Four highlights in regulatory practice from the past week present diverse but overlapping issues. The United States Supreme Court (SCOTUS) granted review in a case that may or may not have significant regulatory implications, but certainly contains drama. Another Administration priority of enforcing its preferences through procurement contracts was enjoined, setting the stage for a difficult appeal. At the very beginning 
of the regulatory litigation process, a new complaint poses a difficult question of agency reliance on statutory standards related to other programs. And finally, the Administration adds yet another brick to the precarious wall against arbitration.
Sex, Gender Identity, Statute, Regulation, and Guidance: The regulatory drought at SCOTUS may have ended last Friday with a grant of certiorari in Gloucester County School Board v. G.G. – but the questions presented differ from the petition in a critical way and might be resolved without administrative law issues being addressed. G.G. was born female but identifies as a male; still a juvenile, he sought to use the boys’ restroom at school. The district court ordered the schools to allow G.G. to use the boys’ restroom and the United States Court of Appeals for the Fourth Circuit affirmed and declined to stay that preliminary injunction; SCOTUS stayed the order pending resolution of the now-granted petition for certiorari.
The core regulatory fact is this: the provisions of Title IX of the Civil Rights Act of 1964 and Department of Education (ED) regulations prohibit discrimination on the basis of sex. On the other hand, ED and the Department of Justice (DOJ) have adopted guidance interpreting the statute and regulation use of the term sex to mean gender self-identity.
The schools sought review, first, of whether “this Court [should] retain the Auer doctrine [that a court should defer to agency interpretation of its own ambiguous regulations unless that interpretation is plainly erroneous] despite the objections of multiple Justices who have recently urged that it be reconsidered and overruled?” SCOTUS, however, declined to review that question and limited its grant to:
- If Auer is retained [presumably so], should deference extend to an unpublished agency letter that, among other things, does not carry the force of law and was adopted in the context of the very dispute in which deference is sought?
- With or without deference to the agency, should the Department’s specific interpretation of Title IX and [the regulations] be given effect?
DOJ’s Civil Rights Division (CRT) took the position on behalf of ED as amicus curiae in the Fourth Circuit supporting G.G.’s Title IX claim in order to defend the government’s interpretation of Title IX as requiring schools to provide transgender students access to restrooms congruent with their gender identity. Whether the Solicitor General will continue to support that position in the face of the questions that SCOTUS has ordered to be argued – at a point after the election – is not entirely clear, but likely.
The guidance has already been enjoined nationwide by the United States District Court for the Northern District of Texas, and DOJ has appealed that order the United States Court of Appeals for the Fifth Circuit.
► SCOTUS did not reform the questions that it wishes argued, but reformation seems to be appropriate. Putting Auer aside, the could be considering whether the ED / DOJ guidance is a substantive rule requiring advance notice and an opportunity for public comment under the Administrative Procedure Act (APA), and, if so, vacate and set aside the “guidance” on that basis. ED is not helped by the fact that it has not updated its regulations in more than 40 years to reflect any change in its perception and the normal rule remains that definitions take meaning at the time they are adopted. As is all too often the case, the agency has taken the shortcut and created much larger problems than necessary. Sympathizing with GG’s plight should not excuse an agency’s regulatory lapse. Of course, SCOTUS could ignore the APA, guidance, and deference issues entirely, consider “sex” as a general term not specific to Civil Rights Act and ED’s expertise, and decide the case purely on the basis of statutory interpretation.
Blacklist Blacklisted: The United States District Court for the Eastern District of Texas, in Associated Builders and Contractors of Southeast Texas v. Rung, enjoined the implementation of the Administration’s recent complex labor law enforcement process for federal contractors. Federal procurement is a unique combination of statutory, management, regulatory contract clause, and guidance – here the Federal Property and Administrative Services Act (FPASA), Executive Order 13,673, the Federal Acquisition Regulation [(FAR)]; Fair Pay and Safe Workplaces, and Department of Labor (DOL) guidance for contract officers in implementing the Executive Order and FAR rule. The sum of the executive actions taken here requires that most significant prime contractors must report allegations that they have violated any of 14 different labor, employment, or discrimination law statutes, even when those actions are pending and unresolved, and that agency contracting officers must decide whether such allegations should bar the potential bidder from a federal procurement contract.
