ARB CASE NO. 99-112
ALJ CASE NO. 99-OFC-11
DATE: September 1, 1999
IN THE MATTER OF
OFFICE OF FEDERAL CONTRACT
COMPLIANCE PROGRAMS, UNITED
STATES DEPARTMENT OF LABOR,
PLAINTIFF
v.
BEVERLY ENTERPRISES, INC.,
DEFENDANT.
BEFORE: THE ADMINISTRATIVE REVIEW BOARD
Appearances:
For the Plaintiff:
Heidi Dalzell-Finger, Esq., James D. Henry, Esq., Henry L.
Solano, Esq.,
U. S. Department of Labor
Washington, D.C.
For the Defendant:
Timothy J. O'Rourke, Esq., Raymond H. Hixson, Jr., Esq., John C.
Fox, Esq.,
Fenwick and West LLP
Palo Alto, CA
DECISION AND ORDER
This case arises under Executive Order 11246, as amended; Section 503
of the Rehabilitation Act of 1973, as amended; and the affirmative action provisions of the
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Vietnam Era Veterans' Readjustment Assistance Act ("the Acts"). 43 Fed. Reg.
49240 (1978), 3 C.F.R. Part 230, reprinted in 42 U.S.C. §2000e note (1999);
29 U.S.C. §793 (1999); 38 U.S.C. §4212 (1999). Plaintiff Office of Federal
Contract Compliance Programs ("OFCCP") filed a complaint alleging that Beverly
Enterprises, Inc. ("Beverly" or the "Company") failed to comply with
its contractual obligations by refusing to submit to OFCCP the written affirmative action
programs ("AAPs") for the Company's Fort Smith, Arkansas, headquarters. OFCCP
had requested the documents in preparation for a compliance review of the facility. Beverly
asserted that OFCCP violated the Fourth Amendment to the U. S. Constitution in selecting the
Company's facility for review. Following limited discovery and a hearing conducted pursuant
to the expedited procedures contained in 41 C.F.R. §§60-30.31 et seq.
(1999), the Administrative Law Judge ("ALJ") issued a recommended decision
concluding that OFCCP's selection of Beverly for a compliance review satisfied constitutional
requirements. For the reasons discussed below, we concur with the ALJ's recommendation.
However, we order relief different from the relief recommended by the ALJ.
Beginning with the first name on the list, Maltbia examined each of the
companies in order, as instructed in the Interim Selection Procedures memorandum. By
checking the Federal Procurement Data System, Maltbia determined that the first company on
the list did not have a current Government contract, and therefore was not subject to
requirements of the Acts. R. D. & O. at 4. In accordance with the instructions contained in the
Interim Selection Procedures memorandum, Maltbia completed a Contractor Rejection
Documentation Form (Pl. Exh. 2), indicating the reason that the first company was being
rejected for a CMR review. Maltbia then began an evaluation of the second company on the
list. The second company already was a party to a consent decree with OFCCP, and thus under
the terms of the Interim Selection Procedures memorandum also was ineligible for a
compliance review. Id. After completing the rejection information form for the
second company, Maltbia evaluated Beverly, the third company on the list. He determined that
Beverly did not meet any of the criteria requiring rejection and therefore concluded that
Beverly was eligible for a Corporate Management Review. R. D. & O. at 5. Maltbia
completed the Contractor Selection Documentation Form, and notified the OFCCP regional
office that Beverly was the company he was recommending for a CMR. Def. Exh. I.
OFCCP's regional office approved the recommendation and forwarded
it to OFCCP's National Office for concurrence pursuant to the terms of the Interim Selection
Procedures memorandum. Harold Busch, Director of Program Operations, reviewed the
recommendation and also approved it. On receiving approval from the National Office, the
Dallas regional office sent the scheduling letter requesting various documents to Beverly in
September 1998. R. D. & O. at 5; Pl. Exh. 1.
OFCCP's Procedure for Compiling Lists of Contractors Eligible
for Corporate Management Reviews -- OFCCP's Fiscal Year 1998 list of contractors
potentially eligible for a CMR was compiled at the National Office. R. D. & O. at 4. The raw
data from which the list is obtained is contained on forms -- Equal Employment Opportunity
Employer Information Reports ("EEO-1s") -- that employers complete and submit
annually to the Equal Employment Opportunity Commission ("EEOC"). R. D. &
O. at 4; 41 C.F.R. §60-1.7. The EEOC transfers the EEO-1 data to computer tape and
sends OFCCP a copy of the tape each year. The data which formed the basis of the tape
involved in this case was based upon the 1996 EEO-1 submissions. Tr. 210.
