Former Government Officials Weigh In on What To Expect from Presidential Administration Shift

Wednesday, November 18, 2020

Many companies are preparing for a shift in priorities under a Biden-Harris administration, despite some lingering uncertainty over the fate of the US election, including the makeup of Congress and the official confirmation of a new president. To help with that preparation, Morgan Lewis assembled a group of former government officials to explain what happens now, what could happen after January 20, and what companies around the world should be doing.

Morgan Lewis tax partner Jennifer Breen, a former lawyer with the Internal Revenue Service (IRS) Office of Chief Counsel in Washington, DC, led a discussion with Chai Feldblum, a former commissioner of the Equal Employment Opportunity Commission (EEOC) and now co-director of Morgan Lewis’s Workplace Culture Consulting group; Sandra Moser, a partner in Morgan Lewis’s white collar litigation and government investigations practice and former chief of the US Department of Justice’s (DOJ’s) Fraud Section in Washington, DC; Kenneth Polite, a former US Attorney, former chief compliance officer, and an accomplished litigator; Giovanna Cinelli, leader of the firm’s international trade and national security practice, a former Naval Intelligence officer, and a member of the Defense Trade Advisory Group; and labor and employment partner Susan Harthill, who was deputy solicitor for national operations at the US Department of Labor (DOL).

Below is an abbreviated version of their conversation.

Looking ahead to the remainder of 2020 and the beginning of 2021, what do you see happening here in Washington DC? 

Chai: We can expect all the agencies, including the EEOC, to be working very hard to get as much finalized as possible before January 20. In most of the cabinet agencies, the regulations, guidance, and litigation that has been filed can be pulled back. But some of that will take time, particularly for regulations. Anticipating that, we can expect to see a flurry of activity in the next few weeks.

Susan: There will be a push to finalize all the pending rules being reviewed by the agency, especially those that have already finished their public comment periods. Some of the rules currently pending include the DOL’s Wage and Hour Division’s independent contractor interpretive rule and EBSA’s proxy voting requirements. Lesser known agencies like the Office of Labor-Management Standards, which oversees union elections, also have a couple of pending rules, including coverage of intermediate bodies. Also the DOL and DOJ may seek to file earlier challenges to rules that they want to lock in before January.  

Giovanna: As long as the current agency leadership remains in place, business will continue as expected.  For example, the current DOD Under Secretary of Defense for Acquisition and Sustainment and the Commerce Department Assistant Secretary for Industry and Analysis have been very active in creating strategic policies and regulations related to the development of 5G, AI, robotics and quantum computing, as well as addressing trade imbalances that impact a broad-based definition of national security. This work continues apace. On the Commerce side, we’ve seen an incredibly active Section 232 investigations, through a statute that authorizes the Secretary of Commerce to conduct comprehensive investigations to determine the effects of imports on the national security of the United States.  In addition, Commerce has increased its focus on telecommunications, computing, export controls, and industrial base growth and security.

A change in administration could mean a change in top personnel or priorities within governmental agencies.  Looking at other agencies, what can we expect and when?

Jennifer: With respect to Treasury and the IRS, the top positions, including the Commissioner of the IRS and the Chief Counsel of the IRS, are politically appointed.  However, most of the personnel within the IRS and the IRS’s Office of Chief Counsel don’t change when an administration changes. Taxpayers should expect that ongoing audits and investigations will continue without skipping a beat. The Chief Counsel of the IRS has commented publically that guidance resulting from the Tax Cuts and Jobs Act will continue to be rolled out, with a goal to be done by the end of the year.  So, in that respect, it is business as usual at the IRS.  

Kenneth: Within the DOJ, there are essentially two groups of government appointees, a group of high-level officials in Main Justice that sit in Washington, DC, and then a group of appointed US Attorneys out there in the field. In Main Justice, we can expect significant changes come January, when a landing team from a Biden administration comes in with an acting attorney general. At the same time you have 93 US Attorneys across the country. I was one of them. While the 50 or so remaining Obama-appointed US attorneys were all fired on the same day (I remember it very vividly), but under a Biden administration, I expect it to be more measured, where the existing US Attorneys will be allowed to stay in their roles until their replacements are all named and confirmed, which will provide a bit of continuity to the department.

