April 18, 2013

Questions for Labor Secretary Nominee Perez

On March 19, President Obama nominated Thomas Perez to be Secretary of Labor. Mr. Perez currently serves as the Assistant Attorney General for Civil Rights at the U.S. Department of Justice. The Administration’s failure to revitalize the sluggish economy and create new jobs are well known.

Earlier this week, House Oversight and Government Reform Committee Chairman Darrell Issa, House Judiciary Committee Chairman Bob Goodlatte, and Senate Judiciary Committee Ranking Member Chuck Grassley released a joint staff report titled “DOJ’s Quid Pro Quo with St. Paul: How Assistant Attorney General Thomas Perez Manipulated Justice and Ignored the Rule of Law.” The report details how Mr. Perez, as head of DOJ’s Civil Rights Division, made a secret deal with the city of St. Paul, Minnesota, that ultimately prevented the Justice Department from recovering up to $180 million.

Additionally, last month, the DOJ Office of the Inspector General released a report titled “A Review of the Operations of the Voting Section of the Civil Rights Division.” The report discusses unprofessional conduct and “an often dysfunctional work environment at the voting section.” 

Here are a set of questions related to how Mr. Perez, if confirmed as Secretary of Labor, might advise the President and implement policies on issues critical to our economy.

Voting Rights Enforcement

Mr. Perez has been criticized for his leadership at the Department of Justice’s Civil Rights Division – particularly regarding his handling of a voter intimidation case against the New Black Panther Party.

On Election Day 2008, members of the New Black Panther Party stood guard at a polling station in Philadelphia, with one brandishing a nightstick or baton and allegedly threatening voters. The Civil Rights Division initially filed a civil case against these men and the New Black Panther Party and its leader for voter intimidation. After the defendants failed to respond to the complaint or appear in federal district court, the Department of Justice secured an entry of default against them in April 2009. However, Thomas Perrelli (then the politically appointed acting head of the Civil Rights Division) worked with senior management to overrule career DOJ prosecutors and voluntarily dismissed charges against three of the defendants with no penalty. An order was entered against the other defendant that prohibited him from bringing a weapon to a polling place in the next election, which is already prohibited under the law. 

The inexplicable resolution of this case was the subject of extensive investigations by the U.S. Commission on Civil Rights and by Congress. Although the decision occurred before he joined the department, Mr. Perez testified on behalf of the Department in a misleading manner. He testified under oath on several occasions that the decision to dismiss the case – after the default judgment had been awarded – did not involve political appointees in the deliberations.

A subsequent lawsuit filed under the Freedom of Information Act revealed, in more than 50 emails between high-level Obama appointees and career attorneys, that the decision-making process to dismiss the case involved senior political appointees. U.S. District Court Judge Reggie Walton of the U.S. District Court for the District of Columbia concluded: “The documents reveal that political appointees within DOJ were conferring about the status and resolution of New Black Panther Party case in the days preceding the DOJ’s dismissal of claims in that case, which would appear to contradict Assistant Attorney General Perez’s testimony that political leadership was not involved in that decision. Surely, the public has an interest in documents that cast doubt on the accuracy of government official’s representations regarding the possible politicization of agency decision-making.”

• If confirmed, will you testify to Congress in a truthful manner?

Disparate Impact Application

If confirmed, Mr. Perez would have authority over DOL’s Office of Federal Contract Compliance Programs (OFCCP). This agency is charged with implementing and enforcing affirmative action and nondiscrimination requirements that apply to federal contractors and subcontractors. One method used by OFCCP to judge contractor discrimination is applying the “disparate impact” theory. The Institute for Policy Innovation describes the OFCCP’s use of disparate impact as “a blunt statistical formula that plugs in hiring data provided by contractors. If a company’s hiring doesn’t essentially match the minority make-up of the applicant pool – within 2 percentage points –it is assumed that the company has engaged in discrimination.”

Various reports have raised concerns with Mr. Perez’s involvement in a deal with the city of St. Paul, which agreed to withdraw from a Supreme Court lending discrimination case involving disparate impact. In return, the federal government agreed not to join a pair of housing-related False Claims Act lawsuits against the city. In one of these, St. Paul small businessman Fredrick Newell alleged that the city had falsely certified the circumstances under which it received millions in federal housing grants. The suits “had the potential of returning more than $180 million in damages to the Treasury.” 

According to the Wall Street Journal, Mr. Perez “was concerned that if St. Paul won its Supreme Court case, the justices might strike down the legal tactic [based on] the notion that the federal government and private litigants can rely on statistics and other measures to show that a company’s or city’s policies have a disparate impact on minorities, and that they don’t have to prove intentional discrimination.” St. Paul had spent nearly a decade litigating the case. In addition, the Department of Housing and Urban Development had agreed to move forward with the case, and a number of DOJ attorneys expressed concerns with the deal to end it.

