‘Contradictory to Our Country’s Laws’

Introduction

In the first days of the second Trump administration, elusive aspirations of confining agencies of the federal government to their legitimate functions suddenly seemed attainable, with scores of executive orders tying the agencies down and talk of closing a few agencies altogether. Those aspirations remain attainable but not yet attained. “[W]e must not lose sight of the goal of ending this damaging and unconstitutional bureaucracy,” said Neal McCluskey, a Cato Institute analyst, about the Department of Education. So it is with another damaging and unconstitutional bureaucracy, the Office of Federal Contract Compliance Programs (OFCCP) of the Department of Labor.

An executive order President Donald Trump issued on January 21 suspended most of OFCCP’s authority, including its authority to enforce regulations that it never had authority to adopt in the first instance. Executive Order 14173 (EO 14173), “Ending Illegal Discrimination and Restoring Merit-Based Opportunity,” did this by revoking Executive Order 11246 (EO 11246) of September 28, 1965, an order of President Lyndon Johnson that led to the establishment of OFCCP.

In addition, President Trump’s EO ordered OFCCP to cease promoting “diversity,” requiring affirmative action, and “[a]llowing or encouraging Federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.” This paper examines the propriety of those orders and recommends administrative actions to preserve their benefits.

The illusion of authority

The order that EO 14173 revoked, EO 11246, had long seemed untouchable even though President Johnson’s authority for issuing it was imaginary. EO 11246 had a section on nondiscrimination in employment by government contractors and subcontractors and a section on discrimination in federally assisted construction contracts. The section on nondiscrimination in employment by government contractors and subcontractors begins by requiring federal contracts to contain certain provisions. Contractors must agree as follows: “The contractor will not discriminate against employees or applicants on the basis of race, color, religion, sex, or national origin. The contractor will take affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex, or national origin.” This language was taken from an executive order issued by President John F. Kennedy, which EO 11246 superseded.

EO 11246 went on to prescribe requirements and procedures to enforce contractors’ nondiscrimination agreements. A contractor must file compliance reports containing information that the secretary of labor requires at the times that the secretary of labor directs. The executive order empowered the secretary of labor to issue regulations and to investigate and adjudicate violations of the executive order and the regulations.

The secretary of labor, in turn, delegated to the director of OFCCP the powers that the president had delegated to him. This was the second of two delegations of power that the delegator did not possess.

The first was the president’s delegation of power to the secretary of labor. Along with many other directives in EO 11246, Johnson directed the secretary of labor to adopt regulations to implement the executive order. The Supreme Court discussed this delegation in Chrysler v. Brown. It began its analysis with a fundamental constitutional principle: “The legislative power of the United States is vested in the Congress, and the exercise of quasi-legislative authority by governmental departments and agencies must be rooted in a grant of such power by the Congress and subject to limitations which that body imposes.”

EO 11246 does not identify any specific grant of authority by Congress to the president. Accordingly, the Court in Chrysler v. Brown looked at statutes that lower courts had said delegated quasi-legislative authority to the president and dispatched all of them. The Procurement Act, the most frequently cited authority for EO 11246, gives the president the authority to adopt rules to promote the economy and efficiency of the federal procurement system. Defenders of EO 11246 sometimes mischaracterize this as authority to adopt rules to promote the efficiency of contractors and argue that discrimination is inefficient. This is not a defense even if one assumes that affirmative action makes contractors more efficient. The Procurement Act does not seek to create efficient contractors. It seeks to give the federal government an efficient procurement system. Moreover, as the Supreme Court stated, “nowhere in the Act is there a specific reference to employment discrimination.” Titles VI and VII of the Civil Rights Act of 1964 have also been presented as authority for the executive order, but the only delegation of authority to the president in those titles calls for procedures involving Congress that are not found in the executive order.

