseeker. There also has thus far been no opportunity for Plaintiff Mobley to determine what role, if any, Workday’s software played in the rejections for employment Mobley claims he suffered at the hands of Workday’s AI-based applicant screening tools in use at over one hundred companies licensing Workday’s applicant screening tools in Northern California.

What the Heck Is an “Agent” of an Employer?

Judge Lin is an elegant and efficient writer. Since we cannot do any better, here she is in full voice:

“Title VII, the ADA, and the ADEA all define the term “employer” to include “any agent of” an employer. 42 U.S.C. §§ 2000e(b), 12111(5)(A); 29 U.S.C. § 630(b). Employers cannot escape liability for discrimination by delegating their traditional functions, like hiring, to a third party. See City of L.A., Dep’t of Water & Power v. Manhart, 435 U.S. 702, 718 n.33 (1978) (“We do not suggest, of course, that an employer can avoid his responsibilities by delegating discriminatory programs to corporate shells. Title VII applies to ‘any agent’ of a covered employer.” (quoting 42 U.S.C. § 2000e(b))). Accordingly, federal appellate courts outside of the Ninth Circuit have held that an employer’s agent may be independently liable when the employer has delegated to the agent “functions [that] are traditionally exercised by an employer.” Williams v. City of Montgomery, 742 F.2d 586, 589 (11th Cir. 1984) (per curiam). “Where the employer has delegated control of some of the employer’s traditional rights, such as hiring or firing, to a third party, the third party has been found to be an ‘employer’ by virtue of the agency relationship.”  Id. (citation omitted).

Editorial Note: Plaintiff Jobseekers and Employees often sue the at-issue employer and/or its “agent” in third party supplier contexts (such as you see in the Workday software supplier context, in recruitment company contexts, and in third party vendor employment testing and background check contexts).

How We Got Here

In February, we reported that the potential lead Plaintiff in the case (Mobley), who seeks class action certification, filed an amended complaint alleging that Workday violated three federal anti-discrimination laws by providing companies with algorithm-based applicant screening, or AI tools, that allegedly discriminated against him and other similarly situated job applicants based on race, age, and/or disability. Mr. Mobley claimed that, as an African American man over the age of forty with anxiety and depression, he applied to over one-hundred jobs with companies that use Workday’s screening tools and did not receive a single job offer.

On March 12, Workday filed a motion to dismiss the amended complaint, asserting, among other arguments, that the company is not covered by the statutes at issue – Title VII, the Age Discrimination in Employment Act, and/or the Americans with Disabilities Act – because it merely screens job seekers rather than procuring them.

On April 9, the U.S. Equal Employment Opportunity Commission (“EEOC”) argued in an amicus (i.e. “friend of the court”) brief on behalf of the plaintiff that his amended complaint sufficiently pled that Workday is subject to federal anti-discrimination laws as an “employment agency,” “indirect employer,” or an “agent” of employers. (See our story here.)

Workday May be Liable Only as an “Agent” of Employers

Judge Lin dismissed Plaintiff Mobley’s claims under the “employment agency” theory but did not reach the “indirect employer” liability theory. However, she ruled that Mobley could proceed under the theory that Workday operates as an “agent” of an employer.

Liability as an employment agency and liability as the agent of an employer are not coextensive, she explained. “An entity that is liable as an employment agency is not necessarily liable as an agent of an employer or vice versa. Indeed, that is the situation here,” Judge Lin wrote.

The plaintiff did not sufficiently allege that Workday finds employees for employers, and thus, Workday was not liable as an employment agency. Nevertheless, he did plausibly allege that Workday’s customers delegated their traditional function of rejecting candidates or advancing them to the interview stage to Workday via its use of algorithmic decision-making tools. The plain language of the statutes at issue “make it unlawful for ‘any agent’ of an employer to engage in [the practices prohibited by those statutes],” she wrote.

Therefore, even where the term “agent” in the anti-discrimination statutes’ definitions of “employer” is construed to allow third-party liability, the term “employment agency” maintains its distinct meaning, Judge Lin concluded.

“Without agency liability, it appears that no party would be liable for intentional discrimination” in situations where an employer delegates to an agent tasks such as screening applicants and the employer is not aware of possible discriminatory actions made by the agent, she explained.

Whether a software vendor qualifies as an agent depends on the tasks an employer delegates to it, the judge stated. To that point, she wrote:

“Of course, many software vendors do not qualify as agents because they have not been delegated responsibility over traditional employment functions. For example, if an employer used a spreadsheet software program to sort workers by birthdate and then filtered out all applicants over the age of forty from consideration, the software vendor would not have acted as the employer’s agent for purposes of the anti-discrimination statutes, because the spreadsheet is not participating in the determination of which employees to hire. Likewise, if an employer informed applicants via email that they had been rejected, the email provider would not be an agent for anti-discrimination purposes because the email program is not participating in deciding who to refuse to hire.

By contrast, Workday does qualify as an agent because its tools are alleged to perform a traditional hiring function of rejecting candidates at the screening stage and recommending who to advance to subsequent stages, through the use of artificial intelligence and machine learning.”

