February 19, 1996

Labor Law

The National Law Journal

Federal affirmative action programs, following Adarand, are being revamped to promote diversity through measures that don't use racial or gender preferences.
Although the Clinton administration has not yet completed its review of federal affirmative action programs following last year's Supreme Court decision in Adarand Constructors Inc. v. Pena,1some government contractors are feeling its effect. While it appears that the Adarand decision, which requires federal affirmative action programs to withstand strict scrutiny, may leave untouched purely voluntary private sector employment programs permissible under Title VII of the Civil Rights Act of 1964,2 minority set-aside programs have already come under fire.
Adarand involved a program that encouraged federal contractors to select subcontractors with "socially and economically disadvantaged" owners, and presumed that members of specified minority groups were disadvantaged. The key issue was the standard of review: The court's 1989 decision in Richmond v. J.A. Croson Co.3 had applied strict scrutiny to race-based remedial programs adapted by state and local governments, which are subject to the 14th Amendment's equal-protection clause, but its 1990 decision in Metro Broadcasting Inc. v. FCC4 had applied an "intermediate" standard to similar federal programs, which are subject to Fifth Amendment equal-protection principles.
By a 5-4 vote, the court overruled Metro Broadcasting and held that strict scrutiny applied to "all racial classifications, imposed by whatever federal, state, or local government actor"--that is, such classifications must be "narrowly tailored measures that further compelling governmental interests."5 The court then remanded the case without deciding the constitutionality of the program at issue.
The Clinton administration responded to the Adarand decision with a June 28 Justice Department memorandum advising federal agencies that strict scrutiny now applied to any federal program "that makes race or ethnicity a basis for decision-making," although mere outreach and recruitment efforts "typically should not be subject to the Adarand standards."6
The memorandum warned that remedying race discrimination was the only interest widely recognized as "compelling" in the affirmative action setting, and that non-remedial programs aimed at promoting "diversity" would clearly not survive strict scrutiny unless the government sought "some further objective" beyond diversity itself.
The memorandum also identified various questions left unanswered by the Adarand court, such as: whether congressional findings that affirmative action was necessary to remedy race discrimination should receive special deference; whether Congress could rely on national findings of discrimination rather than evidence specific to particular areas or industries; whether programs Congress had only approved implicitly would receive deference; and whether gender-based affirmative action programs are subject to strict scrutiny. The memorandum directed federal agencies to review all programs using race "as a basis for decision-making" in light of the Adarand decision, but not to suspend any programs in the interim.
Although the results of the administration's Adarand review have not yet been released, individual agencies have announced decisions concerning certain employment, procurement set-aside and communications programs.
Under Executive Order 11246, which is administered and enforced by the OFCCP, or the Labor Department's Office of Federal Contract Compliance Programs, most federal contractors and subcontractors must develop affirmative action plans that establish "goals and timetables" for minority and female hiring when there are "fewer minorities or women in a particular job group than would reasonably be expected by their availability."7 OFCCP's regulations state that goals should be achieved through "good faith efforts" rather than treated as "rigid and inflexible quotas."8
Critics frequently have charged OFCCP with imposing de facto quotas that violate Title VII and the cases have never produced a clear consensus about whether Executive Order 11246 authorizes or requires affirmative action measures not permitted by Title VII.9
As interpreted by two Supreme Court cases decided in 1979 and 1987, Title VII permits voluntary affirmative action plans that are designed to eliminate a "manifest imbalance" in a "traditionally segregated job category" and do not "unduly trammel" the interests of non-minorities or males.10 Adarand will not affect these standards, unless it produces spillover effects in the Title VII case law, but could affect the affirmative action obligations of federal contractors.
In a memorandum issued Aug. 2, OFCCP asserted that Adarand does not apply to Executive Order 11246, because Adarand concerned federal programs that use racial classifications "as a basis for decision-making," whereas the Executive Order contemplates decision-making based on merit rather than racial preferences. Among other things, the memorandum emphasized that Executive Order 11246 only requires federal contractors to identify "unlawful race-based and sex-based obstacles to equal employment opportunity" and adopt steps like outreach measures to eliminate such barriers, and that numerical goals included in affirmative action plans do not authorize or permit "unlawful preferential treatment and quotas."
Whether OFCCP's position that Adarand does not apply to Executive Order 11246 would prevail in the courts is uncertain, because the cases11do not suggest definitively how programs requiring "good faith efforts" to meet race- based "goals" should be characterized and evaluated. For now, however, OFCCP has served notice that it still expects compliance with Executive Order 11246, but is construing the Executive Order as an "equal opportunity" measure that does not authorize race- or gender-based hiring preferences that might conflict with Title VII.
