# Wagner-Peyser Act Staffing Flexibility

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URL: https://www.frixlaw.com/law-library/documents/fr%3A2019-27260

## Record

- **Collection:** Federal Register
- **Document type:** Rule
- **Published:** January 6, 2020
- **Citation:** 85 FR 592

## Text

DEPARTMENT OF LABOR
Employment and Training Administration
20 CFR Parts 651, 652, 653, and 658
[Docket No. ETA-2019-0004]
RIN 1205-AB87
Wagner-Peyser Act Staffing Flexibility

AGENCY:

Employment and Training Administration (ETA), Labor.

ACTION:

Final rule.

SUMMARY:

The U.S. Department of Labor (Department or DOL) is issuing this final rule to give States increased flexibility in their administration of Employment Service (ES) activities funded under the Wagner-Peyser Act (the Act). This flexibility includes the grants allocated to the States for the traditional labor exchange and related services, and for the foreign labor certification program, including the placement of employer job orders, inspection of housing for agricultural workers, and the administration of prevailing wage and practice surveys.

DATES:

This final rule is effective February 5, 2020.

FOR FURTHER INFORMATION CONTACT:

Heidi Casta, Deputy Administrator, Office of Policy Development and Research, U.S. Department of Labor, 200 Constitution Avenue NW, Room N-5641, Washington, DC 20210, Telephone: (202) 693-3700 (voice) (this is not a toll-free number) or 1-800-326-2577 (TDD).

SUPPLEMENTARY INFORMATION:

I. Executive Summary

This final rule reflects changes made in response to public comments received on the Notice of Proposed Rulemaking (NPRM) that was published on June 24, 2019, at 84 FR 29433. The Department received many comments from the public, States, and advocates for Migrant and Seasonal Farmworker (MSFW) populations. The Department took into account these comments in reaching this final rule, and the changes made to the regulatory text are detailed below in the Department's responses to related comments.

The regulatory changes made in this final rule modernize the regulations implementing the Wagner-Peyser Act
1

to align them with the flexibility allowed under the Workforce Innovation and Opportunity Act (WIOA), and to allow States to choose the service delivery model that can best meet their goals for the ES program. This could include a focus on services for individuals with barriers to employment, improved employment opportunities for Unemployment Insurance (UI) recipients and other job seekers, better services for employers, and improved outreach to individuals in rural areas. The changes also give States the flexibility to staff employment and farmworker-outreach services in what each State finds is the most effective and efficient way, using a combination of State employees, local government employees, service providers, and other staffing models in a way that makes the most sense for them. This, in turn, may leave more resources to help employers find employees and to help employees find the work they need. The changes are also consistent with Executive Order (E.O.) 13777, which requires the Department to identify outdated, inefficient, unnecessary, or overly burdensome regulations that should be repealed, replaced, or modified.

1
This statute was originally titled the Act of June 6, 1933. Section 16 of the statute instructs that it may be called the Wagner-Peyser Act.

The modifications made in this final rule require conforming amendments
2

to the specific Wagner-Peyser Act references in 20 CFR 678.630, 34 CFR 361.630, and 34 CFR 463.630 of the U.S. Departments of Labor and Education's joint WIOA regulations (Workforce Innovation and Opportunity Act; Joint Rule for Unified and Combined State Plans, Performance Accountability, and the One-Stop System Joint Provisions Final Rule, 81 FR 55792 (Aug. 19, 2016)). Neither this conforming change nor any of the changes discussed in this final rule will affect other programs' staffing requirements, such as those for the Vocational Rehabilitation (VR) program, because all changes discussed in this final rule, including these conforming changes, apply only to the ES programs authorized under the Wagner-Peyser Act which includes the Monitor Advocate System activities.

2
Although this final rule requires that conforming amendments be made to 20 CFR 678.630, 34 CFR 361.630, and 34 CFR 463.630, these amendments are not contained in this final rule. DOL and the U.S. Department of Education will make these conforming amendments in a separate regulatory action.

The Wagner-Peyser Act does not mandate specific staffing requirements. Section 3(a) of the Wagner-Peyser Act requires the U.S. Secretary of Labor (Secretary) to assist in coordinating the ES offices by developing and prescribing minimum standards of efficiency. Historically, the Department has used the authority in this provision to require States to provide labor exchange services with State merit staff,
i.e.
State staff employed according to the merit system principles in 5 CFR part 900, subpart F—Standards for a Merit System of Personnel Administration.
3

However, this is not the only reasonable interpretation of this provision and, in finalizing this rule, the Department is adopting an interpretation that allows States the flexibility to use staffing arrangements that best suit their needs. This flexibility will allow States to provide Wagner-Peyser Act services through State merit staff, other State staff, subawards to local governments or private entities, a combination of these arrangements, or other allowable staffing solutions under the Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance). Consistent with the Uniform Guidance, all of these staffing arrangements, other than using State-employee staff, would be considered subawards and the entities providing services would be considered subrecipients. The Department received comments on the NPRM asserting that the Department did not have the authority to provide this flexibility under the Wagner-Peyser Act. The Department has responded to those comments, and others, below.

3
Throughout this rule the Department uses the term “merit staff” and similar phrases to refer to staff that are part of a merit personnel system that complies with 5 CFR part 900, subpart F.

This final rule is not subject to the requirements of E.O. 13771 because this rule results in no more than
de minimis
costs.

II. General Comments Received on the Notice of Proposed Rulemaking

The Wagner-Peyser Act Staffing Flexibility NPRM proposed changes to 20 CFR parts 651, 652, 653, and 658. The Department received 126 comments within the 30-day comment period. Of these, the Department received comments expressing general support for the changes proposed in the NPRM, as well as several comments expressing opposition to these changes. Additionally, the Department received one untimely comment that pertained to issues also raised by timely commenters. Some commenters requested the Department to extend the comment period, but after considering their requests, the Department determined that the original 30-day comment period provided adequate time for the public to comment on the proposed rule. The Department appreciates the input from all commenters.

Multiple commenters, including private individuals, local workforce

development boards, and several States, supported the flexibility in the rule because, they stated, it would allow for staffing flexibility and that “privatization,” as some commenters characterized it, at the State and local levels would help agencies address local needs. Multiple commenters also supported the allowance for what they termed “privatization” as enabling the alignment of WIOA title I and ES staffing. One commenter agreed with the proposed rule's assessment that staffing flexibility could result in savings that could be reinvested elsewhere in ES activities. Another commenter wrote that, in the commenter's State, staffing flexibility could help integrate services and ensure that local job centers have sufficient onsite staff. Some commenters, including a local workforce development board, stated that Michigan has operated a pilot program that allocates funding to local workforce development boards, and that further flexibility would be beneficial. Some commenters supported the flexibility because, they wrote, the private sector would better provide employment services due to its adaptability to modern technologies and circumstances, including tracking job placements.

The Department appreciates these comments and agrees that staffing flexibility puts States in the best position to determine what is the most effective, efficient, and cost-effective way to provide the services under the Wagner-Peyser Act. The Department recognizes the value of the three State pilot projects, which provided important information on the use of alternative staffing models. With the staffing flexibility provided to the programs covered by this final rule, States will now have significant discretion and flexibility to tailor their service-delivery models to their local needs and circumstances.

Many commenters described this rule's new flexibilities for States as “privatization.” That is not an accurate term. This rule does not privatize Wagner-Peyser Act services. States retain responsibility to provide Wagner-Peyser Act services, and this rule provides flexibility to States to offer these services using the best staffing approach available to them.

Similarly, many commenters used the term “contractors.” As explained more fully below, the word “contractor” is a defined term under the Uniform Guidance, which governs how States can expend their Wagner-Peyser Act grant funds. To allay confusion, the Department has used the term “contractor” only where appropriate in this preamble, such as when describing the content of a comment.

Several commenters opposed the proposed staffing flexibility because, they wrote, the proposed rule lacks support demonstrating the effectiveness of non-merit-staffing alternatives for ES activities and claimed that available evidence indicates that merit-staffing is the most efficient way of staffing ES programs. In support of these views, several commenters referenced Jacobson et al., “Evaluation of Labor Exchange Services in a One-Stop Delivery System Environment” (2004),
4

as a study showing the benefits of maintaining a merit-staff-based ES program. According to several commenters, this study concludes that the demonstration States for alternative staffing models (Colorado, Massachusetts, and Michigan) did not improve ES operations compared to the merit-staffing model as studied in Oregon, North Carolina, and Washington. Several commenters stated that the study demonstrates that merit-staffing was highly cost-efficient.

4
Louis Jacobson, Ian Petta, Amy Shimshak, and Regina Yudd, “Evaluation of Labor Exchange Services in a One-Stop Delivery System Environment,” prepared by Westat for the U.S. Department of Labor, Employment and Training Administration Occasional Paper 2004-09 (Feb. 2004).

The Department appreciates the comments citing the Jacobson study related to the Wagner-Peyser Act ES. However, the Department disagrees with the characterization of the study's results. In particular, the Department does not agree that the study found a strong correlation between merit-staffing and the study's conclusions, as the Jacobson study did not focus on merit-staffing.

The Jacobson study assessed how public labor exchanges funded under the Wagner-Peyser Act have evolved with the development of one-stop centers (also known as “American Job Centers” or “AJCs”). Parts of the study compared the performance of “traditional” public labor exchanges, which maintained State-level control of ES programs, with “non-traditional” public labor exchanges, which devolved control of ES programs to local or county governments. The study identified three States that modified their public exchange structure substantially by devolving State control and staffing to local areas (Jacobson et al., 101-08). Colorado devolved responsibility for ES activity to the counties through workforce development boards (called workforce investment boards at the time), while one-stop centers in Michigan were run by a mix of State and local government agencies. Only one of the States (Massachusetts) ultimately permitted individual workforce development boards to opt out of the traditional State-run public labor exchange system and devolve service delivery to local government, non-profit, or for-profit entities. See Jacobson et al, at 45-46. The limited findings—which did not specifically focus on merit-staffing—should not be used to draw conclusions regarding merit-staffing systems nationwide.

The study concluded that in the States evaluated, State-controlled one-stop centers helped many UI claimants rapidly return to work; however, one-stop centers controlled by non-State entities tended to focus on serving economically disadvantaged populations, tailored job listings to the specific skills of those in most need, and effectively used the case management approach to service.

It is also important to note that this study evaluated service delivery under the Workforce Investment Act (WIA). Its successor, WIOA, made significant reforms to the federally funded workforce development programs and provides States greater flexibility to achieve their goals, making the study less relevant to the current rulemaking than suggested by the commenters.

The Jacobson study can be informative when viewed holistically. One of the goals of providing staffing flexibility is to give States more options in designing their workforce development systems, including the ES program, to more closely align with other WIOA partner programs. The results of this study show that it is possible to more closely align services provided by the ES program with WIOA's focus on serving individuals with barriers to employment, which is a key goal of this rulemaking. While the Department acknowledges the commenters' concerns about whether particular staffing arrangements would be optimal in any individual State, the Department considers States to be in the best position to determine whether to implement the staffing flexibility provided in this regulation. States are able to determine the most effective, efficient, and cost-effective way to provide the services under the Wagner-Peyser Act.