Thus, EO 11246 delegated to the secretary of labor authority the president did not have, and then the secretary of labor delegated to OFCCP the phantom authority he received from the president. In the absence of constitutional authority for rulemaking, the authority of OFCCP was limited to providing agencies with guidance that the president could enforce internally. Instead, OFCCP created an expansive regulatory regime and imposed it on private parties—federal contractors and subcontractors. The 86 pages of the Code of Federal Regulations (C.F.R.) that implement EO 11246 conferred upon OFCCP an illusion of authority. The Court of Appeals for the DC Circuit exposed this type of illusion in a recent decision: “The temptation for litigants and courts is to treat publication in the C.F.R. as equal to publication in the United States Code. Trouble is that publication in the C.F.R. is no measure of an agency’s authority to issue rules that appear there…”

Commenting on the illegitimacy of EO 11246, former OFCCP director (and current CEI general counsel) Ondray Harris asked in 2022:

Do you see anyone in the near future overriding Executive Order 11246? What president’s going to take that on and say, “Hey, I’m the one that got rid of the nondiscrimination doctrine”? So it really is a law, and it wasn’t passed by Congress. The reason why you can pass executive orders is because you can do it quickly, and it should be inherent in them that they are temporary. Fifty-seven years is not temporary. And I don’t think anyone here sees it going away anytime soon. Isn’t that troubling?

We now have the answer to Harris’s first rhetorical question. On Jan. 21, President Trump issued EO 14173, revoking EO 11246 (among many others). EO 14173 ordered OFCCP to cease holding federal contractors and subcontractors responsible for affirmative action and to cease allowing and encouraging them “to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.” Three days later, the acting secretary of labor, stated that “DOL no longer has any authority under the rescinded Executive Order 11246” and ordered DOL employees to “[c]ease and desist all investigative or enforcement activity under the rescinded Executive Order 11246.” In an email to employees of OFCCP, the new director of OFCCP acknowledged that “most of what OFCCP has been doing is out of step, if not flat out contradictory to our country’s laws.”

In response, publications on the left conjured the reliable hobgoblin of a return to Jim Crow, referring to segregationist laws southern states enacted after Reconstruction that have nothing to do with the personnel practices of contemporary private businesses with federal contracts. The Economic Policy Institute imagined that employees of federal contractors now have the unique distinction among American workers of being defenseless against discrimination. A recent post in its blog began with the false assertions that OFCCP “has long ensured that employers conducting business with the federal government comply with equal employment opportunity laws,” but now the Trump administration “has made equal employment laws effectively unenforceable for the entire civilian federal contracting workforce.” In reality, OFCCP has enforced compliance with regulations of its own invention, not equal opportunity laws. Along with all other employees, the federal contracting workforce is just as protected by equal opportunity laws as it was before EO 14173. Title VII of the Civil Rights Act of 1964 as well as state and local equal employment laws are unaffected by EO 14173. Like other employers, federal contractors and subcontractors are still subject to Title VII’s civil rights requirements and its oversight and enforcement mechanisms. What has happened is that federal contractors and subcontractors have been relieved of an overlapping set of non-discrimination requirements and oversight and enforcement mechanisms illicitly adopted by OFCCP.

What remains of OFCCP is the authority lawfully delegated to it by the secretary of labor under the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRA) and section 503 of the Rehabilitation Act.

The regulatory labyrinth

Aside from those two areas, OFCCP’s regulations have no statutory authority nor any statutory limits. Thus, it is unsurprising that the regulations grew into an extravagant example of regulators’ customary disregard for the costs of compliance combined with minimal procedural protections. The high costs of compliance with those regulations do nothing to improve the contractor’s performance of its contract with the government.

OFCCP’s regulations, which are still on the books, “apply to all contracting agencies of the Government and to contractors and subcontractors who perform under Government contracts.” These include public utilities that have no choice but to service federal buildings. In fiscal year 2024, 108,899 entities won federal contracts; 71.1 percent of them were small businesses.

