## Facts

- Liberty Mutual companies sold workers’ compensation insurance to private employers, including many employers that held federal government contracts.
- Executive Order 11246 requires covered federal contractors and subcontractors to avoid employment discrimination and to take affirmative action; Labor Department regulations (administered through OFCCP) impose related recordkeeping and reporting duties.
- OFCCP notified Liberty that it was being treated as a “government subcontractor” because its workers’ compensation coverage was allegedly a service “necessary” to performance of federal contracts, given state-law requirements that employers carry such insurance.
- Liberty objected that it had no contracts with the federal government, had not agreed to contract clauses implementing the Executive Order, and provided insurance only under private contracts and state insurance law.
- The district court upheld OFCCP’s determination by letter that Liberty was a covered subcontractor subject to the Executive Order’s requirements.
- Liberty appealed.

## Issues

1. Whether Liberty’s provision of workers’ compensation insurance to federal contractors fit the regulatory definition of “subcontractor” under Executive Order 11246 and its implementing regulations.
2. Whether, even if the regulations purported to cover Liberty, the Executive Branch and the Department of Labor had statutory authority to impose Executive Order 11246’s affirmative-action and recordkeeping obligations on Liberty as an insurance carrier for federal contractors.

## Decision

- The Fourth Circuit reversed.
- The court held that treating Liberty as a government subcontractor subject to Executive Order 11246 was outside any statutory authorization and therefore invalid.
- The court did not sustain OFCCP’s extension of Executive Order coverage to Liberty based solely on the asserted necessity of workers’ compensation insurance to federal contract performance.

## Legal Principles

- Executive Order 11246 obligations may be imposed only within the scope of authority delegated by Congress; an executive order and agency regulations cannot independently expand regulated classes without a supporting statutory grant.
- A broad regulatory definition of “subcontractor” is insufficient if there is no explicit or implied statutory authorization to apply the Executive Order to the targeted entity.
- An asserted connection to federal procurement must be sufficiently direct; providing a generally required service to private federal contractors does not, by itself, create a sufficient nexus to justify subcontractor treatment.
- General or indirect congressional activity does not amount to ratification of agency efforts to extend Executive Order 11246 to entities absent clear legislative approval.

## Conclusion

The Fourth Circuit invalidated OFCCP’s attempt to subject a workers’ compensation insurer to Executive Order 11246 as a “subcontractor,” concluding that no adequate statutory authorization supported extending the Executive Order’s affirmative-action and reporting regime to Liberty based on its private insurance relationships with federal contractors.


Liberty Mut. Ins. Co. v. Friedman, 639 F.2d 164 (4th Cir. 1981)