Several commenters referenced a 2012 study from Michaelides et al., “Impact of the Reemployment and Eligibility Assessment (REA) Initiative in Nevada,” as an additional study showing the benefits of maintaining a merit-staff-

based ES program.
5

According to commenters, this study found that, in the Reemployment and Eligibility Assessment (REA) evaluation in Nevada, the merit-staffed REA program led to UI claimants collecting fewer benefits. The Department recognizes the value of evaluations and encourages States to consider any relevant research or to conduct their own evaluations or pilot projects to best determine their staffing approaches.

5
Marios Michaelides, Eileen Poe-Yamagata, Jacob Benus, and Dharmendra Tirumalasetti, “Impact of the Reemployment and Eligibility Assessment (REA) Initiative in Nevada,” prepared by IMPAQ for the U.S. Department of Labor (Jan. 2012).

The objective of the Michaelides et al. study was to address specific questions related to the efficacy of the Nevada REA program, including whether REA reduced UI benefit duration and benefit amounts received, whether it expedited reemployment of UI claimants, and whether REA led to UI Trust Fund savings exceeding REA program costs. The study was not measuring the efficacy of merit staff delivering the services. While State merit staff provided the services analyzed in the study, the study did not specifically look at the staffing model, but rather it evaluated the services provided. The study never analyzed or determined whether the positive results were attributable to State merit-staffed employees providing the services. Therefore, the study's findings cannot be viewed as illustrative of the relative benefits of merit-staffing for this rulemaking.

The Department notes that this regulation does not require States to change their staffing structure for providing services under the Wagner-Peyser Act, but rather it provides much needed flexibility in developing their staffing structure to staff these services. The Department considers States to be in the best position to determine whether to implement the staffing flexibility provided in this regulation. States may review this and other studies in making such a decision. States are able to determine the most effective, efficient, and cost-effective way to provide the services under the Wagner-Peyser Act.

Two commenters recommended the Department conduct an independent assessment showing the effectiveness of alternative staffing models before implementing the rule. The Department recognizes the value of evaluations in helping States determine the most effective, efficient, and cost-effective way to provide ES activities and encourages States to consider all available data in determining their staffing strategies.

For example, there is no merit-staffing requirement in the WIOA title I Adult and Dislocated Worker programs. As explained in the NPRM, when crafting this flexibility, the Department considered the results and outcomes for WIOA title I programs, which do not have a merit-staffing requirement, to show that career services, including labor exchange services, can be provided effectively through non-merit staff employees.

The Department sponsored the Workforce Investment Act Adult and Dislocated Worker Programs Gold Standard Evaluation, which found that intensive services (now called individualized career services under WIOA) were an effective service intervention for job seekers. States can use their ES funds to provide individualized career services, similar to the ones evaluated in this study. Therefore, the Department has concluded that it is not necessary to have State merit-staffing to provide effective ES activities.

The Department considers States to be in the best position to determine whether to implement the staffing flexibility provided in this regulation. The Department encourages States to consider any relevant research or to conduct their own evaluations or pilot projects when determining whether to implement the staffing flexibility provided for in this regulation. It should be noted that the Department was not and is not required to conduct the assessment suggested by the commenter.

Several commenters stated that the NPRM failed to describe the contracting process and would leave ES open to potential conflicts of interest. The Department makes grants to the States to carry out the Wagner-Peyser Act requirements, making the States the Department's grantees. The Department and the States are subject to the Uniform Guidance at 2 CFR part 200, as well as the Department's implementing regulations at 2 CFR part 2900. If a State determines it will use the flexibility offered by this final rule to obtain a service provider to deliver the State's ES activities, this service provider will be characterized as a subrecipient, as defined in 2 CFR 200.93, under the Uniform Guidance. See 2 CFR 200.330. This makes the agreement between the State and the service provider to deliver Wagner-Peyser Act activities a subaward. See 2 CFR 200.92. While States have the flexibility to characterize their agreements with any ES providers as “contracts,” the service provider cannot be considered a contractor as that term is defined and used in the Uniform Guidance, as the service provider does not have the characteristics of a contractor described in 2 CFR 200.330(b). See also 2 CFR 200.22. Because the Wagner-Peyser Act service provider will be a subrecipient, the service provider will be subject to the requirements of the Uniform Guidance, including the financial and program management, monitoring, and cost principle requirements.

The Uniform Guidance does not impose any particular process or procedure States must use when making a subaward to a subrecipient. Therefore, to give the States the maximum flexibility in choosing the staffing method that is the most efficient for each State, the Department declines, at this time, to prescribe a particular process or procedure that States must use in determining who will provide ES activities in the State.

The Department does not agree that the staffing flexibility would leave the ES open to potential conflicts of interest. 2 CFR 200.112 requires the Department to establish conflict of interest policies for the use of Wagner-Peyser Act grant funds. Consistent with this requirement, the Department promulgated 20 CFR 683.200(c)(5)(iii), which governs ES activities and requires States to disclose any potential conflicts of interest to the Department and the State's subrecipients to disclose any potential conflicts of interest to the State. 20 CFR 683.200(c)(5)(iii) requires that States, as Federal award recipients, disclose in writing any potential conflict of interest to the Department. The Department considers potential conflicts of interest to include conflicts of interest that are real, apparent, or organizational. Therefore, whether or not a State uses the flexibility in this final rule to provide ES activities, the State and its subrecipients will be required to disclose potential conflicts of interest.

The Department also notes that, consistent with 20 CFR 683.400, the Department will continue to conduct monitoring to ensure States are complying with all of the requirements of the Wagner-Peyser Act, its implementing regulations, and 2 CFR parts 200 and 2900. This will include monitoring to ensure States are complying with all applicable requirements on conflicts of interest.

Some commenters opposed the rule, contending that a private entity would be less likely to provide assistance to rural areas and customers who are less comfortable with technology, noting the time and investment that staff need to devote to these job seekers and employers. One commenter stated that a

private entity would be less willing to devote that time because the profit incentives would dictate their service delivery strategy.

The Department appreciates the commenter's concern regarding access for job seekers in rural areas and those customers with technological barriers. Under this regulation, States will be given the flexibility to select the best service delivery strategy to meet their unique needs and requirements, including the needs of a State's rural residents and residents with technological barriers. The Department does not agree that job seekers in rural areas and those with technological barriers would necessarily receive worse services if a State takes advantage of the staffing flexibility provided in this final rule. The ES program is a universal access program requiring certain services be available to all employers and job seekers, which includes the customers identified by the commenter. States, even if they take advantage of staffing flexibility, still must meet the universal access requirement found at 20 CFR 652.207.

Additionally, the Department notes there is no evidence that State merit staff are better suited to serving rural areas or specific populations than others. Notably, many local areas are wholly or partly located in rural areas and deliver WIOA title I-funded career services to a range of job seekers under a variety of staffing models; the Department anticipates States would adopt similar strategies for ES activities. Additionally, the Department notes that States have the flexibility to structure their agreements with their Wagner-Peyser Act service providers in a way that ensures all job seekers and employers receive effective services from the ES program.

Regarding the commenter's concern that private entities would be less motivated to serve rural areas and individuals who require more time or assistance because of a profit motive, the Department does not agree that private entities necessarily will be less willing to provide quality services to individuals who may require more time. States have flexibility to create agreements with their ES service providers that encourage serving those who may have technological barriers, may need additional time or assistance, or who live in rural areas. States are ultimately accountable for ensuring universal access to all job seekers, including those in rural areas and those who require more time and assistance.

States are required to oversee all operations of the Wagner-Peyser Act in their States, whether or not they ultimately decide to exercise this final rule's staffing flexibility, and States are still subject to Federal monitoring under 20 CFR part 683, subpart D—Oversight and Resolution of Findings. Consistent with 20 CFR 683.400, the Department will continue to conduct monitoring to ensure States are complying with all of the requirements of the Wagner-Peyser Act, its implementing regulations, and 2 CFR parts 200 and 2900.

Some commenters stated that a uniform, federally mandated service delivery-staffing model helps prevent inconsistency in service delivery. The Department has concluded that a uniform staffing model does not necessarily ensure consistency of services, and the Department encourages States to establish policies on service delivery to improve quality and consistency regardless of staffing model. The Department notes that, regardless of how States staff their ES program, they are still obligated to provide all of the services the Wagner-Peyser Act requires and uniformity of service is still ensured by other Wagner-Peyser Act rules found in 20 CFR parts 651, 652, 653, and 658. For example, 20 CFR 652.3 establishes minimum requirements for public labor exchange systems and 20 CFR 653.101 establishes minimum requirements for the provision of services to MSFWs. Additionally, the ES program is a mandatory one-stop partner program, and consistency across service locations is supported by the one-stop center certification requirements in the WIOA regulations at 20 CFR 678.800.

In addition, States, as Wagner-Peyser Act grantees, are still required to oversee all operations of the Wagner-Peyser Act, regardless of whether or not they ultimately decide to take advantage of the staffing flexibility provided by this final rule. Consistent with 20 CFR 683.400, the Department will continue to conduct monitoring to ensure States are complying with all of the requirements of the Wagner-Peyser Act, its implementing regulations, and 2 CFR parts 200 and 2900.

Some commenters stated that private entities would provide inferior service because they are motivated by profit, rather than service. A commenter cited instances of communications challenges with participants served by some contractors in non-DOL administered programs. Some stated that, for example, as a result of profit or outcome incentives, “privatization efforts,” as described by the commenter, could result in “contractors” referring only the most employable workers to employers, which could lead to poorer employment outcomes for individuals with the highest barriers to employment. One commenter added that the proposed rule would have a disproportionate, adverse impact on Black and Hispanic workers. Another commenter stated that publicly administered public services reduce inequality.

The Department appreciates the concerns of commenters and agrees that the quality of services is important. This rule does not privatize Wagner-Peyser Act services, but rather it provides flexibility to States to offer Wagner-Peyser Act services using the best staffing approach available to them to provide these services. States, working with local workforce development boards as appropriate, must ensure that proper policies and processes are in place to deter inadequate communication and services and that the workforce system continues to provide effective and meaningful services to all participants. Regarding the commenter's concern about private entities being motivated by profit and thus not willing to provide services to those individuals with barriers to employment, the Department notes that there is flexibility in how States can structure their agreements with their service providers. Included is the ability to align the goals of the agreement with the goals of the Wagner-Peyser Act, including serving UI claimants, dislocated workers, MSFWs, and other individuals with barriers to employment.

The Department disagrees that staffing flexibility would result in adverse impact on Black and Hispanic workers. Staffing flexibility may allow local organizations, closer to the communities in which job seekers live, to deliver culturally competent services to a local community instead of workers managed by a central State office. Rather than negatively affecting services to these communities, this final rule will permit States to provide more tailored staffing models to address the needs of these unique communities, as needed.

The Department notes that States, as Wagner-Peyser Act grantees, are required to oversee all operations of the Wagner-Peyser Act, whether or not they ultimately decide to exercise this final rule's staffing flexibility. This includes ensuring that the State is meeting the universal access requirements of the Wagner-Peyser Act in 20 CFR 652.207, which ensures services are available to all workers and not just the most employable ones. The Department also notes that the non-discrimination requirements of WIOA sec. 188 apply to the services provided under the Wagner-Peyser Act regardless of the staffing model a State may choose to implement.

Consistent with 20 CFR 683.400, the Department will continue to conduct monitoring to ensure States and their subrecipients are complying with all of the requirements of the Wagner-Peyser Act, its implementing regulations, and 2 CFR parts 200 and 2900.

