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TOPIC II: Section 342.  New offices of minority and women inclusion

Plain Meaning Of Section 342

Section 342 of Dodd-Frank creates a new Office of Minority and Women Inclusion (OMWI) at 20 different federal agencies.  Section 342(a)(1)(A) broadly proclaims that as of its effective date, the OMWI must “be responsible for all matters of the agency [within which it has now been established] relating to diversity in management, employment and business activities.”  By not further defining these terms, the section leaves open the possibility for future conflicts as to the applicable definitions and responsibilities that fall within their scope.  Although the OMWI will not be able to enforce any civil rights laws, the office must be responsible for coordinating the remedies that result from violations of such civil rights laws.  However, because section 342 also does not define the term “remedies,” it is unclear whether this term will include administrative punishment or simply methods of future prevention.

The OMWI Administrator must appoint a Director to each agency office of the OMWI who will be responsible for the following tasks within his/her agency: (a) equal employment opportunity and the racial and gender diversity of the agency; (b) increased participation of minority-owned and women-owned businesses in agency contracts (and, curiously, programs in creating the standards for coordination of technical assistance to such businesses); and (c) assessing the diversity policies and practices of entities regulated by the agency.  Consequently, section 342(b)(2)(C) appears to exist in direct contrast to the “Applicability” provision of section 342(d).  Whereas subsection 342(b)(2)(C) mandates that the OMWI Director must be responsible for “assessing the diversity policies and practices of entities regulated by the agency” where no contractual relationship necessarily exists, the Applicability provision within subsection 342(d) seems to suggest that the Office’s jurisdiction only applies when a direct contract for services exists with the covered agency.  

Section 342(c)(1) mandates that duties for the Director of each office further include developing and implementing “standards to ensure, to the maximum extent possible, the fair inclusion and utilization of minorities, women, and minority-owned and women-owned businesses in all business and activities of the agency at all levels, including in procurement, insurance and all types of contracts.”  Previously existing definitions for the terms “minority”,  “minority-owned business” and “women-owned business” are referenced in the definitions portion of section 342(g).

However, the drafters of the bill gave no guidance on the most important and operative phrases within this section: “fair inclusion and utilization.”  This is especially problematic given the incredibly broad scope of this term.  By mandating that the Director go to the “maximum extent possible” to “ensure” an undefined standard “in all business and activities of the agency at all levels, including the procurement, insurance and all types of contracts” the drafters of this section have given a powerful carte blanche to the OMWI Directors to create and enforce policies throughout each covered agency without guidance as to the standard of measure.  

When an explicit contract does exist with the covered agency, or is in the process of being proposed with a covered agency, the Director’s powers are again broad and undefined.  Any contract, sub-contract or potential hire to the covered agency must be evaluated by the OMWI Director to “ensure, to the maximum extent possible, the fair inclusion of women and minorities in the workforce.”  Again, the terms “fair inclusion” and “maximum extent possible” go brazenly undefined.

The OMWI Director of any covered agency also has the power to recommend the termination of any existing contract or subcontract with the agency that the Director determines has “failed to make a good faith effort to include minorities and women in their workforce.”  Again, the primary operative term in this section goes undefined because the section gives no guidance whatsoever on what constitutes a “good faith effort.”  However, the Fifth Circuit has held that the rebuttable presumption of a “good faith effort” in discrimination cases is supported when an employer implements company policy preventing the discriminatory act, gives employee training/education concerning the potential for discrimination, and promptly investigates any complaints regarding said discrimination.  

While such judicial rulings might be helpful, failure to define this term has left open the clear possibility for litigation over this ambiguous standard in the highly-contentious and costly field of employment discrimination law.  With almost $1.1 billion dollars in monetary benefits paid to plaintiffs in Equal Employment Opportunity Commission (“EEOC”) enforcement claims in recent years, the numerous undefined terms in section 342 could add to this billion-dollar sum.  The Supreme Court recognized early on that the costs of such discrimination claims are, unfortunately, passed along to the consumer using the products or services of the defendant-entities in the form of increased prices and fees.  Therefore, in a bill explicitly intended to help protect consumers, it seems counter-intuitive to leave undefined a section that might increase costs to the average consumer.

Despite these vagaries, no OMWI oversight is mandated in the Act.  An annual congressional report is required, but the report only requires information on the percentage of agency-paid contractors meeting the undefined OMWI criteria, the “successes achieved and challenges faced” in implementing OMWI objectives and recommendations for legislative action.  It is unclear if those recommendations will include defining the aforementioned terms.

Further, agencies must “seek diversity in the workforce…at all levels” via various enumerated methods and “implement any other mass media communications” that the OMWI, not the Agency, determines necessary.   While clearly well-intentioned, the breadth and ambiguity of these varied requirements have raised concerns about potential costs.  Sources of funding for these OMWI programs are also undefined in the Act, so applying the logic of the US Supreme Court indicates that these costs will not only be borne by the taxpayers who fund the agencies housing OMWI offices, but the entities subject to regulatory fees charged by those agencies and, therefore, the consumers who patronizes those private financial services.