Giovanna: We expect any Biden appointees to face challenges in the confirmation process if the Senate remains in Republican control. While the personnel changes are going to be critical, there is much the president can do before he has a cabinet on board. The incoming president has the ability to examine all Executive Orders (EOs). While the sitting president can revoke or amend any EO, regardless of when and by whom it was issued, we anticipate that President-Elect Biden will focus immediately on revoking or amending EOs that are self-executing, meaning there is no underlying rule, and start with his priority issues. I expect the Biden subject matter administration teams are already looking at those EOs to see what should be on the chopping block immediately. We’re advising clients to take a look at EOs that might be overturned to have better insight into areas that do or don’t align with Biden administration priorities. This will allow clients to start planning for potential changes.

Susan: At the Department of Labor, at noon on January 20, all of the DOL political appointees who haven’t already departed the building, will leave. But like the IRS, the bulk of the DOL workforce is made up of thousands of career staff, including senior career officials who will stay and maintain continuity. No great big policy changes will happen out of the gate, because it will take time to confirm a new Secretary, Solicitor of Labor, and Assistant Secretaries who set the tone and priorities of the agencies. But political appointees may  start making some decisions as “acting” officials, which won’t require a Senate confirmation. What it means for employers, is that the whiplash they felt from the pace of new guidance coming from the agency during the Trump administration will continue. But changes to any regulations will take longer.

Chai: There will be a significant difference at the EEOC because there will be a new chair, probably as early as January 21. That’s because, unlike cabinet officials, the President can choose a current commissioner to become the chair without any additional confirmation by the Senate. If Chair Janet Dhillon stays on the commission until her term ends, which she has indicated as her plan, she ensures that the Democrats will not have a majority on the commission until July 2022. But our clients should be aware that that will not translate into Republican control of the EEOC. It simply means that any regulation or guidance that was finalized by the EEOC before January 20 will likely not be overturned or modified. But no new initiative or regulation or guidance will move forward that a Democratic chair doesn’t want. That’s because the chair sets the agenda and decides what is circulated for a vote. A chair can stop anything, even if she can’t get everything. In addition, the field offices will continue to investigate charges, do conciliations and bring litigation. A Republican majority will not affect that.

On the National Labor Relations Board (NLRB) side, the NLRB Chairman serves as the head of the agency, but many of the chairman’s administrative responsibilities are shared with the NLRB general counsel, and among NLRB Members, the chairman still only has a single vote, which means case-related issues and rulemaking remain subject to whatever is supported by a majority of board members.  It is likely that, in the first few days of a Biden administration, Lauren McFerran, the only current Democratic board member, will be designated chair (or chairman) of the agency.  However, the majority of the board’s members is likely consist of Republicans at least through August 27, 2021 (the end of Member Emanuel’s term) and possibly through December 26, 2022 (the end of current Chairman Ring’s term).  Current NLRB General Counsel Peter Robb’s term does not end until November 2021.  Therefore, significant policy changes at the NLRB may not occur until two or three years into the new administration.

What does this mean for enforcement actions, both those that are already under way, and new trends that may appear under a Biden administration?

Sandra: There was a perception in 2017 that DOJ white collar enforcement actions or corporate enforcement actions might dramatically drop under the Trump administration. But that has not borne out over the past four years. Overall, we saw steady or increasing number of charges against corporations or individuals, especially in the FCPA space, coming out of Main Justice. So there is every reason to expect those to proceed at pace, but, for resolutions with large dollar amounts in the hundreds of millions that need to be approved, those could be stalled until an acting district attorney is in place. Although once when they get through the existing pipeline of cases there may be a dip in new enforcements, because COVID has made it difficult to investigate properly.

We’ll also see COVID-19-related investigations really step up as there are investigations related to stimulus fund fraud and price gouging.  Given the impact that the pandemic has had on businesses, we will likely see an uptick in scrutiny by the SEC and DOJ on financial institutions and on industries hit hard in this environment. In the past, an economic environment like this one has lent itself to problems in reporting and aggressive business behaviors that would pique the interest of securities fraud enforcers. Many federal prosecutors will be looking for this type of behavior to try to make their mark with these cases and to increase the deterrent factor. This is an environment that is ripe for that.