A commenter stated that public employment offices belong in the public sphere because they provide employment services without fees and on an impartial basis, and that the proposal threatens the unbiased nature of ES referrals and remove public employees from the actual offices (especially given that UI employees often work off-site in call centers). The commenter expressed concern that if a “contractor” were providing ES activities, the contractor would charge a fee and may jeopardize unbiased referrals.

This final rule gives States flexibility to staff ES programs in a manner they believe is best tailored to meet the unique needs of the workers who will use the services. The Department does not share the commenter's concerns. The Wagner-Peyser Act program is a universal access program requiring that labor exchange services be available to all employers and job seekers, per 20 CFR 652.207. Such fees would not be permissible and a service provider could not charge a fee for offering ES activities. Additionally, 20 CFR 678.440(b) prohibits charging a fee to employers for career services, specifically labor exchange activities and labor market information, which are the primary services under the Wagner-Peyser Act.

The Department notes that it has been permissible for non-merit staff to carry out similar functions, such as reviewing compliance with State work search requirements, for example, as part of the REA program for many years. The Department recognizes the importance of the connection between the UI and Wagner-Peyser Act programs, and considers the flexibility this regulation provides to States as an opportunity for States to test and improve strategies for serving unemployed individuals.

Some commenters opposed the staffing flexibility in the proposed rule because they stated that “privatization,” as termed by the commenter, is inefficient, citing Supplemental Nutrition Assistance Program (SNAP) efforts in Texas and Indiana. One commenter likewise opposed the staffing flexibility in the proposed rule, arguing that “privatization” of services within Temporary Assistance for Needy Families (TANF) in Wisconsin resulted in poorer services for the public, with “contractors” retaining a substantial amount of their budget rather than using it to provide services. While the Department appreciates commenters' concerns over potential inefficiencies that could arise if States adopt the additional flexibility in this final rule, the Department notes that SNAP and TANF are different programs with different statutory and regulatory requirements. States considering using this final rule's staffing flexibility are encouraged to consider the range of experiences other programs have had, including those noted in relevant research, or to conduct their own evaluations or pilot projects. States can also use lessons learned from other efforts as they decide whether to use the staffing flexibility in this final rule.

Regardless of how States choose to provide ES activities, they are still Wagner-Peyser Act grantees, so they must oversee all operations of the Wagner-Peyser Act activities and are still subject to 20 CFR part 683, subpart D—Oversight and Resolution of Findings. Consistent with 20 CFR 683.400, the Department will continue to conduct monitoring to ensure States are complying with all of the requirements of the Wagner-Peyser Act, its implementing regulations, and 2 CFR parts 200 and 2900. The Department will hold States responsible for violations of the ES implementing regulations, the statute, and the Uniform Guidance.

Some commenters were concerned that allowing the flexibility in staffing provided under this final rule, which they characterized as privatization, would result in overall cost increases, as UI programs require merit-staffing and often rely on ES staff in performing their functions. A commenter likewise stated that providing services through the use of what they termed private contracts would harm Trade Adjustment Assistance (TAA) and veterans' programs that currently require merit-staffing and benefit from being able to draw on ES resources. Some commenters also stated that merit-staffing allows for the efficient management and protection of a claimant's UI information, benefit delivery, and job search. Some commenters stated that changing ES staff would change the “public face” of UI programs, undermining public trust in the organization. The Department has determined States are in the best position to determine what funding and staffing structure is the most efficient and effective for their programs, as States are most familiar with their own particular needs. The Department encourages States to consider costs when determining whether they will use the staffing flexibility provided in this final rule.

The Department notes that this final rule does not change the merit-staffing requirement in the UI program. Additionally, nothing in this final rule changes UI requirements related to a claimant's UI information, benefit delivery, and job search. States wishing to use this final rule's flexibility for the provision of ES activities will need to consider how to ensure the State remains in compliance with all UI requirements.

The Department appreciates the considerations that States need to take into account, such as the effects on partner programs, when deciding whether to use this final rule's staffing flexibility. States, as Wagner-Peyser Act grantees, are still required to oversee all operations of the Wagner-Peyser Act whether or not they ultimately decide to use this final rule's staffing flexibility.

One commenter stated that “privatization introduces new data security issues” because of the differing security standards at private companies, the risk that such companies may attempt to monetize confidential information, and the possibility of disgruntled “contractors” misusing confidential information. Another commenter provided an example of a disgruntled contractor misusing confidential information. Similarly, a different commenter agreed that the proposal could reduce information security.

The Department appreciates the considerations, such as data security, that States need to take into account when deciding whether to take advantage of this final rule's staffing flexibility. States are required to comply with all applicable data confidentiality restrictions, such as those found at 20 CFR 683.220 and 2 CFR 200.303(e). 20 CFR 683.220(a) requires States to have an internal control structure and written policies that provide safeguards to protect personally identifiable information. In considering whether to use a service provider to deliver ES activities, States must consider any implications using a service provider will have on these policies. Likewise, 2 CFR 200.303(e) requires States to take reasonable measures to safeguard protected personally identifiable information and States must consider how a service provider will comply with this requirement when determining if it would be appropriate to take advantage of this final rule's staffing flexibility for providing ES activities. As appropriate, the Department will continue to provide guidance of the specific requirements

grantees must follow pertaining to the acquisition, handling, and transmission of personally identifiable information.

One commenter opposed the staffing flexibility in the proposed rule because, the commenter stated, agreements for “bureaucratic functions” require such long terms that they lose the competitiveness necessary to drive down costs. The Department appreciates the considerations that States need to take into account when deciding whether to exercise staffing flexibility under the Wagner-Peyser Act, including the structure of the agreement, duration, costs, and services. The Department does not agree with the commenter that there will be no cost savings associated with staffing flexibility for providing ES activities. As explained in the economic analysis accompanying the NPRM and this final rule, the Department has concluded that there will be cost savings. Moreover, the Department considers States to be in the best position to determine the appropriateness of adopting the staffing flexibility for ES activities and whether the flexibility will drive down costs.

One commenter opposed the flexibility in the proposed rule because the commenter stated that the NPRM failed to explain how “contractors” could fulfill the essential functions of the Wagner-Peyser Act's accountability, fiscal control, and operational responsibilities. The Department appreciates the considerations that States need to take into account when deciding whether to take advantage of the staffing flexibility under the Wagner-Peyser Act the Department is providing. The Department did not include in the NPRM nor in this final rule prescriptive requirements regarding how a service provider could fulfill these requirements. States are in the best position to determine whether a service provider could meet these obligations, and this rule is intended to encourage innovative and flexible approaches to service delivery, customized to the unique populations each State serves and each State knows best. Overly specific requirements on State-level service providers would disserve those important policy goals. The Department notes, however, that even if a State chooses to use a service provider to deliver these services, States, as the Wagner-Peyser Act grantees, are required to provide all of the services under the Wagner-Peyser Act consistent with the accountability, fiscal control, and operational responsibilities dictated by the Act, its implementing regulations, including 20 CFR 683.200, and the Uniform Guidance. A State using a service provider to deliver ES activities will have to ensure as part of its obligations that these requirements are being met.

One commenter stated that WIOA title I programs should not be used to judge the efficacy of what the commenter termed “privatization” of Wagner-Peyser Act services, as the ES serves more customers and at a lower cost per customer. This rule does not privatize Wagner-Peyser Act services, but rather it provides flexibility to States to offer Wagner-Peyser Act services using the best staffing approach available to them to provide these services. The Department acknowledges that the ES has a lower “cost per participant” than the WIOA title I programs; however, the programs deliver a different set of services. Further, the Department does not consider cost per participant to be the only relevant factor in determining program efficacy. An important factor the Department considered and discussed in the NPRM is the performance indicators for the Wagner-Peyser Act as required under WIOA sec. 116. As part of its justification for proposing staffing flexibility, the Department noted that when isolating similar services provided by the Wagner-Peyser Act and the WIOA Adult and Dislocated Worker programs, the outcomes on those performance indicators were comparable. Cost per participant is one of the factors a State may use when determining whether it is efficacious to use different staffing models for Wagner-Peyser Act services, but, for reasons stated in the NPRM, the Department reiterates that the comparison to the WIOA title I Adult and Dislocated Worker programs is appropriate.

The Department received several comments recommending the Department consider the average cost per participant data of the Wagner-Peyser Act services compared to the WIOA Dislocated Worker program as part of its economic analysis.

The Department recognizes the value of average cost per participant data and anticipates that States will consider this information when determining the most cost-effective approach to delivering ES activities. In the economic analysis, the Department did not compare the average cost per participant receiving Wagner-Peyser Act services to the average cost per participant receiving WIOA Dislocated Worker services due to the differences between the two programs. As part of its justification for merit-staffing flexibility, the Department noted that when isolating similar services provided by the Wagner-Peyser Act and the WIOA Adult and Dislocated Worker programs, the outcomes were similar. However, the cost of the totality of services available in the Dislocated Worker program cannot be usefully compared to the cost of the totality of services available through the Wagner-Peyser Act. The Dislocated Worker program provides more comprehensive services, such as individualized career services and training services, which cost more individually than Wagner-Peyser Act-funded services cost collectively. Therefore, the Department does not include these Dislocated Worker program services in its economic analysis of the rule.

Another commenter stated that, because the allotments to States under the Wagner-Peyser Act are often less than their WIOA title I allotments and the outcomes are similar, if cost savings are the goal, the Department should require that WIOA title I services be provided by merit staff. The Department declines this suggestion because it is outside the scope of this rulemaking. This rulemaking is focused specifically on Wagner-Peyser Act services, not WIOA title I services. Further, as explained in the NPRM, cost savings are not the only goal under this rulemaking. The Department laid out several other goals in providing staffing flexibility, including aligning the provision of Wagner-Peyser Act services and activities with WIOA's service delivery model so the programs work better together and allowing maximum flexibility to States to encourage innovative and creative approaches to deliver employment services with limited resources.

The Department notes that as part of the explanation for staffing flexibility in the NPRM, the Department explained that when isolating similar services provided by the Wagner-Peyser Act and the WIOA Adult and Dislocated Worker programs, the outcomes on the primary indicators of performance were comparable. However, it is not appropriate to compare the cost of the totality of services provided in the title I programs with the cost of the services available through the Wagner-Peyser Act, in part because the WIOA title I Adult and Dislocated Worker programs provides more comprehensive services, such as individualized career services, as well as training services. Therefore, contrary to what the commenter suggested, this was not part of the justification for staffing flexibility in the ES program.

One commenter opposed the proposed staffing flexibility because they stated that “privatization,” as termed by the commenter, would reduce accountability and transparency. This rule does not privatize Wagner-Peyser

Act services, but rather it provides flexibility to States to offer Wagner-Peyser Act services using the best staffing approach available to them to provide these services. The Department does not agree that staffing flexibility necessarily would reduce accountability or transparency. For example, a State may find it easier to hold an individual service provider accountable for performance than a State agency. Additionally, States can design agreements with service providers to require accountability and information reporting resulting in increased accountability and transparency. The Department notes that States, as Wagner-Peyser Act grantees, are still required to oversee all operations of the Wagner-Peyser Act whether or not they ultimately decide to use the staffing flexibility provided by this final rule. States will be responsible for holding their service providers accountable for the delivery of services under the Wagner-Peyser Act consistent with their responsibilities found in 20 CFR part 683, subparts B (Administrative Rules, Costs, and Limitations) and D (Oversight and Resolution of Findings). Further, consistent with 20 CFR 683.400, the Department will continue to conduct monitoring to ensure States are complying with all of the requirements of the Wagner-Peyser Act, its implementing regulations, and 2 CFR parts 200 and 2900.

