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Federal Regulations Advisor Insight and Commentary on U.S. Government Regulatory Affairs

Monday Morning Regulatory Review – 4/4/16: SCOTUS Seeks Contraceptive Alternatives; Religious Discrimination Regulations; Persuader Suits & Retirement Fiduciary Duties Debut

Posted in Executive - OMB Review, Judicial Review & Remedies, Regulatory Process

dawn over the capitol aocThe United States Supreme Court (SCOTUS) rarely orders post-argument briefing, particularly on a discrete but lopsided question, but it did so last week on an issue of agency compliance with specific statutory freedom of religion requirements.  Several agencies, also last week, adopted “regulations” that further express grant administration policy for religiously affiliated non-profits.  Of the totally expected, various groups filed at least three challenges to the Department of Labor (DOL)’s recent “persuader” rule.  Looking forward, the word is that DOL will release another major rule this week:  fiduciary duties.

SCOTUS Seeks Contraceptive Alternatives:  In a highly unusual move, SCOTUS last Tuesday ordered the parties to further brief alternatives for Zubic v. Burwell.  The issue before SCOTUS in seven consolidated cases (free of political rhetoric) is whether Department of Health and Human Services (HHS) regulations mandating contraceptive coverage sufficiently accommodated petitioners’ rights under the Religious Freedom Restoration Act (RFRA).  The Justices expressed concern during oral argument about whether the regulation represented the least restrictive means of furthering that compelling governmental interest, but the order issued suggests more concretely that SCOTUS has problems with whether the regulatory accommodation is sufficient.  SCOTUS, not just a single Justice, ordered the parties to address:

whether and how contraceptive coverage may be obtained by petitioners’ employees through petitioners’ insurance companies, but in a way that does not require any involvement of petitioners beyond their own decision to provide health insurance without contraceptive coverage to their employees.

Petitioners with insured plans are currently required to submit a form either to their insurer or to the Federal Government (naming petitioners’ insurance company), stating that petitioners object on religious grounds to providing contraceptive coverage.  The parties are directed to address whether contraceptive coverage could be provided to petitioners’ employees, through petitioners’ insurance companies, without any such notice from petitioners.

For example, the parties should consider a situation in which petitioners would contract to provide health insurance for their employees, and in the course of obtaining such insurance, inform their insurance company that they do not want their health plan to include contraceptive coverage of the type to which they object on religious grounds.  Petitioners would have no legal obligation to provide such contraceptive coverage, would not pay for such coverage, and would not be required to submit any separate notice to their insurer, to the Federal Government, or to their employees.  At the same time, petitioners’ insurance company – aware that petitioners are not providing certain contraceptive coverage on religious grounds – would separately notify petitioners’ employees that the insurance company will provide cost-free contraceptive coverage, and that such coverage is not paid for by petitioners and is not provided through petitioners’ health plan.

Limited briefs are due April 12, 2016; replies are due April 20, 2016.

Note that previous SCOTUS interim orders required that non-profits provide at least some notice to HHS or their insurers that they object to the birth-control mandate on religious grounds, a point that the current order questions by suggesting that notice to the insurer could be made at the “point of sale” rather than later.  The example might infer an additional limitation – that the contraceptive coverage is being paid for by a pool in which the employer is not a member.

►  The Solicitor General may be hard pressed to continue the argument that it cannot cover the cost of insurance while it makes arguments about how vast be its powers in other contexts, unless it can show that no appropriation already available to HHS or the other tri-partite agencies could cover that cost of contraceptive coverage.  Other cases in which the Solicitor General argues for quite broad Executive authority may affect SCOTUS’s view of the efficacy of the Solicitor General’s argument here.

The order may or may not signal that SCOTUS is leaning against the efficacy of the existing regulatory accommodation.  Like some oral argument, the order may just be water testing.  Any formal order from SCOTUS finding that another means of accommodation is less intrusive, however, signals a defeat for the existing regulation.

Religious Discrimination Regulations:  Meanwhile … eight departments and an agency published a common rule today, Federal Agency Final Regulations Implementing Executive Order 13559: Fundamental Principles and Policymaking Criteria for Partnerships With Faith-Based and Other Neighborhood Organizations, requiring faith-based grantees to notify program beneficiaries that they may not be discriminated against based on religion or required to participate in any religious activities.  The eight agencies – in order of precedence: Justice, Labor, Agriculture, Health and Human Services, Housing and Urban Development, Education, Veterans Affairs, Homeland Security, and the Agency for International Development – either adopted a new or revised existing policy in various parts of the Code of Federal Regulations.