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In 1997, John Lawrence, Chief of the Branch of Program Management
and Information Development at OFCCP's National Office, received the EEO-1 data tape from
the EEOC, and had a program developed to extract from that data a list of companies which met
the CMR criteria articulated in the Interim Selection Procedures memorandum: that is, all
Federal contractors which employed 4000 or more people, had more than one establishment,
and had a headquarters facility. Each Government contractor in this merged data set was
assigned a random number. The companies were then sorted by random number according to
the district offices in which their headquarters were located. Thus, to be included on the CMR
list for the Little Rock area, a company had to be a Federal contractor, employ 4000 or more
people, have more than one establishment, and be headquartered in the Little Rock geographic
area. Maltbia was provided with this randomly ordered list of company names and used it, as
described above, to choose Beverly as a candidate for a CMR.
DISCUSSION
Beverly excepts to the ALJ's recommended conclusion that OFCCP
satisfied the reasonable search requirements of the Fourth Amendment when it selected the
Company for a compliance review. Def. Except. at 5-28. Beverly also excepts to the
recommended remedy. Based on the record and applicable case law, we concur with the ALJ's
conclusion that OFCCP's selection of Beverly for a compliance review meets constitutional
standards. However, we modify the remedy.
I.Fourth Amendment Standards
Fourth Amendment privacy interests are implicated in data compiled by
commercial enterprises pursuant to federal reporting requirements, California Bankers
Ass'n v. Shultz, 416 U.S. 21 (1974), as well as in the premises where the data are kept,
Marshall v. Barlow's, Inc., 436 U.S. 307 (1978). The privacy interest in data
is diminished, however, when it was compiled pursuant to federal requirements. See,
e.g., Donovan v. Dewey, 452 U.S. 594 (1981). Moreover, the reasonableness
of an agency's demand for access to records is governed by much less stringent standards than
an agency's demand to enter premises. Donovan v. Lone Steer, Inc., 464 U.S. 408
(1984).
With respect to the decision to inspect the data of a particular
commercial enterprise, the Fourth Amendment requires that the agency's selection be the
product of a neutral administrative plan that is definite and regular, clearly limited in time,
place and scope. New York v. Burger, 482 U.S. 691 (1987). The selection must not
"be the product of unreviewed discretion of the enforcement officer in the field."
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United States v. Mississippi Power & Light, 638 F.2d 899, 907-908 (5th Cir.),
cert. denied, 454 U.S. 892 (1981); United States v. New Orleans Pub. Serv., Inc.
723 F.2d 422 (5th Cir. 1984).
In Mississippi Power and Light the Fifth Circuit held that
OFCCP's selection of a company for compliance review must meet the Barlow's
standard. Mississippi Power and Light, 638 F.2d at 907. A warrantless inspection
satisfies the Fourth Amendment if it is: (1) authorized by statute; (2) properly limited in scope;
and (3) initiated in a neutral fashion. Id. An OFCCP search, as a matter of law, meets
the first two elements; that is, it is statutorily authorized and is properly limited in scope.
Id. at 908. As to the third element, OFCCP's decision to initiate a particular search
is deemed reasonable if based either on: (1) specific evidence of an existing violation; or (2)
a showing that the search was initiated pursuant to an administrative plan containing specific
neutral criteria.3 An agency must show
not only that its selection plan is neutral, but also that the plan is "actually applied
neutrally." New Orleans Pub. Serv., Inc., 723 F.2d at 428.
1 References to the exhibits and hearing
transcript are cited as follows: OFCCP's exhibits as Pl. Exh. ; Beverly's exhibits as Def. Exh.
; the ALJ's exhibits as Ct. Exh. ; and the hearing transcript as Tr. .
2 A Corporate Management Review
is a review of employment practices, including all personnel actions and pay practices at a corporate
headquarters. Tr. 51-52.
3 The Mississippi Power and
Light court included an additional element in its reasonableness test, namely, "a showing that
'reasonable legislative or administrative standards for conducting an . . . inspection are satisfied with
respect to a particular [establishment].'" Mississippi Power and Light, 638 F.2d at 907
(internal citations omitted). This element is a duplication of the third element. An analysis of whether the
selection is pursuant "to a plan containing neutral criteria" essentially is the same as a
"determination of whether the Department of Labor followed 'reasonable legislative or administrative
standards.'" First Alabama Bank of Montgomery v. Donovan, 692 F.2d 714
n.12 (11th Cir. 1982)(applying the Fourth Amendment standards to OFCCP's selection of First Alabama
Bank for compliance review).