One commenter opposed the staffing flexibility proposed in the rule, stating that State employees are more efficient than their private counterparts and mentioning greater accountability of the former and costlier overhead for the latter. Other commenters opposed the staffing flexibility proposed in the rule because they stated that any possible cost-savings would be outweighed by the costs of contract training and oversight. The Department appreciates the considerations that States need to take into account when deciding whether to use the staffing flexibility under the Wagner-Peyser Act. The Department recognizes that there may be administrative costs associated with obtaining a service provider to deliver ES activities. However, the Department has determined there could be a reduction in costs due to the diminished need for management and oversight of State employees. States should consider any additional costs that may result from obtaining a service provider, as well as cost savings, when determining the appropriate staffing model for their State. Regardless of how States staff the ES program, the Wagner-Peyser Act requires grantee States to oversee all operations of the Wagner-Peyser Act.

One commenter opposed the proposed rule because, in the commenter's view, it would increase the risk of conflicts of interest and violations of lobbying and ethical rules. Conversely, another commenter stated that the proposed rule could reduce conflicts of interest by separating the service provision functions from the oversight functions at the State level. This rule does not privatize Wagner-Peyser Act services, but rather it provides flexibility to States to offer Wagner-Peyser Act services using the best staffing approach available to them to provide these services. The Department appreciates the considerations that States need to take into account when deciding whether to use the staffing flexibility this final rule provides for delivering services under the Wagner-Peyser Act. The Department does not agree that staffing flexibility necessarily increases the risk of conflicts of interest and violations of lobbying and ethical rules as States will still be bound to follow the same requirements they currently follow. For example, 20 CFR 683.200(e) imposes restrictions on lobbying using Wagner-Peyser Act funds and paragraph (c)(5) of this section requires disclosures of conflict of interest. The Uniform Guidance, which States are required to follow, also imposes restrictions on using Wagner-Peyser Act funds for lobbying. See 2 CFR 200.450.

The Department notes that States, as Wagner-Peyser Act grantees, are still required to oversee all operations of the Wagner-Peyser Act whether they ultimately decide to use a service provider to staff these services or not. Further, consistent with 20 CFR 683.400, the Department will continue to conduct monitoring to ensure States are complying with all of the requirements of the Wagner-Peyser Act, its implementing regulations, and 2 CFR parts 200 and 2900.

Some commenters stated that non-merit-staffing would result in political, corrupt, and/or nepotistic employment decisions. The Department appreciates the commenters' concerns regarding corruption and/or nepotistic employment decisions, and it works to ensure such acts do not take place in DOL-funded grant programs, regardless of the staffing model in place. The Department appreciates the considerations that States need to take into account when deciding whether to exercise staffing flexibility under the Wagner-Peyser Act and how they structure their agreements and conduct oversight to prevent corruption or nepotism. The Department expects States—both those that continue to use merit staff and those that do not—to have policies and internal controls in place that prevent corruption or nepotism. Further, consistent with 20 CFR 683.400, the Department will continue to conduct monitoring to ensure States are complying with all of the requirements of the Wagner-Peyser Act, its implementing regulations, and 2 CFR parts 200 and 2900. As explained above, the Department anticipates that conflict-of-interest disclosure requirements will help guard against the kind of corruption and nepotism the commenter mentioned.

One commenter opposed the staffing flexibility proposed in the rule, stating that public employees tend to be more knowledgeable and have more experience than “contractor” who lack expertise and have additional costs associated with bidding on contracts. Likewise, other commenters stated that allowing the proposed staffing flexibility could dismantle current infrastructure and relationships between State merit staff currently carrying out the Wagner-Peyser Act and other service providers, other agencies, and employers. One commenter stated that the diminished competency of the ES would undermine the public's trust in the program.

Commenters argued that contracting or privatizing (as they termed it) the ES would be inefficient because it would cause turnover and loss of institutional knowledge. Commenters mentioned specific areas of expertise that require substantial time and dedication to master, such as the TAA program and the State-specific case-management system. Another commenter added that, as a result of “contractor” turnover, service procedure can change, confusing job seekers. This rule does not privatize Wagner-Peyser Act services, but rather it provides flexibility to States to offer Wagner-Peyser Act services using the best staffing approach available to them to provide these services. The Department appreciates the considerations that States need to take into account when deciding whether to exercise the staffing flexibility under the Wagner-Peyser Act. States should consider any impacts to service quality, impacts on partner programs, and staffing turnover that may result from their decision, as well as consider establishing policies and oversight functions that ensure service quality and partner program relationships regardless of the staffing model chosen. States, as Wagner-Peyser Act grantees, are still required to oversee all

operations of the Wagner-Peyser Act, regardless of the staffing model chosen.

Other commenters expressed concern about how the proposal could affect MSFWs and outreach services specifically. One commenter recommended that the Department consider National Farmworker Jobs Program (NFJP) grantees as partners for MSFW outreach. One commenter stated that changes in outreach staffing requirements would disrupt beneficial relationships and lead to a reduction in reporting on employment law violations. The commenter further stated that the proposal could harm MSFWs by diminishing the status and responsibilities of the Monitor Advocate System, sending a message that MSFW rights are not a priority. Finally, some commenters stated that providing ES to MSFWs is a very complicated task, and is becoming more so. The commenters described increasingly complicated job postings, requirements of matching such postings against Wagner-Peyser Act and H-2A criteria, and migrant housing regulations. The commenters stated that the proposal would reduce the experience of ES staff and thus their ability to perform their duties. The Department acknowledges that there may be distinct effects of staffing flexibility on the Monitor Advocate System. In response to the recommendation that the Department consider NFJP grantees as partners for MSFW outreach, the Department notes the requirement at § 653.108(k) for the State Monitor Advocate (SMA) to establish an ongoing liaison with NFJP grantees, in addition to the requirement at § 653.108(l) to establish a Memorandum of Understanding (MOU) with NFJP grantees. The staffing flexibility does not change these requirements and States still must establish this relationship.

Additionally, the NFJP grantees are a required partner of the one-stop delivery system, which requires States to provide access to those services at one-stop centers in the local areas where the NFJP program is carried out. The Department encourages State Workforce Agencies (SWAs) to coordinate outreach with NFJP grantees, but notes that outreach to NFJP grantees alone is not a substitute for the SWAs' required outreach obligations pursuant to 20 CFR 653.107. However, under this final rule, States can consider the outreach staffing option that works best for them, which may include having NFJP grantees be subrecipients of the Wagner-Peyser Act funds and provide ES activities, including outreach activities.

In response to the commenter who maintained that staffing flexibility could lead to disruptions in beneficial relationships and a decrease in reporting employment-related law violations, the Department notes that it is the choice of the State whether to use the staffing flexibility. This rule does not privatize Wagner-Peyser Act services, but rather it provides flexibility to States to offer Wagner-Peyser Act services using the best staffing approach available to them to provide these services. If the State chooses to adopt staffing flexibility, the State, as the Wagner-Peyser Act grantee, is still required to oversee all operations of the Wagner-Peyser Act activities, including oversight to avoid any disruptions in service. In regards to a potential decrease in reporting violations, regardless of the staffing method used, the new staff must be trained pursuant to 20 CFR 653.107(b)(7), which includes training on protections afforded to MSFWs, and training on sexual harassment and human trafficking awareness. These trainings are intended to help outreach workers identify when such issues may be occurring in the fields and how to document and refer the cases to the appropriate enforcement agencies.

Lastly, SWAs must continue to comply with 20 CFR 653.107(b)(6), which requires outreach workers to be alert to observe the working and living conditions of MSFWs and, upon observation or upon receipt of information regarding a suspected violation of Federal or State employment-related law, to document and refer information to the ES Office Manager for processing. If an outreach worker observes or receives information about apparent violations, the outreach worker must document and refer the information to the appropriate ES Office Manager. These requirements remain in effect and nothing in this final rule changes these State obligations.

In response to the statement that the rulemaking could harm MSFWs by diminishing the status and responsibilities of the Monitor Advocate System, sending a message that MSFW rights are not a priority, the Department makes clear in this preamble that the Monitor Advocate System continues to be a priority for the Department to ensure farmworkers receive equal access to resources and protections. Similarly, across all titles, WIOA focuses on serving individuals with barriers to employment, which includes eligible MSFWs as defined in WIOA sec. 167(i)(1) through (3). Staffing flexibility is an option afforded to States; however, States will continue to be required to carry out the duties set forth in the ES regulations and to provide services to farmworkers on a basis that is qualitatively equivalent and quantitatively proportionate to the services provided to non-MSFWs. As part of the Monitor Advocate System, the States will continue to provide an SMA to ensure MSFWs are being provided the full range of employment and training services through the one-stop delivery system, as well as outreach staff to provide information to MSFWs on this system.

In response to the concerns that staffing flexibility would reduce the experience of ES staff and thus their ability to perform their duties, the Department reiterates that States may choose to maintain merit staff, and notes that turnover can and has occurred among merit staff. All staff, regardless of whether they are State employees or employees of a service provider, must be trained to carry out the duties set forth in the ES regulations. The Department further affirms its commitment for the National Monitor Advocate (NMA) and Regional Monitor Advocates (RMAs) to continue to provide technical assistance to ensure services are offered to MSFWs on an equitable basis.

III. Section-by-Section Discussion of Public Comments and Final Regulations

The discussion below responds to section-specific comments, as well as details any changes made in response to those comments. If the Department did not receive comments regarding a particular section, that section is not discussed below, and the final rule adopts that section as proposed. The Department also has made some non-substantive changes to the regulatory text to correct grammatical and typographical errors, in order to improve the readability and conform the document stylistically, that are not discussed below.

A. Part 651—General Provisions Governing the Wagner-Peyser Act Employment Service

§ 651.10 Definitions of Terms Used in This Part and Parts 652, 653, 654, and 658 of This Chapter

Section 651.10 establishes terms and definitions used throughout the Wagner-Peyser Act regulations. The Department received several comments regarding the changes to terms and definitions proposed in the NPRM, which are responded to below. If no commenter addressed a specific term, that term is not addressed below and has been published in the regulatory text as proposed in the NPRM.

Employment Service (ES) Office

Noting that WIOA envisions an integrated workforce development system that provides streamlined service delivery of the WIOA core programs, including ES activities, one commenter questioned the necessity of defining an ES office separately from a one-stop center. The commenter suggested that the Department instead use the term “one-stop center” in the regulations. While it is true that WIOA envisions an integrated workforce development system, including the ES as a core program, the Department is not removing the definition of “Employment Service (ES) office,” because the Wagner-Peyser Act, WIOA, and their implementing regulations use the term. Therefore, a definition of the term is helpful to clarify States' obligations in administering these programs. For example, sec. 121(e)(3) of WIOA provides that “the employment service offices in each State shall be colocated with one-stop centers.” The Department uses and defines the term “Employment Service (ES) office” to make clear what is required to be colocated—any site where Wagner-Peyser Act ES activities are provided. This helps ensure that States provide and align ES activities with WIOA services as part of the workforce development system.

