Federal Court Grants Preliminary Injunction to Stop OFCCP Enforcement Action

On October 30, 2024, the United States District Court for the Southern District of Texas granted a federal contractor’s request for a preliminary injunction to stop an enforcement action by the Office of Federal Contract Compliance Programs (OFCCP), which is an office within the U.S. Department of Labor (DOL).  See ABM Industry Groups, LLC v. U.S. Dep’t of Labor, Case No. H-24-3353, 2024 WL 4642962 (S.D. Tex. Oct. 30, 2024). While the effect of the decision is limited to the individual contractor in that case, the case could have far-reaching implications for OFCCP’s ability to bring enforcement actions through Administrative Law Judges (ALJs).

Background

ABM Industry Groups, LLC, is a federal contractor and entered into contracts that incorporated contractual terms required by Executive Order 11246, including an anti-discrimination provision barring discrimination on the basis of race, color, national origin, and other protected classes.  OFCCP concluded that the contractor violated those anti-discrimination requirements by preferring Hispanic applicants over Black and White applicants, as well as other recordkeeping and reporting violations. OFCCP brought an enforcement action against the contractor, which was assigned to a DOL ALJ.

Contractor’s Challenge

Roughly three years into the enforcement action before the ALJ, the contractor filed an action in federal court to challenge the administrative proceeding. The contractor raised two arguments:

(1) that the proceeding before the ALJ violates the contractor’s Seventh Amendment right to a jury trial, and

(2) that the two layers of for-cause removal protections between the President and DOL ALJs violate Article II of the U.S. Constitution. The contractor moved the court for a preliminary injunction, which the court granted.

Court’s Ruling

The court granted the contractor’s second challenge, based on Article II grounds, and did not reach the merits of the Seventh Amendment challenge. The court held that the two layers of for-cause removal protections unconstitutionally insulated DOL ALJs from removal, violating the President’s authority to remove Officers of the United States consistent with Article II of the U.S. Constitution.

The court discussed Supreme Court precedent on Article II’s “take care” clause, requiring the president to take care that the laws of the United States be faithfully executed, including by selection (and removal) of officers who could act at the President’s direction. The court acknowledged that a President’s removal of officers could be limited by Congress, including imposing good-cause restrictions on the executive’s ability to remove an inferior officer.  However, the court noted that under more recent Supreme Court precedent, two-layer for-cause removal protections have been found to violate Article II and the separation of powers.

The court relied on the Fifth Circuit decision in Jarkesy v. Securities and Exchange Commission, 34 F.4th 446, 463 (5th Cir. 2022), which found that two or more layers of good-cause removal restrictions between the President and SEC ALJs was unconstitutional. Specifically, the court relied on the Fifth Circuit’s holding that two layers of for-cause removal protection unconstitutionally interfered with the President’s ability to take care that the laws be faithfully executed. The court in this case noted that DOL ALJ’s exercise similar executive functions as SEC ALJs and applied the reasoning in Jarkesy to the case at hand.

The court found that the contractor faced a substantial threat of irreparable injury because the ALJ proceeding was ongoing and nearing the dispositive motion deadline. The court found that the injunction would not harm DOL because it could refer violations to DOJ for enforcement in federal court. In the end, the court granted the contractor’s preliminary injunction. But the court limited its ruling to the contractor’s case pending before the specific ALJ in question—it did not make any broader rulings that would bind any other cases or ALJs.

Potential Implications

Although the court limited its holding to a single federal contractor before a single ALJ, the potential implications of this case are far reaching. If other courts adopt similar reasoning, this case could set a precedent for federal contractors to challenge OFCCP enforcement actions pending before ALJs on purely procedural grounds. It is also possible that Congress could amend the two-layer removal procedure to eliminate or moot the separation of powers challenge to proceedings in front of DOL ALJs.

In any event, Contractors with cases pending before DOL ALJs would be well advised to discuss the implications of the ABM v. DOL opinion with their attorneys. At this time, with the balance of political power shifting in Washington D.C., it is difficult to predict what the President’s or Congress’s priorities will be with respect to federal contractor compliance. Stoel Rives will keep monitoring developments so that we can advise our government contractor clients appropriately.