• Various accounts have raised concerns with your pursuit of equal opportunity laws in this country. Given the Department of Labor’s involvement in this area, what assurance can you offer that you will ensure objective enforcement of our laws?

• By dropping the False Claims Act cases in St. Paul, you chose to pass up a chance to recover millions of dollars in allegedly misused federal housing funds. In its fiscal year 2014 request, the Department of Labor has requested $68.1 billion. If Congress appropriates these funds, what assurance can you provide that you will actively ensure the appropriate use of taxpayer dollars?

• Please explain your position on the appropriate application of the theory of disparate impact as it stands now in U.S. law. 

• The Institute for Policy Innovation argues that the aggressiveness of OFCCP may be part of the reason why companies are postponing hiring. What is your response to this claim? 

• Employment attorneys have raised concerns that district directors in the six OFCCP regions have varying interpretations of the agency’s statutes. What steps would you take as Secretary of Labor to ensure that the regional offices are enforcing the rules and regulations consistently? What are you views on the OFCCP re-establishing its Ombudsman Office to field these types of concerns? Would you be willing to meet personally with contractor groups to hear evidence of the inconsistent application of these rules?

• Some have also raised concerns that the OFCCP is auditing the affirmative action plans of business locations with less than 50 employees, even though employer locations with fewer than 50 employees have no obligation to have such plans. Given the limited resources of the Department, would it make more sense for OFCCP to audit companies that have more than 50 employees and are required to have affirmative action plans? If you are confirmed, will you direct OFCCP to select for audits only business locations  with at least have 50 people?

Protection for Whistleblowers

The Whistleblowers Protection Program at DOL enforces the whistleblower provisions of more than 20 statutes protecting employees who report violations of various workplace safety, airline, commercial motor carrier, consumer product, environmental, financial reform, food safety, health insurance reform, motor vehicle safety, nuclear, pipeline, public transportation agency, railroad, maritime, and securities laws.

• Concern has been raised over how you might pursue whistleblower issues as head of the department with jurisdiction over many of these statutes. What assurances can you provide that, despite the treatment of Mr. Newell, you will indeed faithfully pursue cases brought forward by whistleblowers? 

• Whistleblower claims continue to take years to process. What will you do address this problem?

H-2B Temporary Foreign Worker Program

The H-2B temporary foreign worker program allows U.S. employers to bring foreign nationals into the U.S. to fill temporary, non-agricultural jobs if U.S. workers cannot be found. Industries that use the H-2B visa program include landscaping, hospitality, seafood, and amusement parks. Employers provide H-2B workers’ transportation to and from their country of origin and temporary housing while they work in the U.S. Under the H-2B program, employers must pay their workers the prevailing wage rate or the minimum wage, whichever is higher. The number of new H-2B visas is subject to a statutory numerical limit not to exceed 66,000 during any fiscal year. 

In January 2011, DOL issued a final rule to change the methodology for determining prevailing wage rates for the H-2B program, with an effective date of January 2012. Under the rule, the prevailing wage rate is to be the highest of: (1) the rate that applies to the job under a collective bargaining agreement; (2) the rate that applies under the Davis-Bacon Act; (3) the rate that applies under the Service Contract Act; or (4) the average wage paid to workers employed in similar jobs in the area of intended employment. Due to concerns by congressional Republicans and Democrats, the Department’s H-2B wage determination rules have not been implemented. 

Employers are particularly concerned with the new regulations because they lump different categories of workers together, in a wider geographic area, to calculate rates. It’s been estimated that DOL’s new methodology for calculating the prevailing wage under the H-2B program is raising rates by as much as 50 percent. Furthermore, critics are concerned with the rule’s expansion of the reach of the Davis-Bacon Act into the H-2B program. The Government Accountability Office and the DOL Inspector General have long questioned the credibility of the Davis-Bacon Act wage determination process, notably for using unscientific methods that have no statistical validity.   

• As Secretary of Labor, what steps would you take to ensure valid methods are used to determine wage rates? 

• Even in this economy, access to temporary, seasonal, H-2B non-agricultural workers is critical to the survival of many small businesses. The impact of the wage rule could force the closure of many of these businesses, which have already been crippled with a weak national economy. If a small business cannot access H-2B workers, it might have to shut down and lay off all of its workers. As Secretary, would you agree that the interest of small business is an important consideration in this and other regulatory decisions?

Persuader Regulations

Under existing law, agreements between employers and consultants must be disclosed if they cover “persuader activities,” such as those to persuade employees to exercise or not exercise rights to organize or collectively bargain. Current law exempts instances where consultants, including attorneys, simply provide “advice” on labor-related issues and do not speak directly to employees.   

On June 21, 2011, the Department of Labor published a proposed rule that opponents argue will greatly narrow the interpretation of the “advice” exemption. In the proposed rule, DOL lists actions that would be reportable, if there was an attempt to persuade employees. For example, under the proposed rule a person would have to file for “drafting, revising, or providing written materials for presentation, dissemination, or distribution to employees.”     