Employment Service (ES) Office Manager

One commenter noted the term “Employment Service (ES) Office Manager” may not be necessary if the Department removes the term “ES office,” as ES activities are provided in a one-stop center. The commenter suggested using the term “One-Stop Center Manager.” As explained above, the Department will retain the definition of “Employment Service (ES) office,” because the term is used in WIOA and the Wagner-Peyser Act, and it helps clarify States' responsibilities in providing ES activities. Likewise, the Department is retaining the definition of “Employment Service (ES) Office Manager,” because this term is used in the Wagner-Peyser Act and WIOA's implementing regulations to describe the individual in the ES office who carries out key responsibilities in providing services to job seekers and employers. Therefore, this is a necessary term to include in the regulation for the effective management and oversight of local ES staff.

Employment Service (ES) Staff

The Department will remove the term “contractors” from the definition of ES staff in finalizing the rule. As explained above, States using a service provider to deliver ES activities will be making a subaward to a subrecipient under the Uniform Guidance. See 2 CFR 200.92, 200.93, and 200.330. While the State may call its agreement with its service provider/subrecipient a contract, the service provider does not meet the definition of a contractor under the Uniform Guidance. See 2 CFR 200.23 and 200.330. Therefore, to avoid confusion, the Department is removing the term “contractors” from the definition of ES staff.

One commenter requested the Department modify its definition of “Wagner-Peyser Act Employment Service staff (ES staff)” to remove the term “Wagner-Peyser Act” so the definition is alphabetically in the definitions and for consistency with its use in the regulation. The commenter noted the definition does not appear to need the lead-in “Wagner-Peyser Act,” as the other definitions that contain “Employment Service” do not include similar language. The commenter also noted that removing “Wagner-Peyser Act” would make all “Employment Service” definitions alphabetical for ease of identification. The Department agrees with the commenter and has changed the definition of “Wagner-Peyser Act Employment Service staff (ES staff)” to “Employment Service (ES) staff.” The Department agrees that using the term ES staff is clearer and more user-friendly.

One commenter requested the Department define the term “staff of a subrecipient” in the Department's proposed definition for “Wagner-Peyser Act Employment Service (ES) staff” in this regulation, because it is unclear how this category is applicable to State employees or subrecipients. The Department clarifies that the term “subrecipient” in the definition of ES staff has the meaning given to that term in the Uniform Guidance at 2 CFR 200.93. As explained above, because States using a service provider to deliver ES activities will be making a subaward, the individuals providing these services will be the staff of a subrecipient. Therefore, the Department has chosen to leave this term in the definition of the term ES staff. However, because the term is defined in the Uniform Guidance, the Department has decided it is not necessary to define it here in 20 CFR 651.10.

Field Checks

One State agency questioned if the intent of the revised definition of “field checks” was to not allow SWA personnel to conduct field checks, as the added reference to “through its ES offices” appeared to limit the field checks function to only local staff and, as added, Federal staff. The Department clarifies that it is not the intent of the Department to exclude SWA officials (individuals employed by the SWA or any of its subdivisions) from conducting field checks. The Department intends for all ES Staff, including the SMA and other SWA officials, to conduct field checks. The Department is removing the language providing that field checks be conducted through ES offices to make this clarification. The final regulatory text is, “Field checks means random, unannounced appearances by ES staff and/or Federal staff at agricultural worksites to which ES placements have been made through the intrastate or interstate clearance system to ensure that conditions are as stated on the job order and that the employer is not violating an employment-related law.”

Respondent

One commenter requested the Department define the term “service provider” as it is used in the Department's proposed definition of “respondent” in this regulation. The Department does not consider a definition for the term “service provider” to be necessary. In the context of this regulation, the service provider is the entity or entities that deliver services under the Wagner-Peyser Act. The Department clarifies that it is adding this term to the definition of “respondent” to ensure that all individuals or entities providing services are held accountable.

B. Part 652—Establishment and Functioning of State Employment Service

Part 652 discusses State agency roles and responsibilities; rules governing ES offices; the relationship between the ES and the one-stop delivery system; required and allowable Wagner-Peyser Act services; universal service access requirements; provision of services and work-test requirements for UI claimants; and State planning. The changes in this section increase the flexibility available to States in providing Wagner-Peyser Act-funded services and activities by allowing them to use alternative staffing models.

§ 652.215 Can Wagner-Peyser Act-funded activities be provided through a variety of staffing models?

Section 652.215 governs how States may staff the provision of Wagner-Peyser Act-funded services. The Department received comments regarding the flexibility provided in the

regulation and has responded to them below. The Department is publishing § 652.215 as proposed.

Several commenters opposed the rule because they did not agree that removing the requirement that States provide Wagner-Peyser Act-funded activities with staff other than merit-staffing rule was a legally permissible policy. The commenters explained that, although the Department stated in the WIA and WIOA rulemakings that the imposition of the merit-staffing requirement was a policy choice and interpretation of the Wagner-Peyser Act, nothing in either of these rulemakings indicated (explicitly or implicitly) that the policy was not legally required by the statute or that the Department was free to choose a different interpretation of the Act. Section 3(a) of the Wagner-Peyser Act requires the Secretary to develop and prescribe “minimum standards of efficiency.” As explained in the WIA and WIOA rulemakings, and acknowledged by commenters, the Department interprets this provision to give the Department the discretion to impose a merit-staffing requirement.

In the 1998 case
Michigan
v.
Herman,
the U.S. District Court for the Western District of Michigan found that the Wagner-Peyser Act “does not explicitly require merit-staffing” and determined that the language of sec. 3(a) of the Act is “broad enough to permit the [Secretary] to require merit-staffing.” 81 F. Supp. 2d 840, 847-48 (W.D. Mich. 1998). However, the court noted that “there is ample basis for a conflicting interpretation of the Wagner-Peyser Act's requirements,” suggesting that the Department has latitude to interpret sec. 3(a) to permit the flexibility afforded in this regulation. If the court believed that sec. 3(a) was limited to the Department's previous interpretation—that it required the use of merit staff—it would have explicitly so stated.

In the WIA Interim final rule preamble, the Department stated that the “regulations reflect[ed] the Department's interpretation of the Wagner-Peyser Act, affirmed in [
Michigan
v.
Herman
], to require that job finding, placement and reemployment services funded under the Act . . . be delivered by public merit-staff employees.” 64 FR 18662, 18691 (Apr. 15, 1999). The Department described its interpretation as that affirmed in
Michigan
v.
Herman,
which held that the Department could require merit-staffing, but not that it must. And the opinion in that case describes the Department's own interpretation of the statute as one giving “discretion to the Secretary” to require merit-staffing.
Herman,
81 F. Supp. 2d at 846. The Department's statement in the WIA preamble, therefore, should not be construed as denying the Department discretion over the merit-staffing question.

In the WIA final rule, the Department did not address whether the Wagner-Peyser Act obligated the Department to impose a merit-staffing requirement for Wagner-Peyser Act-funded services. 65 FR 49294, 49385 (Aug. 11, 2000). Instead, the Department simply noted that the final WIA regulation imposed a merit-staffing requirement reflecting the Department's authority under the Wagner-Peyser Act, as affirmed in
Michigan
v.
Herman,
to require Wagner-Peyser Act-funded services be provided by merit staff. Thus, in the WIA final rule, the Department did not opine on whether sec. 3(a) mandated the imposition of a merit-staffing requirement for Wagner-Peyser Act-funded services.
6

6
Here, the Department's interpretation of the Wagner-Peyser Act should be distinguished from its description of its own regulations. The Department described its regulations as “mak[ing] clear that Wagner-Peyser Act services must be delivered by merit-staff employees of a State agency.” 65 FR 49385. But that is different from stating that the Act itself requires merit-staffing.

Finally, in the WIOA NPRM, the Department explained that the Department has maintained the policy of requiring merit-staffing since the earliest years of the ES and that
Michigan
v.
Herman
upheld this policy. 80 FR 20805 (April 16, 2015). The Department explained that it would continue this policy from WIA to WIOA. Id. Notably, the WIOA NPRM did not suggest that there was a statutory requirement in the Wagner-Peyser Act for merit staff. Id. The language in the WIA and WIOA rulemakings demonstrates that since the decision in the
Michigan
v.
Herman
case, the Department has not read the Wagner-Peyser Act to include a statutory requirement that Wagner-Peyser Act services be delivered by State merit staff. Instead, as the Department explained in the NPRM for this final rule, the Department has previously read this provision to give it the discretion to impose a merit-staffing requirement.

The commenters indicated that they thought the Department had an obligation in prior rulemakings to state that the policy was not legally required in order to make the change in this final rule. The Department disagrees. Throughout this rule's NPRM and final rule preambles, the Department has amply explained its legal authority and its policy bases for providing new staffing flexibility under the Wagner-Peyser Act. That is sufficient. The Department does not agree with commenters that there is an additional requirement to notify the public in prior rulemakings (or in other ways) that it is within the Department's discretion to revise, through notice-and-comment rulemaking, its interpretation of the Wagner-Peyser Act.

A number of commenters opposed the flexibility in the proposed rule that would allow States to provide Wagner-Peyser Act-funded services with staff other than State merit staff explaining that the proposal would remove a long-standing and legally required merit-staffing requirement. The Department acknowledges that it has had a long-standing policy of requiring States to deliver Wagner-Peyser Act labor exchange services with State merit staff. However, as explained above, the Wagner-Peyser Act does not contain a statutory requirement to impose a merit-staffing requirement on States. Instead, the Department's imposition of a requirement that ES activities be provided by State merit staff was the Department's policy decision, and one that is permissible under the Act.

It is within agencies' authority to change long-standing policies, such as the merit-staffing requirement. In making the change, agencies are required to “display awareness” that they are changing their position and show that there are good reasons for the new policy.
Encino Motorcars, LLC
v.
Navarro,
136 S. Ct. 2117, 2125-26 (2016). The Department's proposal did so. In the NPRM, the Department acknowledged the policy change and explained the reasons for the change: (1) Allows States to align the provision of ES activities with WIOA's service-delivery model so the programs work better together; (2) allows States to develop innovative and creative approaches to delivering ES activities with limited resources; and (3) frees resources to assist job creators and workers more effectively. In the NPRM, the Department also explained that it has found that services similar to those provided through the ES program can be delivered effectively through systems without the specific Federal regulatory requirements regarding State merit-staffing.

Several commenters stated that the Department's analysis had not justified a reversal of the Department's long-standing position that the Wagner-Peyser Act legally requires the delivery of ES activities through merit staff. The policy reasons for the Department's decision to allow States flexibility in staffing ES programs are discussed at length throughout the NPRM's preamble

and include the benefits of granting States flexibility to fit the unique needs of their particular workers, employers, and ES programs; freeing up resources to better serve job creators and job seekers; better integrating the ES program with services under WIOA; and the successful functioning of flexible staffing arrangements in the provision of other, comparable services. Notably, the regulatory changes that this final rule adopts do not require the States to change their staffing mandates for ES programs. Rather, States will be free to choose the staffing model that best fits their needs.

Another commenter stated that the Department was not legally justified in making the changes proposed in the NPRM. The Department disagrees. First, in the NPRM, the Department explained that the Wagner-Peyser Act does not dictate particular staffing models. 84 FR 29433, 29436 (June 24, 2019). Instead, sec. 3(a) of the Wagner-Peyser Act requires the Department to develop and prescribe “minimum standards of efficiency” in the provision of ES programs. The Department noted that the broad scope of sec. 3(a) has been recognized in court, and it explained that in
Michigan
v.
Herman,
the court recognized that, while this provision is broad enough to permit the Department to impose a merit-staffing requirement, there was more than enough basis for a conflicting interpretation of the Wagner-Peyser Act. Id.