Kenneth: The prosecutors are trained to follow the money. When you are talking about nearly $2.5 trillion of COVID-19 relief funds that have been issued, that’s a lot of dollars for prosecutors to investigate, which will likely bring an uptick of enforcement. The Trump administration has prioritized immigration for enforcement actions, both in Main Justice and across the country. I expect you will see a roll back of that widespread enforcement, to more tailored approach, where prosecutions are focused on the worst of the worst: individuals who have violent criminal history and repeat offenders. Also in the Trump administration, there’s been a decline of referrals from other agencies like the FTC and SEC, both of those were historically key drivers to Main Justice for enforcement. The new administration will likely have more referrals and collaboration with both of those agencies.

Giovanna: In national security, enforcement has remained constant and we expect that to continue.  Referrals among the key agencies – Justice, State, Commerce and Treasury remain on task and we do not anticipate any immediate changes either for cases in the pipeline or mature investigations in the export controls and sanctions arena.. Given the recent legislative bipartisan support for further sanctions across the board and enhancements to the export control processes, we expect administrative and criminal investigations and settlements to continue. In fact, in terms of national security and international trade, it’s one of the few areas where there has been bipartisan support for new legislation, especially when dealing with China, Russia, and Iran. Once the cabinet-level positions at the Departments of State, Commerce, Justice, Treasury, and Defense are confirmed, there may be some shifts in enforcement on the sanctions side, especially if Biden’s campaign statements regarding Iran and a return to the Joint Comprehensive Plan of Action (JCPOA), come to fruition. 

Susan: At the DOL, enforcement will continue on the current cases that are already in the pipeline. To the extent there are ongoing audits and investigations, those will continue apace, as will administrative federal court litigation and cases that are in the administration forum. There may also be different decisions made on which cases to appeal, although it will depend on what policy positions the new administration wants to take.

Jennifer: I expect that from an IRS perspective, if selected for audit, the taxpayer’s reporting of COVID-19 relief-related tax items, such as tax reporting of items relating to PPP loans and the Employee Retention Credit, will be examined to ensure correct reporting and penalties will be asserted in instances of incorrect reporting where the IRS deems appropriate. 

Are you advising clients to change any aspects of their business?

Giovanna: While we expect that at some point – after cabinet confirmation and appointments at the deputy, undersecretary and assistant secretary levels are complete – priorities will shift.  We don’t anticipate for now, any changes on the cross-border M&A side, as it relates to national security reviews under the Committee on Foreign Investment in the United States (CFIUS).  Globally, a number of countries have joined with the US in enhancing and coordinating their cross-border investment reviews to identify where national security concerns exist.  This applies not only to US partners and allies, such as the United Kingdom, Canada, Australia, Japan, and others, but also for potentially unexpected countries including Russia and China. A new resolve to ensure domestic capability within the supply chain is also likely to continue, which is expected to frame the acquisition and investment reviews of cross-border investments in critical vendors and suppliers. So even if some change is expected in the future, we are advising clients that that change is likely to be measured and on a manageable timeline.

Susan: Aside from potential changes in policies with respect to regulations like joint employer and independent contractors, for all of 2020 we’ve told employers that they have to be flexible. And that hasn’t changed. Right now they are navigating COVID-19-related employment changes—and there have been so many of them—they are complying with CDC recommendations that keep changing, as well as navigating the patchwork of federal and state wage and hour laws, new state and local laws for COVID-19 sick leave, and changes to workers’ compensation laws and more. These are challenges that a Biden administration will not really be able to impact, at least in the short term.

Sandra: For this snapshot in time, the reality is that settlement agreements and resolution approvals for the majority of corporate enforcement matters need to be signed off and approved by the highest levels, which are political appointees. Clients need to look at where they are in a settlement process before new appointees are named or confirmed. If companies are at some further stage of the negotiation they may want to move forward and try to wrap it up and get the approval you need before departures occur. A new official may want to reexamine and question a nearly complete settlement. But if the strategy is to delay, then this isn’t a bad thing, because they will definitely get another six to 12 months until the new officials are in place.

Jennifer: From a tax perspective, President-Elect Joe Biden has said he will raise the corporate tax rate from 21% to 28%.  Given the Republican control of the Senate, it is unlikely that these changes will come to fruition, at least not in the near term.  However, many taxpayers had begun transactions to address these possible changes.  If it comes to a point where there is no turning back, we could see a lot of taxpayers who started transactions to take advantage of current tax laws, pushing those ahead.

