How much does it pay to be close to Donald Trump? Peter Thiel may soon find out.
Data analysis firm Palantir Technologies, which was co-founded by venture capitalist Thiel, became one of the sexiest startups in Silicon Valley when it was revealed its software played a role in tracking down Osama bin Laden before the raid that led to his death. Thanks to its lucrative data-mining business, Palantir’s valuation reached $20 billion in 2015.
While other tech firms have an uneasy relationship with the federal government, Palantir embraced it, becoming a contractor for the defense department and a host of national security agencies. It was funded in part with capital from the Central Intelligence Agency. That somewhat cozy relationship was tested last year when Palantir was sued by the federal government for discriminating in hiring.
Palantir is the latest high-profile Silicon Valley company to run afoul of a little-known watchdog agency dating from the civil-rights era to ensure companies that do business with the government don’t discriminate, and whose mandate was beefed up by the Obama administration. “The idea is that to be a contractor is a privilege, not a right”
Now, under president Trump, the Office of Federal Contract Compliance—one of the government’s more effective tools for promoting workplace equality—could be defanged, or even shut down altogether.
Obama’s weapon against pay discrimination
The OFCCP got its start under US president Lyndon Johnson in 1965, as a legacy of the Civil Rights Act. Under Executive Order 11246, the Department of Labor was charged for the first time with enforcing the special obligations of federal contractors to hire minorities, using the power of the government to dismantle the legacy of segregation.
The agency polices more than 130,000 companies that receive money from the US federal government, as well as their subcontractors, which do everything from build battle ships to design websites. This is no small thing. The contractors received $471 billion from the government in 2016 alone.
Like other federal agencies, the OFCCP reflects the philosophies and priorities of the president. Under the last Republican president, George W. Bush, the agency adopted business-friendly policies that provided contractors with the standards it would use to enforce its pay discrimination rules. Pamela Coukos, a former program advisor at the OFCCP under former president Barack Obama, compared the Bush approach to giving someone the answers to a test.
It was Obama who saw the 50-year-old agency’s potential as he made closing the gender pay gap—which, by some measures, has barely changed since 1990—a priority of his administration.
“There was a White House task force, and Obama pointed to the OFCCP, and said ‘You are in a unique position for getting access to employment data, and why are you not fixing this problem?’” Michelle Duncan, a former Labor Department lawyer who worked closely with the enforcement agency, tells Quartz.
Under Obama, the previously sleepy OFCCP aggressively pursued cases where it found evidence of hiring and pay discrimination, particularly among women and make history in other areas, too, particularly with his 2014 executive order that expanded workplace protections to include gay, lesbian, and transgender employees.
Employers in finance and technology became particular areas of focus for enforcement, according to a Labor Department budget document. Along with the Palantir suit, other recent actions included:
- Suing JPMorgan Chase over discrimination against women in pay. The office alleges the bank paid at least 93 women less than men in the same position.
- Suing Google for not providing employment data as part of an OFCCP audit of its hiring practices.
- Suing Oracle for paying white, male workers more than women or minority men. The suit also alleges it favors Asian Americans in hiring.
- Settling a case against Hewlett-Packard for $750,000 in back pay and interest, after allegations it discriminated against blacks, Hispanics and Asians in hiring.
- Settling a case over alleged sexual discrimination with General Electric, after 102 women were denied entry-level positions at a lighting factory in Ohio.
The OFCCP updated its rules against gender bias for the first time since 1970, making explicit prohibitions against sexually hostile work environments and barring discrimination based on pregnancy or not conforming to gender stereotypes. The office also set hiring targets for veterans and disabled employees, and barred contractors from prohibiting their workers from discussing their pay.
“The idea is that to be a contractor is a privilege, not a right,” said David Cohen, president of DCI Consulting, which works with companies under OFCCP audits. Contractors are required to maintain affirmative action plans for hiring women, minorities and veterans, and make efforts to fill them.