Under the regulations, federal contractors and subcontractors are required to agree to comply with all provisions of EO 11246 and with the regulations and relevant orders of the secretary of labor. An overview of the regulations they agree to obey should give an indication of the dimensions of their complexity.

A federal contractor’s first cost of compliance entails determining which rules apply to it. Some of the rules that apply to contractors and subcontractors differ from those that apply to construction contractors. The regulations applicable to contractors and subcontractors vary based upon the dollar value of the contract or contracts the entity has with the federal government.

In OFCCP’s chapter of the Code of Federal Regulations, chapter 60 of title 41, eight of the 12 parts deal with different types of requirements and violations. Three of the parts have their own procedures for enforcement, while part 60-30 “provides the rules of practice for all administrative proceedings, instituted by the OFCCP…, which relate to the enforcement of equal opportunity under Executive Order 11246.” Three other parts cross-reference the procedures of part 60-1. Part 60-20 concerns “Discrimination Based on Sex,” even though provisions throughout the chapter apply to discrimination based on sex.

As required by EO 11246, contractors must include in their contracts a provision whereby they agree that they will “not discriminate against any employee or applicant for employment because of race, color, religion, sex, sexual orientation, gender identity, or national origin.” Notwithstanding the agreement not to discriminate, the required contractual provision goes on to reflect the government’s policy “to engage in an extensive affirmative action program, albeit under the transparent fig leaf of equal opportunity,” as law professor Richard Epstein put it. In the very next sentence of the required provision, contractors further agree that they “will take affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, sex, sexual orientation, gender identity, or national origin.”

A contractor’s compliance with the affirmative action requirement begins with preparing an affirmative action plan for each of its establishments within 30 or 120 days from commencement of the contract (depending on the size of the contract) and then annually thereafter. An affirmative action plan must contain a narrative summarizing the contractor’s equal employment and affirmative action policies and statistical analyses of the race and sex of its employees by job title and by job group (with organizational charts) compared with the availability of women and minorities having requisite skills in each job group in the recruitment area.

Based on the comparison, the contractor must determine if women or minorities are “underutilized.” If they are, the contractor’s affirmative action plan must include placement goals and specific practical steps to redress the alleged underutilization. Thomas Sowell observed that through this regulatory structure “‘[a]ffirmative action’ was now decisively transformed into a numerical concept, whether called ‘goals’ or ‘quotas.’” Ostensibly the regulations do not compel quotas. The regulations disavow quotas, asserting that “[q]uotas are expressly forbidden.” That disclaimer was cited in articles scoffing at EO 14173 for prohibiting a practice that was already prohibited. In fact, however, under these regulations, quotas are expressly prohibited but implicitly required.

OFCCP thoroughly embraced the notion that discrimination can be proven by disparate impact. A contractor has to conduct costly adverse impact analyses to identify variations by race and sex in the rates of hiring, promotion, and termination. Statistical differences could result in a charge of discrimination from OFCCP. Reversing the accepted burden of proof from the accuser to the accused, the regulations provide that selection procedures having an adverse effect on employment opportunities of members of any race, sex, or ethnic group constitute discrimination unless they are justified.

Justifying a procedure that has an adverse impact can only be done by statistically validated studies, as section 60-3.9—emphatically entitled “No assumption of validity”—stresses. Section 60-3.15 (“Documentation of impact and validity evidence”) contains eight pages of opaque requirements for validity studies such as this one: “Measures of central tendency (e.g., means) and measures of dispersion (e.g., standard deviations and ranges) for all selection procedures and all criteria should be reported for each race, sex, and ethnic group which constitutes a significant factor in the relevant labor market (essential).”