The issues preliminarily decided in response to a motion for a preliminary injunction can be summarized in administrative law terms that plaintiffs were likely to succeed on the merits that the Executive Order, final rule, and guidance:
- conflict with the explicit procedures adopted by Congress for resolution of many of the 14 statutory claims, and with the extant debarment process;
- violate plaintiffs’ freedom from compelled speech rights under the First Amendment rights under the United States Constitution by requiring them to report non-final “violations” of the 14 statutes occurring since October 25, 2015;
- violate plaintiffs’ due process rights under the Fifth Amendment by requiring them to report and defend against non-final allegations of violation of those 14 statutes without a hearing;
- are arbitrary and capricious in light of the government’s failure to consider plaintiffs’ existing reliance interests and failure to explain how the reporting requirements will promote economy and efficiency in government contracting as contemplated by the FPASA in the face of $474 million in first year costs against an inability to quantify any benefits; and
- conflict with the Federal Arbitration Act (FAA) by barring contractors from mandatory, pre-dispute arbitration agreements (now a familiar challenged Administration mantra) with their employees or independent contractors on any matter arising under Title VII, as well as any tort related to or arising out of sexual assault or harassment.
Plaintiffs’ irreparable harm was, in the court’s view, clearly established by the possible loss of contracting, the balancing of interests showed little if any harm accrued to the government, and the public interest weighed in favor of holding the status quo. Not atypically for a rule, the preliminary injunction is nationwide.
► Many of the issues presented have familiar roots and a familiar right, and the decision breaks little new ground – the problem is one of application to the world of procurement regulations and the inherent economic dependency and theoretical arms-length of procurement contracts. The final rule has always been troubling because it is premised on speculation about violations at best – as the court points out, for example, the Equal Employment Opportunity Commission (EEOC) “issues more than 3,000 reasonable cause notices each year, but litigates only about 150 such cases per year, and a significant percentage of such cases are ultimately found to lack merit.” An appeal is an all but foregone conclusion, but the Administration faces a very difficult task of acquiring a favorable reversal of all of these positions, or (even less likely) one of the other three preliminary injunction standards).
Wellness Complaint: In a new complaint, AARP v. EEOC, the once-eponymous retiree (and worker) community challenge portions of the EEOC’s Regulations Under the Americans With Disabilities Act and Genetic Information Nondiscrimination Act final rules. The EEOC final rules to establish the extent to which employers may incentivize participation (or disincentivize non-participation) in wellness programs that require responses to disability-related inquiries and/or medical examinations that otherwise might be unlawful, e.g. under the Americans with Disabilities Act (ADA). The rule permits employers to charge employees up to 30% of the insurance premiums for nonparticipation. The complaint argues that the EEOC exceeded its programmatic authority in adopting provisions that are contrary to the programmatic statutes; that the rules are arbitrary and capricious because the final rules failed to establish reasoned decision-making in the wake of a long-established contrary position and failed to provide an adequate explanation for that decision, and failed to respond adequately to significant adverse public comments to the proposed rule. The final rule was effective July 18, 2016, but become applicable on January 1, 2017.
► One of the interesting points of these rules arises from the “30%” metric – EEOC has adopted a limitation set under the Health Insurance Portability and Accountability Act of 1996 (HIPAA), and the Patient Protection and Affordable Care Act (PPACA or Obamacare) to include participatory wellness programs. Any statistical line in the regulatory sand is arbitrary, but the question here is whether the adaptation of standards from HIPAA and Obamacare to ADA regulations is capricious – or whether the EEOC has, as the complaint alleges it has not, adequately explained that adoption. Congress may make arbitrary distinctions that an agency may not make. This case looks like it will have long and complicated legs, probably including a First Amended Complaint and motions to dismiss before, if ever, reaching the merits.
Education Borrowers Defenses: On Friday, ED (remember, the Department of Education) released a copy of the economically significant (colloquially) Borrower Defense final rule (its real name is a collection of program titles without a subject matter) to establish new Federal standards and a process for determining whether an educational borrower has a defense to repayment of a student loan based on an act or omission of the school. One issue of interest here lies in whether ED has authority to promulgate a rule, contrary to the general dictates of the Federal Arbitration Act, prohibiting a Direct Loan Program participating school from adopting a pre-dispute arbitration clause in its student contracts for borrowers’ claims under the regulations, or waiving rights to initiate or participate in class action claim-construction lawsuits under State law or Federal Rules of Civil Procedure, Rule 23, regarding such claims. ED specifically includes direct severability provisions in its adopted regulations, leaving no doubt that it would adopt each provision without all other provisions.
► The anti-arbitration and pro-class action provisions were expected, and the severability clause reflects a wisdom that these issues are not entirely clear. Expect litigation once again on whether an agency has been delegated authority to promulgate a regulation, here under the Higher Education Act (HEA), creating an exception from that same Federal Arbitration Act preference for arbitration, and insulating Rule 23 cases.
The post Monday Morning Regulatory Review – 10/31/16: Sex, Identity, Statute, Regulation, and Guidance; Blacklist Blacklisted; Wellness Complaint & Education Borrowers Defenses appeared first on Federal Regulations Advisor.