First Post-Jarkesy Lawsuit Challenging Constitutionality of OFCCP ALJ Process

A federal contractor that stands accused of hiring discrimination by the OFCCP appears to be the first since the blockbuster Supreme Court ruling in Jarkesy v. SEC to file a lawsuit seeking federal court review of whether or not the OFCCP’s adjudication process regarding discrimination violations is constitutional.

The case is ABM Industry Groups, LLC vs. U.S. Department of Labor, et al, and the complaint was filed in the Southern District of Texas on behalf of ABM by John Fox of Fox, Wang & Morgan P.C., along with two attorneys from Morgan Lewis & Bockius LLP. Although the underlying OFCCP allegations—which ABM denies—involve actions taken in Maryland and Virginia, and the OFCCP is headquartered in Washington, D.C., ABM is headquartered in Sugar Land, Texas, hence the venue.

In late 2021, the OFCCP initiated enforcement action against ABM for alleged hiring discrimination violations. Typically the OFCCP offers conciliation negotiations before initiating an enforcement action, after which (assuming there is no settlement) the next step is a hearing before an Administrative Law Judge (ALJ) from the Department of Labor’s Office of Administrative Law Judges. Either party can appeal the ALJ’s decision to the Administrative Review Board, which speaks for the agency. After that, the contractor has the option to appeal to an appropriate federal district court, though few OFCCP disputes make it that far for a number of reasons. Outside of a constitutional challenge to the OFCCP’s authority, there is almost no way to skip the ALJ process.

ABM is seeking to do just that by asking the federal court to declare that the OFCCP’s ALJ proceeding against ABM is unconstitutional on the bases that: 1) The Supreme Court’s holding in Jarkesy affirms the contractor’s right to a jury trial under the Seventh Amendment; and 2) OFCCP’s Administrative Law Judges are not sufficiently accountable to the President under the Constitution (so their rulings, presumably, are invalid).

ABM is also asking the court to enjoin the OFCCP from subjecting the company to its allegedly unconstitutional proceedings, and award the company costs and expenses, including legal fees.

The complaint does not address what are likely key differences between the OFCCP’s enforcement scheme and the Securities and Exchange Commission and Federal Trade Commission schemes that have been successfully challenged in recent years (and form the basis of this case). One glaring difference is the fact that federal contractors effectively agree to OFCCP jurisdiction and enforcement when they sign a prime federal contract or a qualifying federal subcontract, much like you or I might sign a contract that contains an arbitration clause. Whether or not such an alternative dispute resolution clause is ultimately enforceable depends on a number of factors, but is not addressed in the initial complaint.

But the likelihood of success of this case on the merits is not our topic of discussion here. Instead, let us focus on what this case could mean for the OFCCP and the federal contracting community.

Essentially, ABM is arguing that it is unconstitutional for the Department of Labor, of which the OFCCP is a part, to act in the capacity of police, judge, and jury when it comes to discrimination findings. The complaint does not argue that the entirety of the OFCCP’s regulations implementing Executive Order 11246 are unconstitutional.

What does that mean? This is not a lawsuit with the potential to “bring down” the entirety of the OFCCP and affirmative action requirements for federal contractors.

Given the chosen venue of the Southern District of Texas, early dismissal seems unlikely, meaning the Department of Labor will have to divert precious resources to address this and any other similar lawsuits coming down the pike. That could have a number of implications.

For one, that leaves fewer resources to focus on enforcement. But the OFCCP is also likely motivated to put the brakes on any high dollar value discrimination violations in contentious audits, lest they create more potential litigants. Keep in mind, this is the first of what most expect to be a “wave” of litigation triggered by recent Supreme Court rulings. So in a very practical sense for contractors, this may mean fewer audits, and it may mean smoother audits for the time being.

But the OFCCP is not known for backing down on enforcement in the face of outside pressure. In fact, they tend to do the opposite, so any hard predictions here are difficult.

What happens if the contractor prevails, though? That is unclear. They are asking the court to declare that the OFCCP’s ALJ process is unconstitutional, along with specific relief. The court could grant all or a portion of the contractor’s demands. But if the process is declared unconstitutional, the OFCCP is likely to appeal, and then things get really interesting.

Often appellate courts will stay actions or decisions from a lower court during the appeal, but not always. An appellate court is likely to do so here because the OFCCP would essentially have to overhaul their adjudication process in accordance with the District Court’s findings, which is a heavy lift and poses significant burden on the OFCCP if the decision is ultimately overturned. That doesn’t mean the OFCCP will be very excited to run any contractors through that adjudication process, though, because those decisions would hang in the balance pending the outcome of this litigation and could all be thrown out.

If the case makes it to the Supreme Court, it gets really weird for the OFCCP because they can’t actually argue their own case at that level, but that is neither here nor there. If this case is headed to the Supreme Court, we are likely looking at a few years of uncertainty.

But even if the OFCCP ultimately loses the case, they will not have to shut down operations. Instead, they will have to re-fashion their adjudication process in accordance with the court’s findings.

That could be a re-vamped ALJ process, in which case little may change in practical terms for federal contractors on a day-to-day basis. But it could mean that the OFCCP would have to bring discrimination charges in federal district court, which could change the audit game significantly.

As it stands, the OFCCP knows the “value” of any given case in terms of the time, money, and other resources required to settle the matter versus fighting it out in the various courts. And the OFCCP is well-practiced at leveraging that knowledge to encourage settlements without necessarily having court-ready evidence in their pocket. That would likely change if the agency had to be prepared to argue every discrimination violation in district court.

At any rate, this lawsuit, recent federal court decisions, and the general political climate should all be encouraging the OFCCP to take a hard look at their policies and practices and the legal authorities underpinning them, and that is likely to result in change. But the OFCCP isn’t going anywhere, and they are still very interested in your workforce demographics, applicant data, and pay data.

We will continue to monitor and bring you updates as they develop. In the meantime, if you have questions about this or any other OFCCP-related matter, feel free to reach out to us at bai@berkshireassociates.com.