►  The rules, perhaps necessarily, complicate the already complicated relationship between the government as grantor, a non-profit religious services provider as grantee, and an individual beneficiary based on the grantee’s and beneficiary’s beliefs.  Like Executive Order 13,559 and other Executive Orders it implements, the rule does not have a formal legal basis or the “force of law” as a substantive rule.  The rules, in reality, represent only a statement of policy that the agencies will enforce (if at all) through grant award provisions (i.e. contract) and enforcement of those award provisions.

On the other hand, in several instances, the joint rule closely tracks or mimics Executive Order 13,559.  If the rules only track or mimic the Executive Order, then the rules may add nothing to clarify the superior authority, which raises questions about why the rules include the track or mimic at all.

Many have labored long and hard to bring this joint rule forward and commentary here should not be considered critical – rather a note for further consideration on the ongoing balancing of delicate multidimensional relationship.

Persuader Suits:  The Department of Labor (DOL), Office of Labor-Management Standards (OLMS)’s Interpretation of the “Advice” Exemption in Section 203(c) of the Labor-Management Reporting and Disclosure Act (LMRDA) final rule, as predicted last week, drew immediate fire.  Litigants filed at least three different challenges to the rule in the past week.  In the Eastern District of Arkansas, the Associated Builders and Contractors of Arkansas leads a coalition including the National Association of Manufacturers (NAM).  In the Northern District of Texas, the National Federation of Independent Businesses leads another coalition, including the National Association of Home Builders (NAHB).  In the District of Minnesota, Worklaw Network is an association of law firms that represent management exclusively in labor and employment, representing itself and its member firms.  To sum up the various Administrative Procedure Act (APA) and related counts (which have many similarities), in various counts the plaintiffs allege:

  • DOL exceeded authority because the rule conflicts with the LMRDA;
  • the rule is arbitrary and capricious because it ignores or misstates “advice” and failed to give an adequate explanation for altering its 50-year interpretation of the term “advice;”
  • the rule violates the First Amendment Freedom of Speech and Freedom of Association;
  • the rule violates the Fifth Amendment Due Process clause because of its vagueness;
  • the rule violates the National Labor Relations Act (NLRA) as precluding regulation of all non-coercive speech about unionization;
  • the rule unlawfully infringes on State-law attorney-client privilege; and
  • DOL failed to comply with the Regulatory Flexibility Act (RFA), Small Business Regulatory Enforcement Fairness Act (SBREFA), and Executive Orders.

►  Some claims may suffer the ignominious death of an argument without a legal foothold, such as the notion that the rule violates Executive Orders.  Other issues will require detailed briefing and analysis, and motions for preliminary relief are likely.  Multi-district filings create challenges for the government where a single loss can mean vacatur of the rule under the APA and the Judicial Panel on Multidistrict Litigation (JPMDL) has declined to expand its procedures to accommodate potential legal conflicts.  Many of the issues involve little “labor” and depend on much broader issues far beyond DOL’s expertise.  Whether DOL will seek collaboration or a Department of Justice (DOJ) defense is not yet known.

As always, this blog attempts to provide the raw documents to permit readers to form their own opinions and welcomes submission of complaints, petitions, and other critical documents.

Retirement Fiduciary Duties Debut:  Numerous press sources have reported or repeated that DOL will release the Employee Benefits Security Administration (EBSA) Conflict of Interest Rule – Investment Advice final rule on Wednesday.  The second proposed rule underwent 90 days of public comment, and the Office of Management and Budget (OMB) has held more than two dozen meetings with interested private parties (through March 24).  OMB has not yet signaled that it has completed executive and interagency review.

►  Pre-announcement is not, by itself, a bad thing, although whether DOL intended the release (or it was a leak) is unclear.  Allowing for planning is generally a good thing.  Pre-announcement could, however, cause problems if an agency selectively provided information to individuals with an interest in the regulation.  One should presume that the agency has not done so, but pre-announcement does raise the concern.