On May 29, the Administrative Review Board (ARB) of the U.S. Department of Labor (DOL) issued an important decision on the scope of coverage of the nondiscrimination and affirmative action provisions of Executive Order 11246, Section 503 of the Rehabilitation Act, and Section 402 of the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA).
Background
The University of Pittsburgh Medical Center (UPMC) Braddock, UPMC McKeesport, and UPMC Southside are hospitals in or near Pittsburgh. Each hospital had a health maintenance organization (HMO) contract with the UPMC Health Plan to provide medical products and services to U.S. government employees covered by the plan under a contract between the plan and the U.S. Office of Personnel Management (OPM). There were no direct contracts between the hospitals and OPM. None of the contracts between the hospitals and the health plan included the equal opportunity clause required in government contracts and subcontracts by Executive Order 11246, Section 503 of the Rehabilitation Act, and Section 402 of the VEVRAA.
The DOL’s Office of Federal Contract Compliance Programs sent each hospital letters scheduling compliance reviews of their facilities and requesting copies of their affirmative action plans and other documents required by the three laws. The hospitals didn’t provide the requested documents and contended that they weren’t federal contractors or subcontractors. The ARB, which issues final agency decisions for the secretary of labor in cases arising under a variety of labor requirements, ruled against the hospitals. The decision is important in several respects.
ARB’s Ruling
Subcontractors may be subject to equal employment opportunity (EEO) requirements even in the absence of EEO clauses in the contract. The ARB ruled that UPMC’s failure to include the mandatory EEO clauses in the agreements with the hospitals didn’t excuse the hospitals from complying with the laws. The board noted that each of the laws has been in effect for decades and that each is incorporated by operation of law into the contracts, even if it hasn’t been expressly included in the written contracts or agreed to by the parties. It also held that DOL regulations unambiguously state that “the equal opportunity clause shall be considered to be a part of every contract and subcontract required by the order and the regulations to include such a clause whether or not it is physically incorporated in such contract.”
“Subcontractor” is defined by law, not by the parties. The hospitals argued that the UPMC-OPM contract expressly provides that they aren’t subcontractors. “Subcontractor” is defined in the contract as “[a]ny supplier, distributor, vendor or firm that furnishes supplies or services to or for a prime contractor, or another subcontractor, except for providers of direct medical services and suppliespursuant to the Carrier’s health benefits plan.” The ARB held that “the parties cannot, by contract, invalidate the equal opportunity provisions of the three laws.”
Direct providers of medical services aren’t automatically exempt from EEO and affirmative action obligations. The Federal Acquisition Regulation (FAR) is the primary regulation for use by all federal executive agencies in their acquisition of supplies and services with appropriated funds. The FAR defines “subcontractor” as “any supplier, distributor, vendor, or firm that furnishes supplies or services to or for a prime contractor or another subcontractor, except for providers of direct medical services or supplies pursuant to the Carrier’s health benefits plan.”
The ARB held that contract provisions that violate or conflict with a federal statute are invalid or void and that the FAR’s interpretation excluding subcontractors like the hospitals from compliance with the EEO and affirmative action laws are invalid as contrary to the DOL’s regulations, which don’t exclude hospitals from the definition of “subcontractor.” OFCCP v. UPMC Braddock.
Bottom Line
When a firm enters into one or more contracts with the federal government for $50,000 or more per year or is a subcontractor with a prime government contractor, the nondiscrimination and affirmative action provisions of Executive Order 11246, the Rehabilitation Act, and the VEVRAA will apply even if there are no clauses in the contract or subcontract explicitly providing for compliance with the laws. By operation of law, the company will be required to prepare and maintain affirmative action plans that are compliant with the laws. Even if the agreement doesn’t explicitly define the company as a subcontractor under a government contract, it may be considered a covered subcontractor within the meaning of the DOL’s regulations.