Many are concerned that under the new rules, law firms that counsel employers would have to disclose their clients, even if they do not directly speak to employees. This will make it more difficult for employers, especially small employers, involved in a union organizing campaign to get the legal assistance they need to proceed without violating labor laws. The American Bar Association argues that while it “is not taking sides on a union-versus-management dispute, but rather is defending the confidential client-lawyer relationship and urging the Department not to impose an unjustified and intrusive burden on lawyers and law firms and their clients.” 

The proposed rule will significantly increase regulation of law firms, trade associations, and others that communicate with employers regarding union issues. Narrowing of the employer exemption could also prove extremely problematic for employers and chill exercise of free speech rights. DOL has said the final rule will be published in April, though it is anticipated the Administration will wait until after the confirmation of the new secretary. 

• As a lawyer yourself, do you agree that attorney/client-privileged communications are protected under existing law and that lawyers have a duty of confidence to their client? Do you agree that any action or rule that violates the attorney-client privilege or confidences between attorneys and clients would be invalid under existing law or at least conflict with attorneys’ professional responsibility duties?

• What purpose does it serve to require the reporting of attorney-client confidences in situations where persuader activity is not being pursued?

• Regulators have the responsibility to carefully balance requirements so that the costs do not exceed the benefits. To what extent should the costs of implementing a new regulation be a factor in determining the final regulation? Should a regulation be implemented if the cost is significant, such as more than $100 million annually?

Definition of Fiduciary Under ERISA

In October 2010, the DOL Employee Benefits Security Administration (EBSA) proposed regulations regarding the definition of a “fiduciary” under the Employee Retirement Income Security Act of 1974 (ERISA). According to EBSA, the intent of the proposed rule was to define more broadly the circumstances under which a person or entity is considered to be a fiduciary when giving investment advice to an employee benefit plan or a plan’s participants. 

Significant bipartisan concerns have been raised that expanding the definition of fiduciary -- as originally proposed by EBSA -- could hurt the ability of plan sponsors and retirement plan service providers to give needed information regarding investments and investment strategies to participants and investors in IRAs. EBSA was encouraged to strike a balance between protecting participants and allowing for the free flow of information and services in the market.

A group of House Democrats sent a letter to then-Secretary of Labor Hilda Solis on June 25, 2012, expressing concern that DOL may be headed in the wrong direction, as the rule “could actually restrict” access to investment education and information.” Members also were concerned by the apparent lack of coordination with the Securities and Exchange Commission (SEC). An earlier letter from a group of Senators to Secretary Solis, then-SEC Chairman Mary Schapiro, and CFTC Chairman Gary Gensler urged inter-agency coordination and encouraged DOL to seek more input on the “rule’s effect on Individual Retirement Accounts … to ensure that the final rule provides significantly increased protections while, at the same time, being both practical and administrable.” Republican leaders of House and Senate committees with jurisdiction for pension issues also expressed concerns about the proposal’s deficient cost-benefit analysis and lack of agency coordination in an April 14, 2011 letter. 

Most recently, members of the Congressional Black Caucus have raised concerns as well, saying in a letter to DOL: “If brokers who serve [IRA] accounts are subject to ERISA’s strict prohibitions on third-party compensation, they may choose to exit the market rather than risk the potentially severe penalties under ERISA for violations. If that occurs, it could cause IRA services to be unattainable by many retirement savers in the African American community.”

In response to criticism of the proposed fiduciary rule, EBSA withdrew the proposal in 2011 and has indicated that it will re-propose it sometime this summer. EBSA stated that it agrees “with stakeholders and lawmakers that more public input and greater research will strengthen the rule.” EBSA also said that it “will continue to coordinate closely with the Securities and Exchange Commission … to ensure that this effort is harmonized with other ongoing rulemakings.” In March of this year, the SEC published a formal data collection request in connection with its own consideration of a fiduciary rule for broker-dealers.  

• There is concern that EBSA has not provided a sufficient explanation of what problem the fiduciary proposal is trying to solve. If confirmed, how do you plan to ensure that the EBSA’s fact-finding process is a good faith effort to speak with all relevant stakeholders? As Secretary of Labor, how do you plan to ensure that the re-proposal explains and documents the problem the rule is trying to solve?

• How do you plan to ensure that the issuance of the re-proposal is coordinated with the SEC’s work in considering a fiduciary standard? Would you consider delaying publishing the re-proposal until your staff has had a chance to review the data received by the SEC and incorporate that into your analysis?

• The SEC has allowed for a 120-day comment period for fact-finding on its fiduciary broker-dealer project. EBSA in the past has engaged in data-collections that allowed for as little as 30 days for a response. Will you encourage a comment period that reflects the scope and complexity of this undertaking? How long do you think the comment period should be?