In a significant decision with implications beyond the healthcare industry, the D.C. District Court upheld a ruling by the U.S. Department of Labor’s Administrative Review Board (ARB) deeming three Pennsylvania hospitals government subcontractors subject to the Office of Federal Contract Compliance Programs’ (OFCCP) jurisdiction. UPMC Braddock v. Harris, No. 1:09-cv-01210-PLF (D.D.C. Mar. 30, 2013).
The hospitals had each agreed to offer medical products and services to federal employees through UPMC Health Plan (the HMO). The HMO was itself under contract with the U.S. Office of Personnel Management (OPM). Despite express agreement with the HMO that, as providers of medical services, the hospitals were not federal subcontractors covered by mandatory equal employment opportunity and auditing regulations, the court found otherwise and invalidated the contract provision.
The issue decided by the court first arose in 2004 and follows a recent OFCCP trend of broadly expanding its jurisdiction over potential subcontractors. Initially, based on the HMO’s contract with OPM, the Department of Labor determined that UPMC Braddock, UPMC McKeesport, and UPMC Southside (the Hospitals) qualified as federal subcontractors. Denying this status, the Hospitals refused to comply with OFCCP’s request for a compliance review. In response, the OFCCP brought administrative enforcement proceedings against the Hospitals and won judgments before an ALJ in 2006 and the ARB in 2008, which the Hospitals appealed to the D.C District Court.
In its March 2013 opinion, the District Court ruled that the HMO and OPM could not separately agree to a narrower definition of “subcontractor” than used by the Department of Labor. Because only the Secretary of Labor can authorize an exemption to the non-discrimination and affirmative action requirements, the parties did not have the authority to contract out of the obligation to insert equal employment and auditing provisions into a contract that met the definition of “subcontract.”
Upholding the ARB determination that the Hospitals were subcontractors under the regulatory definition, the District Court, in a novel application of the Christian Doctrine, “read-in” the regulations into the Hospital contracts thus requiring them to comply with anti-discrimination and affirmative action obligations under VEVRAA, Executive Order 11246, and the Rehabilitation Act as promulgated by the FAR. This action by the court affirmed the ARB’s order permanently enjoining the Hospitals from failing or refusing to comply with the OFCCP and exposed the Hospital to a host of obligations which it had actively contracted to avoid. UPMC Braddock, ARB Case No. 08-048 (2009).
The Christian Doctrine has traditionally been applied to agreements with government contractors to incorporate statutorily mandated contract clauses expressing a deeply engrained public policy—even if these terms are expressly omitted by the parties. See G.L. Christian & Assoc. v. U.S., 312 F.2d 418, 424-26 (Ct. Cl. 1963). This case is unique, however, because the court did not simply “read in” the definition into the HMO or OPM contracts. Rather, it imputed this obligation upon the Hospitals that had otherwise entered into these agreements with the express understanding that they were specifically not “subcontractors” per the Secretary of Labor’s definition, and, accordingly, behaved as if they were rightfully exempt from the obligations of the equal employment opportunity clauses.
The court ruled that it was unnecessary for the Hospitals to have known and consented to the federal affirmative action clauses for the terms to be binding upon them. The court charged the Hospitals, as subcontractors, with constructive knowledge of the Secretary of Labor’s regulations, which is a first and is potentially problematic considering that in many cases, a subcontractor may not be aware of these obligations unless its Prime contractor provided proper notification through the appropriate FAR clauses. Further, the court said that the Hospitals’ offered “no persuasive explanation of why the same constructive knowledge of federal procurement regulations” imposed on government contractors by operation of law “should not also be imputed to subcontractors who undertake to provide services that support a government contract.” However, in a footnote, the District Court left open the possibility that an entity that did not actively “undertake to provide services that support a government contract” might not be subject to OFCCP jurisdiction without some reasonable notice.
The Hospitals have now filed an appeal in D.C. Circuit Court. If upheld, the district court’s decision could have potentially far-reaching commercial consequences. The court’s new use of the Christian Doctrine to read in federal regulations into a subcontract may allow the OFCCP to continue to aggressively assert its jurisdiction across all industries. Finally, while 2012 NDAA legislation and the ARB’s Florida Hospital decision do insulate medical providers participating in the TRICARE program, the plurality decision in the case does not entirely foreclose future OFCCP challenges based on alternative argument. See Florida Hosp., ARB Case No. 11-011 (2012).