AI Actions No Different Than Human Ones

As to the use of AI specifically, the judge wrote:

“Workday’s role in the hiring process is no less significant because it allegedly happens through artificial intelligence rather than a live human being who is sitting in an office going through resumes manually to decide which to reject. Nothing in the language of the federal anti-discrimination statutes or the case law interpreting those statutes distinguishes between delegating functions to an automated agent versus a live human one. To the contrary, courts […] have uniformly focused on the “function” that the principal has delegated to the agent, not the manner in which the agent carries out the delegated function.” [citation omitted]

Intentional Discrimination Claims Dismissed, But Disparate Impact Claims May Proceed

Judge Lin also ruled that the plaintiff failed to allege specific facts in his Complaint showing Workday intentionally discriminated against him. However, Plaintiff Mobley did sufficiently allege his claims under the “disparate impact” theory of unlawful discrimination.

Monday, July 15, 2024: EEOC Commissioner Sonderling Announced His Departure

Via a LinkedIn post, Commissioner Keith Sonderling announced that he will leave his position at the U.S. Equal Employment Opportunity Commission (“EEOC”) in August. He stated that he will “return to the private sector in the fall.” Mr. Sonderling joined the Commission in September 2020 (see our story here.) Immediately prior, he served as the Acting and Deputy Administrator of the U.S. Department of Labor’s Wage and Hour Division.

During his tenure, Commissioner Sonderling took a leading role in discussing the impact of artificial intelligence (“AI”) on the hiring and recruitment of workforces. (See our related story here.) In 2022 and 2023, Commissioner Sonderling also appeared as a featured speaker at DE’s annual DEAMcon (see our stories here and here on those presentations). 

The EEOC’s bi-partisan structure consists of five Commissioners with annually expiring five-year appointments. This allows a U.S. President, over the tenure of his/her Presidency, to appoint up to three Commissioners of the President’s political party. Upon Sonderling’s departure, the Commission will consist of:

• Current Chair Charlotte Burrows (D), whose third term will expire July 1, 2028;
• Current Vice-Chair Jocelyn Samuels (D), whose second term expires July 1, 2026;
• Andrea R. Lucas (R), whose first term expires July 1, 2025; and
• Kalpana Kotagal (D), whose first term expires July 1, 2027.

Sonderling’s departure will not affect the existing Democrat control of the Commission. It will simply migrate from the current 3 Democrat (majority) with two Republican sidecars to 3 Democrats and one Republican.

President Biden has not yet announced his choice of nominee to fill the Republican slot Sonderling will vacate once he leaves the Commission. Do not hold your breath for that to happen in this Congress. Rather, whoever the next President is will attend to this appointment in due time sometime AFTER January 20, 2025 (Inauguration Day).

Friday, July 19, 2024: NLRB Voluntarily Asked Fifth Circuit to Dismiss its Appeal of Lower Court Ruling That Struck Down Board’s Joint Employer Rule: Shenanigans Afoot

In a surprise move, the U.S. National Labor Relations Board (“NLRB”) filed a motion asking the U.S. Court of Appeals for the Fifth Circuit (New Orleans) to allow the Board to withdraw its appeal of a lower court ruling that vacated the NLRB’s finalized joint employer Rule. The Board said it sought the dismissal to allow it to further consider the issues identified in the District Court’s opinion as well as other related cases and to consider “its options for addressing the outstanding joint employer matters before it.” [Read again that last quoted phrase.] The case is NLRB v. U.S. Chamber of Commerce, 5th Circuit Case No. 24-40331.

The Final Rule provided a new, broader standard to determine whether two or more employers are joint employers of particular employees within the meaning of the National Labor Relations Act. We discussed the at-issue Final Rule, published in late October 2023, in detail here.

The Board’s effort to retract its Fifth Circuit appeal and scurry back to the agency to reconsider its Rule reflects three intersecting strategic decisions it appears the Board has made:

1. The Board’s Biden-era Rule is in serious legal trouble following the SCOTUS’ recent decision in Loper Bright Enterprises. We wrote about that case and the coming major change of thinking the Federal Executive Branch now needs to internalize here and here. (The Loper Bright decision restored independent federal judicial review of federal Executive Branch agency Rules and ended the federal Judiciary’s 40-year experiment to simply defer to agency Rules, however much they departed from Congress’ intent, unless they were “plainly wrong”).

   This is just the latest of what is becoming, and will continue to be, a “long march” of many agency rollbacks of over-reaching federal Rules and overblown agency interpretations of their Rules (which were entirely acceptable over the last 40-years). A new day is dawning in federal agency Rulemaking. Back to the Future.

