Have We Reached the Final Chapter in the Challenge to OFCCP’s Section 503 Regulations?
The U.S. Supreme Court seems to have hammered the final nail into the coffin of Associated Builders and Contractors’ (ABC) challenge to the OFCCP’s recent regulations that impose additional requirements on federal contractors with respect to recruiting and hiring Individuals with Disabilities (IWDs). On Monday June 15, 2015, it refused to hear ABC’s appeal of the Circuit Court of Appeals for the District of Columbia, upholding the regulations. The case is Associated Builders and Contractors, Inc v. Shiu. What does this latest development mean for federal contractors in general and construction contractors in particular? Let’s first review the basics:

Who/What is Associated Builders and Contractors (ABC)? ABC is a national trade association representing 22,000 members from more than 19,000 construction and industry-related firms.

What exactly are the regulations that ABC challenged? The two main provisions of the new regulations that went into effect last year are being challenged. Federal contractors are now required to establish a 7% workforce utilization goal with respect to hiring IWDs. The OFCCP calls it an “aspirational” goal, and insists it is not a quota. Failure to meet the goal does not violate regulations, nor does it trigger penalties. That said, contractors who fall short are expected to analyze their recruiting and outreach efforts and think of ways they could improve. While larger contractors are expected to apply the utilization goal to each job group, small contractors (those with 100 employees or fewer) can apply the goal to their entire workforce.

Additionally, contractors now must invite IWDs to self-identify at the pre-offer stage and invite employees to self-identify as IWDs at regular intervals in order to evaluate the effectiveness of their recruiting and outreach. Contractors may use visual observation of obvious characteristics or information such as requests for accommodations as a way of identifying IWDs who do not self-identify.

Why did ABC challenge OFCCP regulations regarding recruiting and hiring of IWDs? ABC took the position that the new regulations violate Section 503 of the Rehabilitation Act as well as the Administrative Procedure Act and the Regulatory Flexibility Act, as amended by the Small Business Regulatory Enforcement Fairness Act. ABC also contended that the new rules were particularly problematic for the construction industry, which, given its unique nature, has generally been exempt from many of the regulations imposed on non-construction contractors. Specifically, according to ABC, Section 503 does not give the OFCCP the authority to require or impose utilization goals. According to ABC, because these rules exceed the scope of the OFCCP’s authority, they are arbitrary, capricious, and an abuse of discretion by the OFCCP. ABC also felt that the regulations were and would be so burdensome that many construction contractors will simply stop looking to do business with the federal government.

Why did the US District Court and DC Circuit Court of Appeals uphold the regulations? The short answer is that the courts did not agree with ABC’s arguments. Both courts cited a number of reasons. In essence, both courts found that Section 503 grants “broad authority” to the President to “define ways in which contractors must engage in affirmative action”, that the plain language of Section 503 gives the OFCCP rulemaking authority, and that nothing in the Rehabilitation Act forbids the tools chosen by the OFCCP for that purpose. Both courts also found that the OFCCP articulated a reasonable basis for the new regulations.

Why did the US Supreme Court refuse to hear ABC’s appeal? The decision to hear an appeal lies within the Supreme Court’s discretion. The US Supreme Court hears only a small fraction of cases it is asked to review. The US Supreme Court does not appear to have given a reason for refusing to hear this case, and it does not have to do so. We do know that when a particular issue has previously been decided in a way that shows a split among the appellate circuits, the US Supreme Court will hear an appeal in order to establish consensus and uniformity. That situation does not exist here, and that could be one of the reasons it did not feel it needed to decide this issue – at least for now.

While the Supreme Court’s refusal to hear this case lets the DC Circuit Court of Appeals’ ruling stand, it is not actually a decision. It is possible that the US Supreme Court could hear a subsequent appeal of a case involving the same issue if it goes before a circuit court of appeals who overturns the OFFCP’s regulations – because then there will be a split among the circuits. Sometimes however, the Supreme Court waits for several circuits to weigh in with differing opinions before it will hear an appeal. That, of course, is not a given and would take at least a few years. So for now, the regulations stand.

What does the US Supreme Court’s refusal to hear the appeal mean for the federal contractor community? At first glance, this case would appear to have little or no effect on the majority of contractors, who are non-construction contractors, because non-construction contractors have always been subject to more stringent Affirmative Action requirements, and may be getting used to the OFCCP’s increasingly aggressive enforcement actions in recent years. It’s the second glance, however, that should give all contractors a moment of pause. As of now, the OFCCP’s rulemaking, its use of benchmarks and utilization goals, appears to be validated. The contractor community as a whole may therefore start seeing an increase in the use of benchmarks and utilization goals. Moreover, these events implicitly reinforce Affirmative Action as a whole. This case, therefore, sends a message to all contractors that Affirmative Action – and the OFCCP – are not going away anytime soon.

Construction contractors have even more reason to be concerned. Up until now, construction contractors have been treated as a separate case from the rest of the federal contractor community. The OFCCP seemed to understand that construction contractors have a unique set of circumstances that make adherence to certain Affirmative Action requirements impracticable. Construction contractors either have been exempt from certain requirements or covered under similar requirements designed to address the same concerns, but imposed with these differences in mind. Associated Builders and Contractors, Inc v Shiu signals that that is no longer a given. The US Supreme Court’s refusal to hear ABC’s appeal effectively gives the OFCCP permission to erode that distinction further – at least until the next challenge.

What then, can and should contractors do in light of these recent occurrences? Given how vocal the OFCCP has been about the importance of recordkeeping in recent years, we can expect its necessity to continue increasing exponentially. Contractors should therefore strongly consider stepping up their efforts in this regard. Construction contractors might want to start looking at and considering changes to how they create and maintain records related to outreach, recruitment, and hiring – and be alert to the distinct possibility of other regulations that will apply as much to them as their non-construction counterparts.

For more information, contact Ahmed Younies at (714) 426-2918 or ayounies@hrunlimitedinc.com.