4 None of the Lawrence testimony
cited in Beverly's exceptions (Def. Excep. at 10-14) addressed the production of the CMR list.
5 Beverly produced evidence that
in the 1994-1996 period OFCCP had targeted specific industries for review, including the health care
industry of which Beverly is a part. Def. Exh. A, D, E; Def. Excep. at 15. Beverly argues that the
computer codes used to sort companies by their industry codes may have remained in the computer
program and tainted the computer sort of contractors for the CMR listing by "targeting"
specific industries. Def. Excep. at 15. There is no evidence to support Beverly's supposition that industry
targeting was "imbedded" in the computer program used to create the CMR listing. In any
event, Beverly's implied assertion that industry targeting is constitutionally suspect is contrary to
prevailing case law going back to Barlow's. See Marshall v. Barlow's,
Inc., 436 U.S. 307, 321;First Alabama Bank v. Donovan, 692 F.2d
714, 721 (11th Cir. 1982)(enforcement plan focused on banking industry); Donovan v.
Wollaston Alloys, Inc., 695 F.2d 1, 3 (1st Cir. 1983)(approving an OSHA targeting project
which ranked industries by SIC number, in descending order according to their injury frequency rate);
Industrial Steel Products Co. v. OSHA, 845 F.2d 1330, 1337 (5th Cir. 1988) (same).
6 Busch testified that he did not
participate in creating the computer code that is used to produce the CMR listing but did participate in
establishing the criteria that the code writers use. Tr. 248.
7 Beverly also argues that the ALJ
should not have credited Maltbia's stated reason for rejecting the second company on the CMR list; namely
that the company was a party to a consent decree. Def. Excep. at n.2 and 16. According to Beverly,
"this claim . . . seems entirely unreliable" because OFCCP allegedly took a contrary position
in a 1982 case. Def. Excep. 8 at n.2. This argument fails, for three reasons. First, whatever happened
in 1982, in 1998 OFCCP had a written policy, reflected on the Contractor Rejection Documentation Form
attached to the Interim Selection Procedures for Corporate Management Reviews (Pl. Exh. 2), that
required rejection of a company if it was "[s]ignatory to [a] consent decree."
Second, in the case which Beverly cites, First Alabama Bank v.
Donovan, 692 F.2d 714 (11th Cir. 1982), OFCCP argued that it should not be foreclosed from
reviewing the bank simply because it was subject to a federal court consent decree in private litigation
relating to employment discrimination. In this case, Maltbia testified that the consent decree was between
the second company on the CMR list and OFCCP, and that the Little Rock area office was
receiving regular progress reports from the contractor. Thus, the two circumstances are entirely different.
Third, it would appear to go without saying that, by asserting a position in a 1982
case, the agency did not tie its hands for all time.
8 We also decline to rule that the
ALJ erred when he refused to apply in Beverly's favor the regulatory presumptions available under 41
C.F.R. §60-30.11(c). Def. Excep. at 20-26. Refusal to answer a question in a deposition can
create a presumption that the answer, if given, would be unfavorable to the controlling party unless the ALJ
"rules that there was valid justification for a witnesses' failure or refusal to answer." 41 C.F.R.
§60-30.11. Here, the ALJ ruled that there was justification. R. D. & O. at 8. We find no error in
that ruling.
9 Beverly also repeatedly, and
erroneously, refers to the NationsBank case in its pleading before the Board. Def. Except. 25, 26,
30. NationsBank v. Herman, 174 F.3d 424 (4th Cir. 1999). For example Beverly states that
"[a] federal district court found that OFCCP unconstitutionally selected NationsBank for audit . . .
," citing the Fourth Circuit decision. Neither NationsBank nor any other case known to us
holds OFCCP's selection processes violative of the Fourth Amendment.
10 Beverly contends that sanctions
should not be extended to its subsidiaries because: (1) "no evidence in the record supports a theory that
would permit" such sanctions; (2) OFCCP did not name any subsidiary in its Complaint; and (3) none
was at bar to protect its legal interests. Def. Excep. at 35. Beverly has failed to provide this Board with any
authority indicating that these are sufficient reasons for excluding subsidiaries from sanctions. All subsidiaries
of a covered contractor that have not received a facility waiver are included within the contract compliance
provisions. See OFCCP v. Trinity Industries, Inc., ARB Case No. 98-003 (ARB Final D. & O.,
Nov. 14, 1997). Under these circumstances we hold that the sanctions ordered here apply to Beverly and
its subsidiaries.