As a consequence, federal contractors may face less pressure from OFCCP enforcement officials, but also may be precluded from involving Executive Order 11246 as a defense in reverse discrimination claims brought under Title VII. Thus, federal contractors should ensure that affirmative action efforts undertaken to comply with Executive Order 11246 could be adopted voluntarily under Title VII.
In the area of procurement set-asides, the Clinton administration has partially suspended one program--a Department of Defense program known as the Sec. 1207 program--that had been challenged in several post-Adarand suits. Implementing regulations that generally required the DOD to set aside contracts for SDBs, or minority-owned "small disadvantaged businesses," whenever two SDBs were qualified to bid, were suspended on Oct. 27, pending completion of the administration's Adarand re view.12
The DOD, however, did not suspend provisions in the Sec. 1207 program that grant SDBs an evaluation preference in unrestricted procurements, and has urged contracting officials to increase SDB set-asides under a similar government-wide program that remains in force--the 8(a) program, administered by the Small Business Administration.13 Moreover, the DOD recently proposed regulations that would broaden the use of price evaluation preferences for minority firms and create new incentives for minority subcontracting.14
Given the large universe of federal set-aside programs, the suspension of Sec. 1207 set-asides will not reduce appreciably the volume of litigation in these areas. Several suits have been filed challenging the 8(a) program,15 federally mandated set-aside programs that are carried out by the recipients of federal funds and the price evaluation preferences in the Sec. 1207 program.16
The only case decided to date, Cornelius v. Los Angeles County Metropolitan Transportation Authority,17 involved a federally funded subway project in which the MTA, or Los Angeles County Metropolitan Transportation Authority, established a 29 percent goal for DBE, or "disadvantaged business enterprise," participation, and granted DBEs a 10 percent price evaluation preference.
The MTA had argued initially that strict scrutiny did not apply because the DBE program reflected federal mandates--provisions in the Surface Transportation and Uniform Relocation Assistance Act requiring that DBEs receive at least 10 percent of federal rail construction funds--but the argument evaporated with the Adarand decision.
The California state court hearing the case held that the program was unconstitutional under Adarand. The court concluded that the DBE program favored minorities by entitling them to a presumption of "disadvantage"; that the MTA's evidence of discrimination was largely anecdotal and thus inadequate to show that the program served a "compelling" interest; and that the program was not "narrowly tailored" because there was no evidence that race-neutral alternatives had been considered. The case is now on appeal.
As Cornelius suggests, many federally mandated set-aside programs may be extremely vulnerable after Adarand because they were not adopted in a manner designed to withstand strict scrutiny--i.e., on the basis of a statistical "disparity study" establishing the existence of past discrimination, and an analysis of the race-neutral alternatives available for eliminating the effects of prior discrimination.
Perhaps in recognition of this problem, the Clinton administration is evaluating other methods for directing federal funds to "disadvantaged" businesses or individuals that would sever any link with racial classifications. Under a draft executive order on "empowerment contracting" that was published in October,18federal agencies would grant evaluation preferences to firms operating in "areas of general economic distress"--as defined by factors such as the unemployment rate, poverty rate and rate of business formation and growth--with smaller business in distressed areas receiving larger preferences.19
Thus, to the extent that race-conscious federal set-aside programs cannot currently be justified, they could be supplanted by initiatives that benefit small firms in distressed areas.
In the area of communications, Adarand has led the Federal Communications Commission to suspend race- and gender-based preferences in auctions to award licenses for wireless "spectrum-based" communications technologies. Under Statutory provisions designed to encourage participation by minority- and women-owned businesses, the FCC had previously conducted auctions in which minorities and women received preferences such as bidding credits and favorable payments terms.
The Adarand decision was issued three days before initial applications for an upcoming "C-block" auction were due, and the FCC amended the bidding rules to eliminate race-and gender-based preferences shortly afterward, in a final rule issued July 21.20 The FCC, explained that because Adarand created uncertainties about the previous bidding rules for the C-block auction and would likely provoke legal challenges, it decided to extend rules that previously benefited only minorities and women to all bidders qualifying as small businesses.
