In a recent case filed in the federal court in the Southern District of Texas, janitorial services company ABM Industry Groups (ABM) sued the U.S. Department of Labor, claiming the agency's administrative proceedings for enforcing anti-discrimination requirements for federal contractors are unconstitutional.  This case arises from the U.S. Supreme Court’s decision in the Jarskey case (SEC v. Jarskey, No. 22–859 (6/27/24)). 

Specifically, the Jarskey case concerned a hedge fund founder who was accused of fraud.  The past practice of the SEC was to ask its in-house administrative law judges to impose monetary penalties. The Supreme Court ruled that this process violates the defendant’s right under the Seventh Amendment to a jury trial and oversteps its authority.  The outcome of the case is that it takes away the power of the internal agencies’ courts to impose civil penalties or remedies.  It did not void total reviews of these administrative courts, simply the imposition of civil penalties or fines.  
In the ABM case, the Office of Federal Contract Compliance Programs (OFCCP) conducted a routine audit of the contractor.  The agency alleged findings from the audit that ABM was unlawfully discriminating at three of its thousands of Branch establishments against certain applicants for janitorial and cleaning jobs. More specifically, OFCCP alleges that ABM favored Hispanic applicants to the detriment of White and Black applicants—in other words, ABM hired too many Hispanic workers. OFCCP based its claims solely on statistical analyses, without any applicant complaints or anecdotal evidence establishing that ABM intentionally discriminated in its hiring processes at these work locations.

ABM argues that a single agency (OFCCP) is simultaneously prosecuting and adjudicating an administrative complaint accusing ABM of having breached its contracts and seeking, among other remedies, multimillion-dollar damages for the alleged breach or the loss of federal contracts (judge, jury and executioner). ABM then argues that this consolidation of prosecutorial and adjudicative powers happens not through any statute but through a purely regulatory framework that springs from Executive Order 11246 and its implementing regulations. Through these regulations, OFCCP can choose between referring its contractual claims to DOL for in-house agency proceedings or to the Department of Justice (“DOJ”) to pursue relief in federal court.  Therefore, the administrative law approach that it is taking violates the Jarskey ruling.

Adding another wrinkle to this case, ABM argues, similar to a number of cases arising against the National Labor Relations Board Judges, that the ALJs (ALJs) overstep their bounds by acting as a U.S. Constitution Title III judge. 

Further, ABM argues that the Administrative Law Judges violate the Constitution because the ALJ is insufficiently accountable to the head of the executive branch, the President, who in this case does not have the authority to remove the ALJs.   As such, the President cannot meaningfully control or oversee such ALJs if they are insulated by “[t]wo layers of for-cause protection”—that is, if the ALJs are removable only for cause, by officials who themselves are removable only for cause.

In other words, ALJ hearing framework is unlawful.  As the complaint states: “OFCCP may prefer home-field advantage, but it can, and must, pursue such contract claims in an Article III court as the Constitution demands.” 

What does this mean for employers?  If the court agrees with ABM, any action, whether OFCCP, Wage and Hour, OSHA, and other DOL agency enforcement efforts will have to be referred to the Department of Justice for review and determination to take it to the courts. In OFCCP’s case, the agency does not have a good reputation with its investigations or its legal theories for liability, especially for compensation enforcement.  It is likely that the agency will try hard to conciliate any findings against contractors because it may not make it to the courts for enforcement.  Further, the agency will have to do more comprehensive investigations (and upskill its workforce), which will take more time given the limited resources the agency has.

Source:  Reuters 9/10/24