Second, the Department explained in the NPRM preamble that, while it may have previously cited sec. 5(b) as support for imposing mandatory merit-staffing, that section “does not require the imposition of such a requirement.” Id. Instead, the NPRM explained that this provision merely conditions States' Wagner-Peyser Act funds on merit-staffing in the administration of UI programs. Id.

Third, the Department also explained its interpretation of the Wagner-Peyser Act in the WIA and WIOA rulemakings, stating that while the Department continued to require State merit-staffing in these rulemakings, this was maintained as a policy choice. Id.

A number of commenters opposed the proposed rule, because they stated it is contrary to how Congress interprets the Wagner-Peyser Act. Some commenters stated that over the years, Congress has taken several actions to require merit-staffing in the ES system or that reaffirmed the Wagner-Peyser Act's statutory requirement to have merit-staffing. Commenters gave several examples of these actions: (1) The Intergovernmental Personnel Act of 1970 (IPA) named the Wagner-Peyser Act as one of the two acts administered by the Department that transferred merit authority to the Civil Service Commission (now the Office of Personnel Management); (2) the regulations implementing the IPA demonstrated there is a statutory requirement to have merit-staffing in Wagner-Peyser Act-funded programs; (3) in 2006, when the Department attempted to change its legal interpretation of the Act, Congress blocked the proposal through a provision in the appropriation; and did so for several years afterwards until the proposed rule was withdrawn; and (4) the Department issuing Training and Employment Guidance Letter (TEGL) No. 11-12, Using Funds Authorized Under Section 7(a) of the Wagner-Peyser Act of 1933 for Intensive Services as Defined by the Workforce Investment Act (Jan. 3, 2013). The Department does not agree that the IPA and its implementing regulations prevent the Department from allowing added staffing flexibility under the Wagner-Peyser Act. Section 208 of the IPA transferred the authority of the Department and other agencies to prescribe standards for a merit system of personnel administration in various Federal grant-in-aid programs. 42 U.S.C. 4728. In particular, the IPA transferred the Department's duties under the Wagner-Peyser Act and sec. 303(a)(1) of the Social Security Act (SSA), to the extent that the functions, powers, and duties under these laws relate to the prescription of personnel standards on a merit basis. 42 U.S.C. 4728(a) and (a)(2). The OPM regulations implementing the IPA provide a list of programs with a statutory or regulatory requirement for merit staff. The “Employment Security (Unemployment Insurance and Employment Services)” program, which cites as authority the SSA and the Wagner-Peyser Act, is listed as having a “statutory requirement” for merit staff. 5 CFR part 900, subpart F, Appendix A.

However, there is no indication that Congress, in including the Wagner-Peyser Act in sec. 208 of the IPA, intended to affirm a merit-staffing requirement not found in the Act itself, or to impliedly amend the Act to include one, rather than simply reflecting existing merit system functions being carried out by the Department at that time. The Department notes that the question of Congress's intent in enacting the IPA was considered by the court in
Michigan
v.
Herman.
After reviewing the text and legislative history of the Wagner-Peyser Act and the IPA, among other arguments, the court concluded that the Wagner-Peyser Act “does not explicitly require merit-staffing” and that “Congress has never clearly ratified or rejected the Department's inclusion of a merit-staffing requirement.”
Michigan
v.
Herman,
81 F. Supp. 2d at 847-48.

Similarly, there is no indication that OPM's regulations at 5 CFR part 900 are intended to be authoritative or interpretive of other statutes, rather than merely descriptive. The predecessor to the current part 900 regulations was issued jointly in 1963 by the Department of Health, Education and Welfare, the Department of Labor, and the Department of Defense, prior to the passage of the IPA and its resulting transfer of functions. It was codified at 45 CFR part 70. In prescribing merit standards under the Wagner-Peyser Act at that time, the regulations at part 70 cited as authority a provision in the Department's yearly congressional appropriation requiring merit-staffing (former 29 U.S.C. 49n). This provision was not repeated in the Department of Labor Appropriations Act, 1965 (Pub. L. 88-605, 78 Stat. 959, 960 (1964)), or in any such act thereafter. Thus, the current OPM regulations, as they relate to the Wagner-Peyser Act, originated not only from a former departmental interpretation of the Wagner-Peyser Act, but also in a long-expired appropriations rider. Notwithstanding DOL's imposition of a merit-staffing requirement at the time of the IPA's enactment, there was no longer any corresponding statutory requirement in the Wagner-Peyser Act.

Further, while Appendix A in the current part 900 lists the ES as having a “statutory requirement” for merit-staffing, the accompanying citation is to sec. 5(b) of the Wagner-Peyser Act, 29 U.S.C. 49d(b). Section 5(b) does not impose any such requirement, but merely requires the Secretary to certify that States are complying with sec. 303 of the SSA (requiring, among other things, use of merit staff by States in administering their UI programs) and that States are coordinating ES activities with the provision of UI claimant services. The provisions administered by OPM constitute a transfer of functions and apply only to the extent the Department imposes an underlying merit-staffing requirement, which, as discussed above, the Wagner-Peyser Act does not impose. Indeed, OPM has previously revised Appendix A to reflect programmatic changes of the type effected by this final rule. Neither the IPA nor the OPM regulations contain an independent legal requirement for merit-staffing in the ES.

The Department does not agree that the language in the Revised Continuing

Appropriations Resolution, 2007 (Pub. L. 110-5) (Feb. 15, 2007)—the 2006 appropriation commenters referred to—demonstrated that Congress was reaffirming a merit-staffing statutory requirement for the ES. In 2007, the appropriation for fiscal year 2007 provided that none of the funds made available were to be used to finalize or implement any proposed regulation under WIA, the Wagner-Peyser Act, or the Trade Adjustment Assistance Reform Act of 2002 (TAARA) until legislation reauthorizing WIA and TAARA was enacted. Nothing in this language indicates that Congress thought the Department did not have the legal authority to give States the flexibility to provide Wagner-Peyser Act-funded services with non-merit staff. Instead, the Department views this appropriation language as Congress's disapproval of the Department's policy choice, rather than a definitive statement on the Department's legal authority.

As explained above, the Wagner-Peyser Act does not contain a statutory requirement that State merit staff perform ES activities. The Department now interprets the Wagner-Peyser Act to give States the flexibility to determine whether providing Wagner-Peyser Act-funded services through merit staff is the best way to deliver these services for their State. States are free to continue to have merit staff provide these services or to adopt other staffing models that may work better for their State.

Several commenters opposed the proposed rule, because, they stated, merit-staffing is a statutory requirement and the Department does not have discretion to rescind this statutory requirement. These commenters pointed to TEGL No. 11-12 as affirming that the merit-staffing requirement is statutorily mandated in the Wagner-Peyser Act or for the proposition that the Department does not have the authority or discretion to rescind the statutory requirement that Wagner-Peyser Act-funded activities be provided by merit-staffed employees.

The Department agrees that Federal agencies do not have the discretion to rescind statutory requirements. However, as explained in response to other commenters, it is the Department's position that the Wagner-Peyser Act does not contain a statutory requirement for State merit staff to provide ES activities. Because the Department only interprets the Wagner-Peyser Act to
permit
the Department to impose such a requirement, it is within the Department's discretion to provide States the flexibility to deliver these services through merit staff or otherwise.

Additionally, the Department notes TEGLs are guidance documents issued by ETA. They are interpretations of the statutes the Department administers and the regulations the Department promulgates to implement these statutes. TEGL No. 11-12, released in 2013, states that the guidance did not change the requirement that State merit staff employees deliver Wagner-Peyser Act labor exchange services, and it addresses the use of Wagner-Peyser Act funds to provide intensive services under WIA. The TEGL simply reminds States that nothing in the guidance changes the regulatory requirement in the WIA regulations that States provide Wagner-Peyser Act-funded services with merit staff. The TEGL does not, as commenters suggested, state that there is a statutory requirement to provide Wagner-Peyser Act-funded services with merit staff. Nor does it address the Department's authority or discretion to rescind a statutory requirement.

Several commenters opposed the rule because they stated the history and origins of the Wagner-Peyser Act and the inherently governmental nature of the Wagner-Peyser Act functions show Congress's intention to require merit-staffing as a foundation of the ES system. Relatedly, a number of commenters opposed the rule because of the integration between the UI work test and the ES staff. These commenters explained that ES staff perform the UI work test as provided under sec. 7(a)(3)(F) of the Wagner-Peyser Act to ensure that claimants are able to work, available for work, and actively seeking work. The commenters stated these are federally required conditions of State UI eligibility and, in this relationship, the ES staff function as gatekeepers, making the role of the ES staff inherently governmental. Because these commenters viewed this activity as inherently governmental, they stated these activities can only be handled by State merit staff. Similarly, some commenters stated that the UI work test duties are inherently governmental in nature, so they cannot be privatized. Other commenters stated that because the ES administers the work test to determine if individuals are able and available to work and actively seeking employment, the ES worker is in the position of determining eligibility for UI. The commenters stated that eligibility determination is a government function properly carried out by merit-based staff.

The Department appreciates the history and development of the Federal ES beginning in the early twentieth century. Following years of a two-tiered, underfunded, and largely ineffective network of employment offices, the Wagner-Peyser Act was passed in 1933 in order to promote greater cooperation and coordination between the Federal and State programs, to avoid active competition between the two, and to ameliorate wastefulness in the system. See S. Rep. No. 73-63, at 3-4 (1933). This final rule is in keeping with the spirit of Federal-State cooperation that undergirds the Wagner-Peyser Act, by allowing States the choice to staff their ES program activities and services as they deem most effective.

To the extent that the system of State-run employment offices was created in order to put a stop to the abuses of private employment agencies,
7

the Department notes that this final rule in no way marks a return to a private system of employment firms. All ES activities and services nationwide will continue to be provided through the public ES. Nor will the States be subject to any risk of patronage that may have been a concern in the early years of the program, prior to the development of many of the legal safeguards that are currently in place. States that opt to use alternative staffing methods will continue to be accountable, subject to all of the obligations found in the ES regulations regarding effective service delivery, including oversight and monitoring, as well as all other applicable laws, in administering the program.

7
This history is detailed in Henry P. Guzda, “The U.S. Employment Service at 50: it too had to wait its turn,” Monthly Labor Review, 12-19 (June 1983).

The Department does not agree with commenters that the functions of the Wagner-Peyser Act are inherently governmental. The Office of Management and Budget (OMB) has defined inherently governmental functions as those functions “so intimately related to the public interest as to mandate performance only by Federal employees.” OMB, Performance of Commercial Activities, Circular No. A-76 (August 4, 1983 (Revised 1999)). Inherently governmental functions, according to this guidance, normally fall into two categories: (1) Acts of governance; and (2) monetary transactions and entitlements. Acts of governance are the discretionary exercise of government authority, such as criminal investigations, prosecutions, and other judicial functions. Monetary transactions and entitlements include functions such as tax collection and revenue disbursements.

