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Just in time for Major League Baseball's opening day, a federal district judge in the District of Columbia has rejected the arguments of UPMC Braddock and its sister hospitals contesting OFCCP jurisdiction. As we previously reported, the hospitals have been disputing their status as federal subcontractors since 2004, only to have their arguments rejected by an Administrative Law Judge and then by the Administrative Review Board. Now, the court has issued the hospitals their third strike.

The three hospitals – UPMC Braddock, UPMC McKeesport, and UPMC Southside, all affiliated with the University of Pittsburgh Medical Center – entered into contracts with the UPMC Health Plan, a Health Maintenance Organization. The HMO contracted with the federal Office of Personnel Management to provide insurance coverage and medical services to federal employees. The OFCCP argued that the hospitals were federal subcontractors because of these relationships and thus subject to the agency's jurisdiction.

"Yer OUT!"

The district court rejected all of the hospitals' arguments contesting OFCCP jurisdiction. First, the hospitals contended that the contract excluded providers of medical services from the definition of "subcontractor." The court responded that the parties did not have the authority to limit the scope of Executive Order 11246, Section 503 of the Rehabilitation Act, or Section 4212 of the Vietnam Era Veterans' Readjustment Assistance Act. Thus, the definition of "subcontractor" in the agreement was of no import.

Second, the hospitals asserted that they were not "subcontractors" within the meaning of the pertinent regulations. The regulation implementing Executive Order 11246 defines a "government contract" as

any agreement or modification thereof between any contracting agency and any person for the purchase, sale or use of personal property or nonpersonal services. ...The term "nonpersonal services" as used in this section includes, but is not limited to, the following services: Utilities, construction, transportation, research, insurance, and fund depository.

The hospitals argued that the medical services they provided did not qualify as "nonpersonal services." Because there is no explicit definition of "nonpersonal services" in the OFCCP regulations, the court looked to the provision in the Federal Acquisition Regulations that applies to nondiscrimination in employment by contractors and subcontractors. Based on this definition – "a contract under which the personnel rendering the services are not subject . . . to the supervision and control usually prevailing in relationships between the Government and its employees" – the court found that the hospitals were, in fact, providing nonpersonal services because the hospital personnel were not in an employment relationship with the Office of Personnel Management.

Third, the hospitals argued that their agreements with the HMO were not "subcontracts" within the meaning of the OFCCP regulations because the hospitals neither provided services necessary to the HMO's performance of its contract with the government, nor performed, undertook, or assumed any portion of the HMO's obligation to the government. The hospitals asserted that they contracted to provide insurance coverage only, not medical services. Wrong again, said the court: As an HMO, part of the purpose of the Health Plan was to provide medical services, and this is exactly what it contracted with the government to provide to federal employees. The court said, "Because the hospitals provide a portion of the medical care that the [HMO] agreed to supply to federal employees under its OPM contract, the hospitals' agreements with the [HMO] are necessary to the performance of that contract."

Finally, the hospitals contended that they had never consented to be bound by the Equal Employment Opportunity clauses in the laws and Executive Order. In response, the district court adopted the rationale that "certain statutory or regulatory provisions may become part of a government contract even though the contract does not contain language to that effect." Because the hospitals indirectly reaped the benefits of doing business with the federal government, they were subject to the EEO clauses, which are included in all government contracts and subcontracts by operation of law.

It remains to be seen whether the hospitals will seek another "at bat" by appealing to the U.S. Court of Appeals for the District of Columbia Circuit.

How to Improve Your Batting Average

As all three decisions make clear, every employer should be evaluating its contracts and purchase orders to determine how its goods and or services are being used. If your company is doing business with a federal contractor – whether you realize it or not – you may be a federal subcontractor, subject to the jurisdiction of the OFCCP.

If you have a question about any of this, please contact any member of Constangy's Strategic Affirmative Action Practice Group, or the Constangy attorney of your choice.

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Constangy, Brooks & Smith, LLP has counseled employers on labor and employment law matters, exclusively, since 1946. A "Go To" Law Firm in Corporate Counsel and Fortune Magazine, it represents Fortune 500 corporations and small companies across the country. Its attorneys are consistently rated as top lawyers in their practice areas by sources such as Chambers USA, Martindale-Hubbell, and Top One Hundred Labor Attorneys in the United States, and the firm is top-ranked by the U.S. News & World Report/Best Lawyers Best Law Firms survey. More than 130 lawyers partner with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Alabama, California, Florida, Georgia, Illinois, Massachusetts, Missouri, New Jersey, North Carolina, South Carolina, Tennessee, Texas, Virginia and Wisconsin. For more information, visit www.constangy.com.


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