That decision itself was challenged by a firm that had hoped to benefit from the earlier rules, but the U.S. Circuit Court for the District of Columbia allowed the FCC to proceed with the auction in an unpublished Sept. 28, 1995, ruling.21 The FCC subsequently eliminated race and gender preferences from other upcoming auctions, but reportedly plans to conduct a disparity study to evaluate whether such preferences could withstand strict scrutiny if resurrected.
If these areas and others, the future of federal affirmative actin programs probably will be shaped by Congress as well as the executive and judicial branches. Among other congressional initiatives, a bill introduced by Senate Majority Leader Robert Dole, R-Kan., and Rep. Charles Canady, R-Fla., would prohibit the use of race and gender preferences--including goals and timetables, but not including recruitment efforts directed at minorities or women--in federal contracting, federal employment and any other federally conducted programs.22
Although predictions about the post-Adarand landscape are difficult to make, many programs ultimately may be revamped to promote affirmative action goals through "neutral" measures such as efforts to assist "disadvantaged" businesses or individuals rather than programs explicitly linked to race or gender or recruitment and outreach programs that do not authorize preferences in the selection process.
1.. 115 S. Ct. 2097 (1995).
2.. Of course, Adarand will affect directly the employment policies of federal agencies, which apparently have begun making adjustments in response to the decision; for example, the Director of the National Security Agency testified before Congress that NSA was modify a program to increase hiring of minority and female scientists to comply with Adarand.
3.. 488 U.S. 469 (1989).
4.. 497 U.S. 547 (1990).
5.. 115 S. Ct. at 2113.
6.. Citing post-Croson cases characterizing minority recruitment efforts as "race-neutral," the memorandum stated that Adarand ordinarily would not apply to such efforts so long as race was not a factor in final selection decisions, but cautioned that recruitment activities that worked to create a "minorities-only" applicant pool or otherwise place non-minorities at a significant disadvantage might not be viewed as race-neutral.
7.. 41 CFR 60-2.11(b), 6 0-2.12(k).
8.. 41 CFR 60-2.12(e), 60-2.15.
9.. As the Supreme Court noted in Chrysler v. Brown, 441 U.S. 281, 304-306 and n.35 (1979), the statutory authority for Executive Order 11246 has been "roundly debated," and the question of the Executive Order's relationship to Titles VI and VII of the Civil Rights Act of 1964 "has usually been put in terms of whether Executive Order 11246 is inconsistent with these titles." 10.. United Steelworker v. Weber, 443 U.S. 1993 (1979); Johnson v. Transportation Agency, 480 U.S. 616 (1987).
11.. See, e.g., Shuford v. Alabama State Board of Education, Civ. A 89-T-96-N (1995 WL 494913 *9-13 (M.D. Ala. Aug. 11. 1995) (concluding that provisions in a consent decree requiring the Alabama State Board of Education to make "good faith efforts" to achieve minority and female hiring goals did not need justification under Title VII or equal-protection standards because the goals were to be pursued only by "inclusive" measures such as expanded recruiting rather than "exclusive" practices like hiring preferences, but noting that the court was unaware of any previous cases that had adopted this distinction). 12.. 60 Fed. Reg. 54954 (Oct. 27, 1995).
13.. DOD's guidance encouraging 8(a) set-asides appeared in an internal memorandum issued Nov. 3, 1995, by Under Secretary of Defense Paul Kaminski.
14.. 60 Fed. Reg. 64135 (Dec. 14, 1995), 60 Fed. Reg. 66246 (Dec. 21, 1995). 15.. C.S. McCrossan Construction Co. v. Cook, CIV-95-1345 (D.N.M. filed Nov. 3, 1995); Dynalantic Corp. v. U.S. Department of Defense, 1:95 CV02301 (D.D.C. filed Dec. 15, 1995). 16.. Kay and Assocs. Inc. v. U.S., 95-C-6243 (N.D. Ill. filed Oct. 27, 1995). The case was later dismissed as moot, because the contracting agency decided that the initial awardee did not qualify as an SDB and re- awarded the contract to the plaintiff.
17.. 1995 WL 499822 (Cal. Supp. 1995).
18.. See 64 Fed. Cont. Rpt. 290-91 (Oct. 2, 1995).
19.. Senate Small Business Committee Chairman Christopher Bond has proposed a concept similar to empowerment contracting, in which small businesses in "historically underutilized business zones" would receive preferences.
20.. 60 Fed. Reg. 377786 (July 21 , 1995).
21.. See Appeals Court Lifts C-Block Auction Stay; Omnipoint's Case Weak, Wash. Telecom News (Oct. 2, 1995).
22..H .R. 2128. S. 1085.

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