Section 7 enumerates the services the ES provides. These services include, among others, job search and placement

activities for job seekers, appropriate recruitment services for employers, and developing linkages between services under the Wagner-Peyser Act and other Federal or State legislation. None of these activities are inherently governmental because they do not involve governance or monetary transactions and entitlements. Indeed, one of private firms' core functions is finding the employees they need, and there are innumerable private firms offering job-search and job-placement services. In addition, many of these services, such as the job search and placement activities, are similar to the services WIOA provides. That WIOA does not have a merit-staffing requirement supports the Department's position that these activities are not inherently governmental.

The Department acknowledges that there are important linkages between the ES program and the UI program. Section 7(a)(3)(F) of the Wagner-Peyser Act requires ES staff to conduct the work test for the UI program, including making eligibility assessments. In the UI program context, the Department has previously explained that States may not use a service provider for inherently governmental functions and that these functions must be performed by State merit staff. See Unemployment Insurance Program Letter (UIPL) No. 12-01, Outsourcing of Unemployment Compensation Administrative Functions, Dec. 12, 2000. In this UIPL, the Department listed a number of UI functions that are considered inherently governmental and thus must be performed by State merit staff. One such function is determining whether to pay (or not pay) UI benefits.

20 CFR 652.209(b)(2) requires the ES to administer the work test and conduct eligibility assessments for UI claimants. The UI work test includes activities designed to ensure that an individual whom a State determines to be eligible for UI benefits is able to work, available for work, and actively seeking work in accordance with the State's UI law. In providing these services, it is possible ES staff may detect eligibility issues for UI claimants. However, the Wagner-Peyser Act implementing regulations and guidance make clear that only UI merit staff members may adjudicate UI eligibility issues. Therefore, 20 CFR 652.210(b)(3) requires ES staff to provide UI program staff with information about a UI claimant's ability or availability for work or the suitability of work offered to UI claimants. This ensures that UI merit staff have the information they need to adjudicate any eligibility issues detected during the work test or eligibility assessment.

UIPL No. 14-18, Unemployment Insurance and the Workforce Innovation and Opportunity Act (Aug. 20, 2018), further explains how ES staff meet the requirements to provide these services to UI claimants and offer information about any eligibility issues the ES detects while providing these services. Specifically, the UIPL explains how States ensure that the necessary information about a UI claimant's ability, availability, or the suitability of work offered is referred to the State's UI staff. First, States are required to have in place an “effective feedback loop” to inform UI staff whether the claimant reported as directed and participated in the appropriate eligibility assessment and/or services. Second, States must ensure ES staff are trained to conduct a thorough eligibility assessment to identify potential eligibility issues for referral to UI staff. Third, States must ensure that ES staff are trained to properly document information for use by UI staff in adjudicating any eligibility issues. Finally, this feedback loop must be in place and clearly documented. Id. at 10.

The work test and eligibility assessments themselves do not involve making a determination on whether to pay (or not pay) unemployment compensation; instead, the individuals conducting the test and assessment gather information and then share that information through the above-mentioned feedback loop with the UI program staff who make the determination about an individual's eligibility or continuing eligibility for unemployment compensation. Id. The Department requires a clearly documented feedback loop that advises UI staff whether the individual reported as directed and participated in the eligibility assessment and/or services. Id. Sending this information to UI staff ensures that only UI merit staff members are adjudicating UI eligibility issues, consistent with the requirement in sec. 303(a)(1) of the SSA that the UI program maintains personnel standards on a merit basis.

One commenter opposed the proposed rule because, the commenter stated, that Congress envisioned at the Wagner-Peyser Act's inception, and affirmed over the years, a professional cadre of State government ES employees selected by merit to avoid favoritism or partisanship in the delivery of services. As discussed above, the Wagner-Peyser Act does not reflect any express intent to require merit-staffing in the ES. Congress could have chosen to insert such a requirement in the Wagner-Peyser Act at the time of its passage, or at any time thereafter, as it did in other legislation—for example, sec. 303(a)(1) of the SSA. Further, while a merit-staffing requirement has been included in a number of previous departmental appropriations acts, Congress specifically chose not to make this a permanent feature of the Wagner-Peyser Act. Instead, since its passage in 1933, the Wagner-Peyser Act has explicitly given the Secretary discretion under sec. 3(a) to develop and prescribe “minimum standards of efficiency” in the administration of the ES program. This discretion was affirmed in
Michigan
v.
Herman,
where the court found no conclusive evidence that Congress had intended to impose a merit-staffing requirement, or had affirmed or rejected such a requirement in the ensuing decades.

Several commenters opposed the proposed rule because they viewed it as inconsistent with the reasons Congress initially created the ES. They contended that before Congress passed the Wagner-Peyser Act, there was corruption, political patronage, and inequities in private employment offices nationwide and that in passing the Act, Congress envisioned a State merit system to prevent favoritism and promote equality in the delivery of services. This final rule is consistent with the purposes of the Wagner-Peyser Act, which was passed primarily to strengthen the overall structure, value, and effectiveness of the ES system in the United States through innovation. The Department recognizes the history of ES offices in the United States, and the problems that first prompted States to create their own free, public employment offices. This final rule does not detract from the public nature of an ES system that offers universal access to job seekers, nor does it vest in private entities the ultimate responsibility for effective service delivery to the public. The myriad of obligations to which the States are subject as conditions for receipt of funding under the Wagner-Peyser Act, as well as obligations imposed by other applicable laws, remain unchanged by this final rule.

One commenter viewed the history of the Wagner-Peyser Act and the inherently governmental nature of its functions carried out by merit staff as a foundation of the ES system and that Congress's actions to protect merit-staffing in the ES since the law's New Deal-era passage show Congressional intent for and support of merit-staffing for ES. The Department agrees that the staff who provide Wagner-Peyser Act-funded services are key to the success of the program and job seekers and employers' use of the ES. However, the Department views the foundation of the

ES to be the services provided to job seekers and employers. Each State has unique needs from the ES and a one-size-fits-all staffing model may not be able to take these needs into account. Therefore, the Department has determined it would be most appropriate to give States the flexibility to determine which staffing model provides the most effective services to their customers.

The Department acknowledges that Congress has taken actions related to merit-staffing of Wagner-Peyser Act-funded services. However, as explained above, while the imposition of a merit-staffing requirement is a permissible interpretation of sec. 3(a) of the Wagner-Peyser Act, it is not required by the Act.

Likewise, several commenters opposed the flexibility in the proposed rule to provide Wagner-Peyser Act-funded services with staff other than merit staff, because they believed Congress would not approve of the flexibility. Specifically, the commenters explained that Congress's actions since the bill's passage show the original intent of the authors of the Wagner-Peyser Act and Congress's intent to require merit-staffing in the ES. Similarly, some commenters opposed the proposed rule because, they stated, there was a pattern of Congressional action to prevent the “privatization” (as they termed it) of ES activities, revealing that Congress has a critical role in supporting and maintaining the ES merit-staffing requirement. This rule does not privatize Wagner-Peyser Act services, but rather it provides flexibility to States to offer Wagner-Peyser Act services using the best staffing approach available to them to provide these services. The Department acknowledges that Congress has taken actions since the enactment of the Wagner-Peyser Act that maintained the Department's regulatory requirement that States provide ES activities with State merit staff. For the reasons discussed above, there is no current statutory merit staff requirement in the Wagner-Peyser Act. Since the enactment of the Wagner-Peyser Act in 1933, a number of years have passed during which Congress could have either amended the Wagner-Peyser Act to make it a statutory requirement that States provide Wagner-Peyser Act-funded services with merit staff or continued to require use of merit staff in the ES system via appropriations rider, as was done for a number of years. But Congress has not done so.

Most notably, on May 15, 1998, in
Michigan
v.
Herman
the court held that there was no explicit statutory mandate in the Wagner-Peyser Act to require States to deliver Wagner-Peyser Act-funded services with State merit staff. 81 F. Supp. 2d at 847. On August 7, 1998, a little over two months later, Congress enacted WIA, which included a number of amendments to the Wagner-Peyser Act. Thus, as of May 15, 1998, Congress was aware that a court had concluded there was no explicit merit-staffing requirement in the Wagner-Peyser Act. Had Congress wanted to make it a statutory requirement, Congress could have used the 1998 amendments to include one. However, Congress did not include such a requirement in these 1998 amendments. Similarly, in 2014, Congress again re-authorized the workforce development system and amended the Wagner-Peyser Act. Like the 1998 amendments, these amendments also did not include a statutory requirement to provide ES activities with State merit staff.

Commenters also stated that later congressional actions can demonstrate the original intent of the authors of the Wagner-Peyser Act. The Wagner-Peyser Act was enacted in 1933. It is questionable whether congressional actions taken later, sometimes decades later, should have much relevance to the intent of the Act's authors. Regardless, the key language of the Act itself, which Congress has not amended, shows no congressional intent to impose a permanent merit-staffing requirement.
8

8
The original Wagner-Peyser Act employed this language: “The bureau shall also assist in coordinating the public employment offices throughout the country and in increasing their usefulness by developing and prescribing minimum standards of efficiency . . . .” Public Law 73-30 § 3(a), 48 Stat. 113, 114 (1933). The Act, as amended, uses the same “minimum standards of efficiency” language: “The Secretary shall assist in coordinating the State public employment service offices throughout the country and in increasing their usefulness by developing and prescribing minimum standards of efficiency . . . .” 29 U.S.C. 49b(a) (2018).

Several commenters opposed the proposed rule because they believe the ES system only qualifies as a “public employment office” if the employees are State merit-staffed employees. The commenters noted that sec. 1 of the Wagner-Peyser Act requires the establishment of a “national system of public employment service offices,” and the commenters contended that a principal component of such a system are “employees of State government [who are] hired and promoted on the basis of merit under a civil service system.” They believe this is what makes the offices “public.” Without merit-staffed State government employees, the commenters asserted, the public nature of the ES is given to private control and is no longer a “public employment office.” These commenters interpreted the term “public” in the phrase “public employment office” in sec. 1 of the Wagner-Peyser Act to refer to the employment relationship between the individuals providing Wagner-Peyser Act-funded services and the State. However, nothing in the Wagner-Peyser Act indicates this was the intent of Congress in establishing the ES. As explained above, the history of the Wagner-Peyser Act's passage indicates Congress established the ES to promote greater cooperation and coordination between the Federal and State programs, to avoid active competition between the two, and to ameliorate wastefulness in the system. See S. Rep. No. 73-63, at 3-4 (1933). To the extent that the ES was created to end the abuses of private employment agencies,
9

the Department notes that this final rule in no way marks a return to a private system of employment firms. All ES activities and services nationwide will continue to be provided through State-administered offices, with services universally available and financed with public funding via a grant from the Department, which will continue to oversee that States meet their obligations under the Wagner-Peyser Act. Accordingly, contrary to the commenter's assertion, the Department will continue to administer a national system of public employment service offices under this final rule.

9
This history is detailed in Henry P. Guzda, “The U.S. Employment Service at 50: it too had to wait its turn,” Monthly Labor Review, 12-19 (June 1983).

The Department notes that sec. 2(6) of the Wagner-Peyser Act provides that the term “employment service office” means a local office of a State agency. The Department interprets this to mean that an ES office is any local office where the State agency provides ES activities (be it through State employees or a service provider). This is consistent with the definition the Department proposed for “ES office” in the NPRM and finalized in this rule.