Enforcement nightmares

Enforcement normally begins with an audit, which could escalate to on-site review. In these audits, OFCCP would order the collection of data on employees, an expensive process that could cost the contractor more than the value of its contract. If an investigation reveals a violation, OFCCP orders the contractor to show cause why enforcement proceedings should not be instituted, reversing the proper burden of proof under the Administrative Procedure Act. Hearings are before an administrative law judge of the Department of Labor. Appeals from decisions of administrative law judges go to yet another agency of the Department of Labor, the Administrative Review Board. Only after the Administrative Review Board has rendered a final decision can a contractor seek review before an actual federal judge. Oracle America, Inc., having been subjected to those proceedings, vigorously protested OFCCP’s unlawful enforcement activities in a lawsuit it filed against OFCCP in 2019, but it ultimately settled with OFCCP and dismissed the lawsuit.

The sanctions provided in EO 11246 for violations are cancellation of contracts, debarment of contractors, publication of their names, and such other sanctions provided “by rule, regulation, or order of the Secretary of Labor.” The other sanctions that the secretary of labor provided by rule were originally consistent with the contractual remedies the executive order listed. Subsequently, other non-contractual remedies were added, namely, back pay, affirmative action, and sanctions.

Companies often settled just to put an end to the nightmare. Bank of America, for example, settled with OFCCP for $4.2 million. In the aggregate, the settlements have transferred an immense amount of money to the federal government from private contractors that may have done nothing wrong. In an October 2020 press release, the Department of Labor boasted that in fiscal year 2019 OFCCP set a record for recoveries at $40.6 million, almost double that of any other year since the agency’s inception in 1965. OFCCP continued this level of exactions in fiscal year during the pandemic, with recoveries of $35.6 million, the second highest year in its history.

Winding up the affairs of OFCCP

EO 14173 lifted a heavy burden off the shoulders of federal contractors, one that was never lawfully imposed on them. The Department of Labor should swiftly take action to ensure that a future administration cannot easily restore OFCCP’s powers with an executive order revoking Trump’s executive order and reviving Johnson’s.

EO 14173 said federal contractors may continue to comply with OFCCP’s regulatory scheme for a short period that has since expired, but it did not rescind the regulatory scheme. That must be done through the time-consuming procedures of the Administrative Procedure Act for notice-and-comment rulemaking.

Quite a few regulations should be rescinded and some of the remaining regulations should be amended. None of the regulations that are not confined to implementation of VEVRA or section 503 of the Rehabilitation Act ever rested upon any statutory authority, and now they no longer have even the spurious authority of an executive order. As a result, everything in chapter 60 of title 41 of the Code of Federal Regulations except parts 60-30, 60-300, 60‑741, and 60-742 should be rescinded, and parts 60-30 and 60-999 should be amended to remove any references to implementation of EO 11246 or to the rescinded regulations, as the Department has recently proposed.

In addition, part 30 should be amended to provide for hearings before a jury and a federal district judge rather than an administrative law judge in cases where a civil penalty may be imposed and in any other case where the Seventh Amendment requires a trial by jury. Procedures for the issuance of show- cause notices to contractors should be removed from section 60-300.62 and section 60‑741.62. Those procedures conflict with the Administrative Procedure Act, which provides that “the proponent of a rule or order has the burden of proof.”

These regulatory reforms would fulfill the directives of President Trump—not only EO 14173 but also his orders Restoring Equality of Opportunity and Meritocracy, Directing Repeal of Unlawful Regulations, and Restoring Common Sense to Federal Procurement.

A further step that the secretary of labor could take to prevent a resurgence of OFCCP and its powers is to assign the enforcement of VEVRA and section 503 of the Rehabilitation Act to other offices of the Department of Labor and shut down OFCCP altogether. VEVRA could be assigned to the Veterans’ Employment and Training Office, and section 503 of the Rehabilitation Act could be assigned to the Office of Disability Employment Policy. These transfers by the secretary of labor within the Department of Labor would not require legislation because the statutes authorize the secretary and the Department to execute them rather than any particular office of the Department.

Implementing EO 14173 through these reforms will, with some hope of durability, relieve contractors and taxpayers of “an expensive bureaucratic apparatus that is unrelated and unresponsive to either price or quality” and unsupported by any federal law.