Labor Dept. Official OK’d to Review Rule Her Dad—as Judge—Blasted

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By Ben Penn

The Labor Department’s top lawyer has received an ethics clearance to oversee what is arguably the agency’s most controversial rulemaking, despite her father’s fingerprints on a case involving it, a DOL spokesman confirmed to Bloomberg Law.

Kate O’Scannlain, an appointee of President Donald Trump who was recently sworn in as solicitor of labor, is the daughter of Ninth Circuit Senior Judge Diarmuid O’Scannlain. The judge authored a scathing dissent arguing that the Obama-era DOL rule to ban certain tip-pooling arrangements is illegal. In turn, the Trump administration issued a proposal in December to reverse that 2011 regulation by questioning the original rule’s legality. The proposed rule cites Judge O’Scannlain’s reasoning—a dissent that some attorneys felt exposed the regulation to review and reversal from the U.S. Supreme Court—that the DOL’s interpretation of the Fair Labor Standards Act marked an extreme abuse of agency rulemaking authority.

The solicitor, the department’s third-ranking official and most senior legal officer, is typically at the heart of a regulatory review process.

A source briefed on the matter told Bloomberg Law that it was Trump administration ethics officers who found Kate O’Scannlain didn’t need to recuse herself from participating in the rule. They determined that any conflict would only fall on her father, said the source, speaking on condition of anonymity. When asked to comment, a DOL spokesman didn’t address what role the White House or other politically appointed personnel played in the decision.

“Federal agencies have principal responsibility for the appropriateness of employees’ participation in official matters,” the department spokesman told Bloomberg Law in a written statement. “The Department of Labor’s career ethics officials have examined the tip credit matter and determined the Solicitor’s participation in this rule-making is in compliance with ethics requirements.”

A White House spokesman referred Bloomberg Law to the DOL’s comment.

New Rule Permits Tip Pools

The 2011 regulation asserted tips are the property of workers who earned them, including when employers pay the full minimum wage to supplement customer gratuities. That restricted businesses, especially in the restaurant industry, from requiring front-of-house workers, such as servers and bartenders, to share tips with back-of-house employees, such as cooks and dishwashers.

The new proposal is intended to free employers and their workers to structure tipping arrangements that they can all agree on, in some cases meaning lower-earning dishwashers will receive a raise. However, worker advocates and Democrats are outraged that the proposal doesn’t explicitly bar management from retaining the gratuities of workers.

The public comment period on the proposed rule ends Feb. 5, at which point the DOL will be reviewing policy and legal considerations in formulating a final rule. A former partner at management-side firm Kirkland & Ellis, O’Scannlain will be working with the DOL’s Wage and Hour Division on this rulemaking. She is now in her second week on the job, following her December Senate confirmation. The subject of her father’s dissent wasn’t broached during limited questions at her November confirmation hearing.

‘If My Father Had Written an Opinion’

O’Scannlain’s 2017 ethics letter, approved by the independent Office of Government Ethics, declares that she will recuse herself from conflicted situations.

“I will recuse myself on a case-by-case basis from participation in any particular matter involving specific parties in which I determine that a reasonable person with knowledge of the relevant facts would question my impartiality in the matter, unless I am first authorized to participate,” O’Scannlain wrote Oct. 6.

Whether her involvement in the tip pool issue could actually be influenced by her father’s argument is up for debate. Regardless of the legality of the ethics clearance, O’Scannlain should have been advised to sit out this process, said Patricia Smith, the Obama adminstration’s solicitor of labor.

“We always said there are technical ethical obligations and then there are optics,” Smith, now a senior counsel at the National Employment Law Project, told Bloomberg Law. “If my father had written an opinion, I would not be participating in this.”

Paul DeCamp, who was a WHD administrator in the George W. Bush presidency, said he would defer to the ethics experts on this decision but that he saw no reason why O’Scannlain would have a conflict of interest.

“The Solicitor plainly has no personal financial interest in the matter, and it seems rather unlikely that the judge would ground his daughter if the Department were to take a position in the Final Rule contrary to his dissent,” DeCamp told Bloomberg Law via email. “Under the circumstances, it is difficult to see why recusal would be necessary or appropriate.”

DeCamp, who now represents employers at Epstein Becker Green in Washington, sued the DOL on behalf of the National Restaurant Association, arguing that the 2011 rule exceeded the agency’s authority. His high court petition seeking to invalidate the rule has been pending for a year. The litigation could be rendered moot by the DOL’s new rule.

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