Several commenters opposed the flexibility provided in the proposed rule because they stated it contradicts the Department's long-standing position. They contended that it has been a long-standing position of the Department, as the Department argued in
Michigan
v.
Herman,
that the Wagner-Peyser Act requires merit-based staffing. Commenters explained that in the
Michigan
v.
Herman
case, the Department argued that Congress intended merit-staffing to be a key component of a public ES at the outset

and described how Congress has reaffirmed this principle over time. The Department acknowledges that it has required States to provide labor exchange services with State merit staff. However, as explained elsewhere in this final rule, the Department is now changing its policy and is giving the States the flexibility to determine what staffing model works best for their State's needs. In
Michigan
v.
Herman,
the Department contended that its construction of the Wagner-Peyser Act to require merit staffing was supported by the language of the statute and was consistent with Congressional intent. However, the court ruled that it “cannot state, as a matter of law, which of the various interpretations presented more accurately reflects Congressional intent” and concluded that sec. 3(a) was broad enough to permit the Department to require merit-staffing.
Michigan
v.
Herman,
81 F. Supp. 2d at 847-48. Implicit in the court's decision is that it would also be a permissible read of this provision to not require merit-staffing. Now, consistent with the decision in
Michigan
v.
Herman,
the Department is exercising its discretion to interpret sec. 3(a) of the Wagner-Peyser Act and will no longer require States to use State merit staff to deliver labor exchange services. As explained above, the Department notes that it is permissible for Federal agencies to change their interpretations as long as they provide a reasoned explanation for the change.
Encino Motorcars, LLC,
136 S. Ct. at 2125. This includes “display[ing] awareness” that the agency is changing its position and showing that there are good reasons for the change. Id. at 2126. As required, in the NPRM for this rule, the Department acknowledged that its proposal was a departure from the requirement to use merit staff and provided four reasons for this change. See 84 FR 29433, 29434 (June 24, 2019). No commenters expressed that the prior rule engendered substantial reliance interests, and even if they had, as noted, the Department has provided a substantial justification for this change.
10

10
The Department also notes that the flexibilities permitted by this rule are purely optional, and the Department's monitoring and requirements of States' service delivery remain in place.

One commenter asked if private entities receiving Wagner-Peyser Act funds would be required to comply with State and Federal freedom of information act rules and regulations. The Freedom of Information Act (FOIA) establishes a statutory scheme for members of the public to use in making requests for Federal agency records. Only agencies within the Executive Branch of the Federal government, independent regulatory agencies, Amtrak, and some components within the Executive Office of the President, are subject to the FOIA. See 5 U.S.C. 551(1) and 552(f)(1) and 49 U.S.C. 24301(e). Therefore, if a private entity receives Wagner-Peyser Act funds from a State that entity is not subject to the FOIA or its implementing regulations.

However, the Department notes that each State has its own open record law. The Department is not the appropriate entity to interpret the application of a State's laws. Entities receiving Wagner-Peyser Act funds from a State must conduct their own analysis to determine the applicability of a State's freedom of information laws and regulations.

One commenter opposed the proposed rule, arguing in part that it could lead to politicization, which the commenter stated is currently prohibited, because most State employees are covered by the Hatch Act. The Hatch Act of 1939 (Pub. L. 76-252) restricts the political activity of individuals principally employed by State, District of Columbia, or local executive agencies and who work in connection with programs financed in part by Federal loans or grants. The Department acknowledges that some individuals providing ES activities may no longer be covered by the Hatch Act, as they may no longer be principally employed by a State, the District of Columbia, or a local executive agency. However, the ES is a universal access program that requires that labor exchange services be available to all employers and job seekers. See 20 CFR 652.207. States, regardless of who is providing the services, must ensure that this requirement is met. If a State decides to use the staffing flexibility in this final rule to provide these services, the State's monitoring will include ensuring the universal access requirement is met. In turn, the Department's monitoring of the State will also focus on this requirement.

One commenter opposed the proposed rule because the commenter stated that recognizing the inherently governmental functions of the ES, Congress has acted many times in the 85-year history of the Wagner-Peyser Act to require merit-staffing in the ES and has recognized that any changes require congressional action. The Department does not agree that changes in the merit-staffing requirement can only be made through congressional action. As explained above, the Wagner-Peyser Act permits the Department to require States to deliver Wagner-Peyser Act-funded services with State merit staff, but it does not impose a statutory requirement that such services be merit-staffed. Because the merit-staffing requirement is not mandated by statute, as noted above, it is within the Department's authority to provide States with this flexibility.

One commenter opposed the proposed rule because of the potential impact on the Reemployment Services and Eligibility Assessment (RESEA) program. The commenter explained that “[p]rivatizing the public Employment Service” could jeopardize the effectiveness of RESEA. The commenter noted that many States have launched RESEA models that rely on ES staff being cross-trained in UI to a level that they can deliver legally accurate guidance on the State's UI law and qualifying requirements. The commenter expressed concerns that allowing what they described as the privatization of services under RESEA grants would amount to privatizing key components of the UI program, a result that Congress did not intend when it expanded RESEA last year, and that is not permissible under current law. This rule does not privatize Wagner-Peyser Act services, but rather it provides flexibility to States to offer Wagner-Peyser Act services using the best staffing approach available to them to provide these services. The Department does not agree that the proposed flexibility given to States would negatively impact the RESEA program. The RESEA program assesses the continued eligibility and reemployment needs of UI claimants for the program's targeted populations. As the Department explained in its guidance on RESEA, UI staff, Wagner-Peyser Act-funded State ES staff, WIOA staff, or other AJC staff may deliver these services. See UIPL 07-19, Fiscal Year (FY) 2019 Funding Allotments and Operating Guidance for Unemployment Insurance (UI) Reemployment Services and Eligibility Assessment (RESEA) Grants (Jan. 11, 2019). Therefore, the Department currently permits non-merit staff to carry out RESEA, as many WIOA staff are not merit staff. Additionally, the Department has provided guidance to States on handling eligibility issues that are detected in the course of providing RESEA services. Similar to how the ES program administers the work test, States are required to have feedback loops from the AJC to the UI system on whether claimants reported as directed and participated in the minimum activities outlined in their reemployment plans. This ensures that any eligibility issues are referred to the UI agency and that eligibility issues are

adjudicated by State merit staff, consistent with the requirement in sec. 303(a)(1) of the SSA.

The Department supports efforts that States have already made in launching RESEA programs and encourages States to continue to create the RESEA program that best fits each State's needs. The Department notes that this final rule does not require States to use non-merit staff to deliver their ES activities; instead, it gives the States the discretion to choose the staffing model that best meets each State's needs.

A commenter cited the Federal law that created the cabinet-level U.S. Department of Labor in 1913, which states that the Department's purpose is to foster, promote, and develop the welfare of working people in order to improve their working conditions and enhance opportunities for profitable employment. The commenter stated that the proposed regulations are in step with the trend to reduce civil service protections, and they are out of step with the Department's purpose. This final rule is consistent with the Department's purposes, one of which, as the commenter noted, is to enhance opportunities for profitable employment. States are in the best position to decide what is the most effective, efficient, and cost-effective way to provide services under the Wagner-Peyser Act; this final rule recognizes this and gives States the flexibility to determine what staffing model best suits the States' needs without sacrificing the quality of Wagner-Peyser Act services. Additionally, this flexibility may allow States to align the provision of Wagner-Peyser Act services with WIOA service delivery models so the programs work better together. Consistent with the Department's purpose, this will enhance opportunities for profitable employment.

One commenter suggested that adoption of the additional flexibility in the proposed rule would undermine current or existing efforts to align and integrate services provided to job seekers and employers. The commenter noted existing efforts made in the operation of the Wagner-Peyser Act since the enactment of WIOA; these efforts include the alignment of service delivery with WIOA, including cross-training of workforce programs, electronic systems, and a customer centered approach to service delivery. According to the commenter, States' efforts have resulted in more efficient offices and a more holistic approach to service delivery for customers. The Department commends the commenter's efforts to align and integrate services provided to job seekers and employers. The Department notes that this final rule does not impose any requirements on States to change their service delivery models and States may continue to use State merit staff to deliver Wagner-Peyser Act-funded labor exchange services if the State prefers this model. This final rule provides flexibility to States to consider and choose alternative staffing models if they determine it to be a more effective approach to serving the job seekers and job creators they serve.

One commenter noted that contracted services under WIOA have resulted in a high turnover rate for staff and expressed concern that this turnover may happen in the Wagner-Peyser Act-funded labor exchange services if the merit-staffing requirement were removed. The commenter expressed concern that “clients would suffer while contractors get `up to speed,' ” and that the networks developed over time cannot be replicated by a new service provider. The commenter also suggested that if the flexibility provided by this final rule were adopted, staffing retention would decrease and for-profit companies may generate “false numbers.”

Another commenter noted that contracting services may result in fewer services for individuals with barriers to employment and individuals who may require more services in order to obtain employment, because the “contractors” may perceive these individuals to be more costly to assist. The commenter appeared to suggest that service providers would be concerned more about profit than ensuring individuals receive individually appropriate services. Additionally, some commenters noted concerns about services to rural communities, if services are contracted out, because providing services in these communities may not be as profitable in a contract-for-service system. Other commenters expressed concerns about additional costs associated with contracting services provided under the Wagner-Peyser Act, which, according to the commenters, may result in reduced services to customers.

A few commenters also noted their concerns that a service provider may have incentives inconsistent with the Wagner-Peyser Act goal of providing universal access to all job seekers. One stated that if a contracted firm is given a flat fee, there may be an incentive to “dump clients.” Multiple commenters also stated another potential risk associated with contracted services is if a success-related incentive is provided, service providers may screen for the cases most likely to succeed regardless of intervention and have “little incentive to consider whether they are referring candidates of diverse nationalities and races or simply referring the most employable workers.” One commenter stated there is a “potentially damaging incentive” when it comes to job placement. The commenter stated that “contractors” may be able to use the Worker Profiling and Reemployment Services system to identify those most likely to obtain employment and serve only those easier to serve individuals.

The Department appreciates the considerations that States will need to take into account when deciding whether to use the staffing flexibility provided in this final rule, including how services and process changes are staffed and integrated at the local level. States, as Wagner-Peyser Act grantees, are required to oversee all operations of the Wagner-Peyser Act activities, regardless of how they choose to use this final rule's additional staffing flexibility. States are responsible for the operations and performance of the State's Wagner-Peyser Act ES program, including the quality provision of services to employers and job seekers. These responsibilities continue to include the requirement at 20 CFR 652.207 to provide universal access to Wagner-Peyser Act services for all employers and job seekers to receive labor exchange services, not just those easiest to serve.

The Department considers States to be in the best position to decide what is the most productive, efficient, and cost-effective way to provide services under the Wagner-Peyser Act. This regulation does not require States to change their staffing structure for providing services under the Wagner-Peyser Act, but it provides them flexibility in how they staff the delivery of these services. As stated above, States are ultimately responsible for the operations and performance of the State's Wagner-Peyser Act program. The Department encourages States to ensure the incentives of any agreements with service providers align with the goals and requirements of the Wagner-Peyser Act.

One commenter was supportive of the proposed rule, but requested guidance related to the operations of the Wagner-Peyser Act, including on the services provided, colocation, referrals, farmworker services, and services to veterans. The Department recognizes there may be need for additional guidance on implementing staffing flexibility once this rule is finalized. The Department will continue to

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/fr%3A2019-27260. Public record. Not legal advice.