President-Elect Biden has emphasized several areas as his first priorities, where he is looking to make changes, including COVID and racial equality. How do you anticipate this playing out for clients?

Chai: I expect we will see initiatives from the EEOC in these areas. First, I expect we will see some projects being undertaken just by the chair and by extension the agency. But I also expect that Commissioners Charlotte Burrows and Jocelyn Samuels will work very hard to seek common ground with their Republican colleagues to move some initiatives forward. If even one of the Republican commissioners decides to engage and negotiate, that commissioner will be the swing vote and will hold a lot of power.  I would keep our eyes open for that.

Kenneth: I’ll be frank, within this Trump administration the civil rights division has essentially gone dormant, no area more so than in the area of law enforcement investigation. Under President Obama, you saw 23-24 consent decrees in place for big city law enforcement departments. But the Trump administration quickly halted the support for all of those consent decrees. I expect a Biden administration to lean in to this area of reform, with more consent decrees, and greater investment by the DOJ in terms of community relations and community-oriented policing programs.

Susan: With respect to racial equality, we expect to see suspensions of investigations for alleged hostile work environments from “divisive” diversity training as identified by the EO. In respect to COVID-19, we need to see changes from Congress, especially when it comes to the extension of COVID-19-related leave and stimulus funds. The Families First Coronavirus Response Act (FFCRA) expires at the end of the year and we don’t know whether it will be expanded. The Occupational Safety and Health Administration (OSHA) will very likely issue an emergency temporary standard requiring employers to develop and implement a comprehensive infectious disease exposure control plan.

And last question, what do you think our clients are either most looking forward to in a change in administration or are most concerned about?

Giovanna: Change is always challenging, whether one approves of or disagrees with the new policies. Businesses thrive on certainty: it allows you to plan, make business decisions, sign contracts, and establish your role in the supply chain. So when policies shift, especially when they are diametrically opposed to the previous ones, that can create an enormous amount of uncertainty and challenges for companies to find resources to handle those shifts. In the national security and trade related space, change can be granular, such as Customs attempt to change the numbering system of their regulations, which will wreak havoc on the automated systems that companies use to transfer goods and other items across the globe; or broad based, such as the Department of Education and Justice Department’s focused enforcement of conflicts of interests and failures to report by universities and their professors who are awarded contracts or given gifts by foreign organizations, including governments. A policy shift to allow a more relaxed reporting regime when it comes to gifts from China, several Middle Eastern countries and Russia, could allow for more resources within those communities to be expended for other than compliance requirements.

Sandra: Of course clients are concerned if corporate enforcement will be a top priority of a Biden administration, but I don’t think the overall efforts around corporate enforcement actions will stop. But the department has worked very hard to develop policies that make DOJ actions and expectations more transparent, to incentivize voluntary disclosures, and to provide a degree of consistency in investigations coming out of Washington. These policies were well received by the defense bar, as well as by the DOJ, and viewed as reasonable and fair. Because of their positive reception and because DOJ leadership worked hard to memorialize these policies, I think they are here to stay. So regardless of a change in administration, I think clients should not be concerned that these policies will change.  

Susan: The transparency policies may also survive at the DOL, which is very good for employers to be able to see what compliance looks like in black and white. Employers are most concerned about a shift from a compliance-assistance focus and more employer-friendly policies, such as the joint employer rule and proposed independent contractor rule, which are unlikely to survive. We will also likely see a more aggressive enforcement by agencies such as the Employee Benefits Security Administration, the Wage and Hour Division, the Office of Federal Contract Compliance Programs, and OSHA, which clients might be most concerned about. The concern, across several agencies, is a potential shift from the government helping companies be in compliance with their programs to a more aggressive enforcement outlook.

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If you’re interested in more detailed information related to any of these topics, we are hosting a series of post-election workplace policy webinars, featuring guest speakers that include the chair of the NLRB, John Ring, Solicitor of Labor Kate O’Scannlain, and Craig Leen, the Director of the Office of Federal Contract Compliance Programs. More information can be found on morganlewis.com. You can also sign up on our website for a weekly emailed digest that provides a roundup of our most recent resources to help companies navigate the broad array of issues facing their businesses, including the global pandemic, new administration priorities, economic uncertainty, and geopolitical events.