OFCCP versus Manheim Auctions Inc.—A Ruling on OFCCP's Jurisdiction

In this case, Manheim Auctions, Inc. (Manheim) took steps to isolate government contracts to one company, Manheim Auctions Government Services (MAGS). Manheim had more than 50 employees, and MAGS had more than $50,000 in government contracts. The companies maintained they should not be combined because they were separate business entities. The Office of Federal Contract Compliance Programs (OFCCP) maintained there was sufficient business overlap to consider them as a combined entity. Because the two companies shared office space, members on the Boards, and HR functions, the Administrative Law Judge determined both companies are subject to OFCCP regulations.

Plaintiff (the OFCCP) sent scheduling letters to Defendants (Manheim and MAGS) on April 3, 2007 and on November 10, 2010. Manheim’s failure to submit information as part of these regulatory compliance reviews led to a show cause notice issued by the OFCCP. Manheim argued the OFCCP lacked jurisdiction to require them to comply with Executive Order (EO) 11246 and other regulations. Manheim based its decision to not submit information to the OFCCP because it did not hold a government contract and MAGS did not have more than 50 employees. The OFCCP used the “integrated employer test” to combine the Defendants into a “single business entity” required to meet affirmative action reporting requirements. The four factors considered by the OFCCP in applying the test were: interrelation of operations, centralized control over labor or employment decisions, common management, and common ownership or financial control. Manheim contended the OFCCP was exceeding its statutory authority.

 

The ALJ verified different versions of the “single employer test” have been applied for years in Worker Adjustment and Retraining Notification Act (WARN) and employment discrimination cases based on protected status of individuals. Therefore, Manheim’s contention that the OFCCP exceeded statutory authority was baseless. He further clarified that:

A.     The OFCCP has established that MAGS is a prime contractor of a contract for the period commencing January 2005. All contracts are indefinite delivery/indefinite quantity (IDIQ) contracts with a reasonable annual value in excess of $150,000, a qualifying value under the applicable acts, and implementing regulations.

B.      During the relevant period, Manheim provided MAGS website, e-mail, information technology services, and office space with utilities and promotional assistance. These services provided to MAGS were directly related to government contract requirements placed on MAGS and constituted actions of a de facto subcontractor. The OFCCP failed to establish the reasonable annual value of these services in direct support of the contracts requiring Manheim to conform to OFCCP regulations. At best, Manheim is a subcontractor without a qualifying value under the applicable acts and implementing regulations.

C.     The OFCCP failed to establish that MAGS, as a single entity, had a qualifying number of employees under the applicable acts. MAGS asserted it had no employees as of December 31, 2010, and the number of employees during the relevant period never exceeded eight.

D.    Manheim had employed in excess of 150 personnel since April 3, 2007. The OFCCP established this is a qualifying number under the applicable regulations.

E.      The OFCCP established Manheim and MAGS operated as a single business entity that performed as a contractor or subcontractor of a contract of sufficient qualifying value and with a qualifying number of employees. The three key factors that established this were:

1.      On December 24, 2009, a Secretary for Manheim Remarketing, Inc. and sole member of MAGS, signed an operating agreement for MAGS as the company and Manheim Remarketing as the member. The Operating Agreement demonstrates Manheim Remarketing was doing business as MAGS, at least since December 24, 2009. Some of the contents of the operating agreements were that only Manheim Remarketing has the power to:

·         voluntarily dissolve MAGS

·         approve disbursements for costs and expenses incurred by MAGS

·         remove, replace, or change any member of MAGS’ board of directors and to change the number of directors

·         solely represent MAGS in all tax matters with the discretionary power to make decisions and expenditures that are binding on MAGS

·         override any action by MAGS’ board of directors including amendments to the operating agreement

·         maintain offices at advisable locations

This clearly demonstrates Manheim possessed ownership interest in MAGS and its sole assets, the government contacts at issue in this case.

2.      Other qualifying factors include:

·         Manheim and MAGS had the same principal office address.

·         Manheim and MAGS shared common directors and shared corporate officers during the relevant period. Manheim currently has 35 officers and since 2007 it has had over 70 officers, of which three had also served as officers for MAGS.

·         MAGS utilized call center services of Remarketing to meet the requirements of its government contracts. When Remarketing downsized, MAGS hired three of its employees to meet the requirements of government contracts.

·         MAGS offered its employees health and pension benefits through the human resources department of Manheim and followed Manheim’s bonus program for its employees. Manheim provided human resource, accounting, and technical support services to MAGS without cost.

·         The majority of auction facilities used by MAGS to meet the requirements of its contracts were owned by Manheim, and MAGS paid for the use of auction facilities on a monthly basis through an intercompany transaction. Manheim employees at the auction facilities would perform tasks essential to the performance of MAGS’ government contracts.

·         Employees of Manheim who transferred to MAGS and vice versa retained seniority and benefits.

·         EEO-1 reports were prepared, submitted, and maintained by Manheim for MAGS.

The fact that Manheim maintained control of EEO-1 reporting for all of its business entities implies that Manheim maintained personnel records of MAGS. Since the reports requested by the OFCCP in this case are similar to the EEO-1 reports, Manheim had access to the information to provide such reports. This demonstrates Manheim controlled MAGS’ Board of Directors and officer positions. Manheim and MAGS had closely knit policies and procedures, which undermined the argument they operated as completely separate business entities.

3.      In 2010, Manheim approached MAGS to discuss outsourcing MAGS’ government contracts to the Flynn-Jensen Company. During discussions, Manheim indicated they wanted “to keep the MAGS contracts that were in place” until December 2010. The two companies entered into a five-year contract and since January 1, 2011, the Flynn- Jenson Company has been servicing all of the contracts held by MAGS for a fee. Flynn-Jensen rents equipment from MAGS and leases office space and utilities from Manheim. The conclusion is that Manheim stripped MAGS of all contracts by retaining the Flynn-Jensen Company to perform all of the duties in the government contract. As a result of this action, MAGS was left a paper entity with no employees. This demonstrates that MAGS’ operations were totally dependent on Manheim and therefore exercised control over MAGS.

 

After deliberations on the evidence submitted for consideration, the Administrative Law Judge concluded that Manheim and MAGS were a single entity that satisfied the “employee-numerosity requirement” as well as the threshold contract values required by EO 11246, the Rehabilitation Act, and the VEVRAA. Accordingly, the defendants are jointly and individually liable for meeting the requirements set forth in the above regulations. Based on the Defendants’ refusal to give, supply, or grant access to records or other information for an off-site compliance review or to allow on-site compliance reviews to be conducted as required by the equal opportunity clause, the Judge determined the Defendants’ had failed to comply with the requirements of a compliance review under federal regulations.

 

Manheim was ordered to provide all program information requested in the notifications of April 2007 and November 2010 to the OFCCP, and to cooperate during an on-site compliance review as it relates to all programs and information requested. Manheim will also promptly have to comply with all the provisions of Executive Order 11246, the Rehabilitation Act, and the Vietnam Era Veterans' Readjustment Assistance Act (VEVRAA). In the event that Manheim fails to comply with this order, the OFCCP may take steps to terminate all existing contracts and to debar Manheim from receiving and participating in any future contracts for a period of at least three years or until the both Manheim and MAGS comply with the provisions all of the laws, whichever period is longer.