2. The Board’s action undoubtedly also reflects its fear and resulting strategic decision-making that it needs to avoid the Fifth Circuit. That Circuit is well-known for its strict interpretations of Congressional intent and would take a sharp scalpel to the NLRB’s new and highly controversial Rule reversing, as it does, 50 years of Board precedent. A Fifth Circuit decision enjoining the Rule nationwide, or even only major parts of it, would then force the Board to appeal to SCOTUS. Heaven forbid the SCOTUS might then accept the case for review and affirm the Fifth Circuit’s decision sending the NLRB back to the drawing boards and letting the pre-Biden Administration Rule stand. And heaven forbid if SCOTUS were not to accept the case for review. The Board would be left with the Trump-era “Joint-Employer” Rule for years.
3. The Board now realizes it needs to shift forums away from the courts reviewing its troubled Final Rule and get back to Board decision-making it can control in individual cases coming up to the Board on appeal. The Board is now shifting gears realizing it will be better off to quit defending its new Rule in the now “born again,” “alive” and questioning federal courts. After all, the Board realizes it is also a “court,” albeit only an administrative court. So, the Board can “make policy” by shifting the action back to the Board itself, not to further push ahead via Rulemaking, but rather to sit as a Court of last administrative resort within the NLRB to decide Joint-Employer” cases coming up one by one to it for decision.

If the Fifth Circuit grants the Board’s request to withdraw its appeal, the Board will fall back indeed to enforcing the old Trump-era Rule in the absence of its new Rule. A bitter pill for the Board. However, the Board would live “to fight another day” allowing it to develop policy at the agency. The Board will simply quickly pull up for review pending Joint-Employer disputes and decide those consistent with the controversial policies embedded in the Board’s Final Rule.

Ah, those clever rascals! Two-dimensional chess. Push/pull continues. The Board continues as a “perpetual motion machine” of ever flip-flopping federal policy interpretations of the same 89-year-old National Labor Relations Act. (I can always tell which party is in the White House merely by reading NLRB decisions).

How We Got Here

On October 27, 2023, the NLRB published its Final Rule. That Final Rule rescinded and replaced the NLRB’s previous Rule, published on February 26, 2020, that took effect on April 27, 2020. (See our stories on the previous Rule here and here.)

In November 2023, the NLRB extended the original effective date of the Final Rule by two months, from December 26, 2023, to February 26, 2024 (see our story here).

On November 6, 2023, the Service Employees International Union (SEIU) filed a petition for review of the Final Rule in the United States Court of Appeals for the District of Columbia Circuit (Service Employees International Union v. NLRB, No. 23–1309).

On November 9, 2023, the U.S. Chamber of Commerce and other business groups sued the NLRB in the U.S. District Court in the Eastern District of Texas (Tyler) seeking to permanently block the Final Rule (Chamber of Commerce of the United States of America, et al v. NLRB, No. 6:23–cv–00553). On February 13, 2023, U.S. District Judge J. Campbell Barker, a Trump appointee, held a hearing on various potentially dispositive motions in the case. On February 22, 2024, Judge Barker issued an order extending the February 26 effective date by another 14 days  – to March 11 – to allow him time to consider those pending motions. (See our story here.)

On March 8, 2024, Judge Barker vacated the Final Rule, concluding that the new standard was overly broad because “if an entity exercises or has the power to exercise control (even indirect control) over at least one essential term [of employment], the entity is an employer, jointly with workers’ undisputed employer.” Therefore, “[t]hat would treat virtually every entity that contracts for labor as a joint employer because virtually every contract for third-party labor has terms that impact, at least indirectly, at least one of the specified “essential terms and conditions of employment.” (See our story here.)

Judge Barker also issued a separate Final Judgment order clarifying that his decision applied to the enforcement of the Final Rule against the plaintiffs or their members.

On May 7, 2024, the NLRB filed its Notice of Appeal with the Fifth Circuit (see our story here.)

NLRB’s Motion Cited Other Cases for Consideration

In Friday’s motion to dismiss the appeal, the NLRB noted that when it filed its Notice of Appeal in May, two other cases involving the Board’s rulemaking were pending in other federal courts, specifically the SEIU action mentioned above, “SEIU II” and an earlier SEIU action challenging the Board’s 2020 Joint Employer Rule, “SEIU I.”

“Because those cases raise jurisdictional and substantive issues similar to the instant case, the Board was keenly interested in receiving wisdom from multiple courts to help resolve the complex matters underlying this rulemaking,” the NLRB stated in its motion. However, on April 30, 2024, the D.C. District Court stayed SEIU I, and since the May 7 filing of the instant Notice of Appeal, the D.C. Circuit placed SEIU II in abeyance.

“The Board remains of the opinion that its 2023 Rule meets the procedural and substantive requirements of the Administrative Procedure Act and the National Labor Relations Act,” it wrote in the motion. However, [g]iven the litigation posture of the Rule,” the NLRB said it “would like the opportunity to further consider the issues identified in the district court’s opinion in the first instance.” Moreover, “[i]n addition to the district court opinion, the Board has several rulemaking petitions on its docket regarding the joint employer issue raising similar issues.” Accordingly, the Board stated it sought the voluntary dismissal of its appeal to the Fifth Circuit to “allow it to consider options for addressing the outstanding joint employer matters before it.”