In 2013, the OFCCP embraced an even more aggressive method of rooting out discrimination that relied on statistical analysis. Its numbers-based method produced some surprising results, such as discrimination against white and male applicants. In a complex settlement with Tyson Foods at six locations in Texas, New Mexico, and Arkansas, the company agreed to pay $1.6 million to resolve allegations it discriminated against a wide swath of applicants, including more than 2,000 white men and women.
Contractors balked at the Obama’s approach, and were more likely to contest the OFCCP’s findings. That led to more cases tangled in litigation and, ultimately, fewer wages recovered than under the previous administration. And it hasn’t helped its popularity. “It’s a widely disliked and widely despised agency,” a former senior OFCCP official told the Cleveland Plain Dealer. “It’s kind of like the IRS.”
Companies targeted by the agency felt it was over reaching. “The OFCCP was getting up the plate, instead of hitting singles, it wanted to hit grand slams every time at bat,” Cohen said. “It just didn’t work.”
The OFCCP’s new, data-based direction gave it authority to proceed regardless of any mediating circumstances. Even if employees didn’t think they were being underpaid, the agency would pursue cases if the numbers pointed the way. That new statistical focus helped lead the OFCCP to Palantir.
The Thiel case
The agency alleges Palantir systematically discriminated against Asian-American applicants from 2010 through 2016, an unusual claim in Silicon Valley, where Asians are typically well represented. By using statistical modeling, the government tries to show Palantir’s pattern of hiring non-Asians couldn’t be explained by chance.
In one hiring round for software engineers, for example, Palantir received 1,160 “qualified applications,” of which 85% percent were Asian, the government said in its suit. Palantir hired 11 Asians and 14 non-Asians, a mix the government said had a one in 3.4 million chance of happening at random.
In its response, Palantir called the Labor Department’s analysis “flawed and illogical,” and said government considered only three out of 44 job categories the company was filling. It also noted that two of the four executives on Palantir’s senior leadership team are Asian. (Palantir provided Quartz with its response to the government’s litigation but would not comment on the suit.)
The stakes are particularly high for Palantir, because of its dependence on federal contracts. Last year, the company was awarded federal contracts worth $132 million, mostly from the Department of Defense. The company doesn’t release its revenues, but according to Buzzfeed, it recorded $420 million in 2015.
If the company is found to be in violation, it could face the cancellation of its contracts and be barred from future government work.
The Palantir case is now complicated by Trump’s relationship with Thiel, who remains the company’s chairman. Thiel is one of the few Silicon Valley figures who supported Trump as a candidate, spoke at the Republican Party convention, and he served on the executive committee of the transition. He’s now an unofficial White House advisor. (Thiel didn’t respond to a request for comment.)
Trump has shown a willingness to personally intervene, and use the weight of the presidency to bully companies, such as with Carrier and Nordstrom. Stepping between a government agency and the company it’s suing, however, would be cronyism of another order of magnitude. “We are concerned that business tycoons will lean on Trump to intercede in government actions,” said Scott Amey, the general counsel for the Project on Government Oversight, a nonpartisan watchdog group. “We hope that the president avoids helping out his friends and will be true to his word to drain the swamp.”
If Trump demands dramatic changes to how the agency operates, it would be consistent with the direction he’s taken the federal government thus far. His 2018 budget calls for a 21% cut in funding (pdf) for the Department of Labor, without specifying how much would be allocated to the OFCCP. It could be awhile before the fate of the Palantir case is known, too; the agency has been without a director since November and Alexander Acosta, Trump’s second pick to head the Labor Department, has yet to be confirmed.
And the OFCCP is an easy target, an obscure agency that symbolizes the government’s regulatory sprawl loathed by conservatives. In congressional hearings, Republicans have blasted the agency for imposing de facto hiring quotas on businesses. The agency is run by “unelected bureaucrats that think they know better than us,” said Todd Rokita, a representative from Indiana.
Could Trump do away with the agency altogether, attacking another institution beloved by liberals the way he tried with Obamacare and is trying with the National Endowment for the Arts? “You’d taking on the LGBT community, the disabled, veterans, women, and minorities,” Cohen said. “Politically, I don’t want to fight that fight.”
Trump—who seems to relish political combat of all sorts—just might.