[Federal Register Volume 69, Number 34 (Friday, February 20, 2004)]
[Proposed Rules]
[Pages 8030-8071]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 04-3670]



[[Page 8029]]

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Part III





Department of Homeland Security

Office of Personnel Management





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5 CFR Chapter XCVII and Part 9701



Department of Homeland Security Human Resources Management System; 
Proposed Rule

  Federal Register / Vol. 69, No. 34 / Friday, February 20, 2004 / 
Proposed Rules  

[[Page 8030]]


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DEPARTMENT OF HOMELAND SECURITY

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Chapter XCVII and Part 9701

RIN 3206-AK31/1601-AA-19


Department of Homeland Security Human Resources Management System

AGENCY: Department of Homeland Security; Office of Personnel 
Management.

ACTION: Proposed rule.

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SUMMARY: The Department of Homeland Security (DHS) and the Office of 
Personnel Management are issuing proposed regulations to establish a 
new human resources management system within DHS, as authorized by the 
Homeland Security Act of 2002. The affected subsystems include the 
systems governing basic pay, classification, performance management, 
labor relations, adverse actions (e.g., disciplinary actions), and 
employee appeals. These changes are designed to ensure that DHS' human 
resources management system aligns with the Department's critical 
mission requirements and protects the civil service rights of its 
employees.

DATES: Comments must be received on or before March 22, 2004.

ADDRESSES: You may submit comments, identified by docket number DHS-
2004-001 and/or RIN number 3206-AK31, by any of the following methods:
     E-Docket Web Site: http://www.epa.gov/edocket. 
Follow the instructions for submitting comments at that web site.
     Mail: DHS/OPM HR System Public Comments, P.O. 
Box 14474, Washington, DC 20044-4474.
     Hand delivery/Courier: OPM Resource Center, Room 
B469, Office of Personnel Management, 1900 E Street, NW., Washington, 
DC. Delivery must be made between 10 a.m. and 2 p.m., Monday through 
Friday, except Federal holidays.
     Federal Rulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments.
    Instructions: All submissions must include the agency name and 
docket number or Regulation Identifier Number (RIN) for this 
rulemaking. The online e-docket system is DHS/OPM's preferred method 
for receiving comments. Mailed or hand-delivered comments must be in 
paper form. No mailed or hand-delivered comments in electronic form 
(CDs, floppy disk, or other media) will be accepted. All comments 
received, whether mailed, hand-delivered, or submitted online, will be 
posted without change or omission to the e-docket at: http://www.epa.gov/edocket. For detailed instructions on submitting comments 
and additional information on the rulemaking process, see the ``Public 
Participation'' and ``Electronic Access and Filing'' headings in the 
Supplementary Information section of this document.
    Docket: For access to the e-docket to read background documents, 
submit comments, and read comments received, go to http://www.epa.gov/edocket. To read the hard-copy originals of mailed and hand-delivered 
comments, visit the OPM Resource Center, Room B469, Office of Personnel 
Management, 1900 E Street, NW., Washington, DC, between 10 a.m. and 2 
p.m., Monday through Friday, except Federal holidays.

FOR FURTHER INFORMATION CONTACT: At OPM: Ronald P. Sanders, (202) 606-
9150; at DHS: Melissa Allen, (202) 692-4272.

SUPPLEMENTARY INFORMATION: The Department of Homeland Security (DHS or 
``the Department'') and the Office of Personnel Management (OPM) are 
proposing to establish a new human resources (HR) management system 
within DHS under 5 U.S.C. 9701, as enacted by section 841(a)(2) of the 
Homeland Security Act of 2002 (Public Law 107-296, November 25, 2002). 
The following information is intended to provide interested parties 
with relevant background material about (1) the Homeland Security Act, 
(2) the process used to design options for a new HR system, (3) a 
summary of the options developed and the review of those options by the 
DHS Human Resource Management System Senior Review Advisory Committee, 
(4) an evaluation of the design process, (5) a description of the 
proposed new HR system, and (6) an analysis of the costs and benefits 
of the proposed system.

The Homeland Security Act of 2002

Background

    On November 25, 2002, President George W. Bush signed Public Law 
107-296, the Homeland Security Act, which established DHS. On March 1, 
2003, more than 20 organizations and functions previously assigned to 
other Federal agencies were merged officially into the new Department, 
making this the most significant reorganization in the executive branch 
of the Federal Government in more than 50 years. DHS was created with 
the overriding mission of protecting the Nation against further 
terrorist attacks. DHS analyzes threats and intelligence, guards our 
borders and airports, protects our critical infrastructure, coordinates 
the response of our Nation to emergencies, and implements other 
security measures. DHS also is committed to enhancing public services 
such as natural disaster assistance.

Authority To Establish a New HR System

    In creating the new Department, Congress provided a historic 
opportunity to design a 21st century HR management system that is 
mission-centered, fair, effective, and flexible. One of the most 
important features of the Homeland Security Act was the authority 
granted jointly to the Secretary of Homeland Security and the Director 
of OPM under 5 U.S.C. 9701(a) to establish a new HR management system 
within the Department. By law, this authority is to be exercised 
through the issuance of regulations prescribed jointly by the Secretary 
and the Director.
    Through this authority, DHS may establish a modern, flexible HR 
system to support its mission and improve employee and organizational 
performance. In granting this authority, Congress gave DHS flexibility 
to create an HR system that supports the agency's primary mission of 
protecting Americans from terrorist attack without compromising 
fundamental employee rights. In so doing, DHS has the authority to 
waive or modify the following provisions of title 5, United States 
Code:
     The rules governing performance appraisal 
systems established under chapter 43;
     The General Schedule classification system 
established under chapter 51;
     The pay systems for General Schedule employees, 
Federal Wage System employees, Senior Executive Service members, and 
certain other employees, as set forth in chapter 53;
     The labor relations system established under 
chapter 71;
     The rules governing adverse actions taken under 
chapter 75; and
     The rules governing the appeal of adverse 
actions and certain other actions under chapter 77.
    The ``section 9701 authority'' does not extend to systems or rules 
established under an authority outside the above-listed title 5 
chapters. (See 5 U.S.C. 9701(b) and (c).) For example, the authority 
does not reach to DHS employees covered by a basic pay system 
authorized by an authority outside title 5 (e.g., Secret Service 
Uniformed Division officers, Coast Guard military personnel, Coast 
Guard

[[Page 8031]]

Academy faculty members, Transportation Security Administration 
employees, and employees of the DHS Emergency Preparedness and Response 
Directorate appointed under the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act).
    In some cases, however, laws authorizing separate pay and 
classification systems for certain DHS employees not covered by title 5 
provide considerable administrative discretion for modification of 
those systems. For example, the Transportation Security Administration 
(TSA) generally must adopt the system established for Federal Aviation 
Administration (FAA) employees, but the Administrator of TSA is 
authorized to modify that system consistent with 49 U.S.C. 40122. 
Similar discretionary authority applies to the pay systems for Stafford 
Act employees and to employees of the U.S. Coast Guard Academy. Thus, 
it is possible for DHS to extend a new pay system designed for 
employees currently covered by title 5 to TSA employees, Stafford Act 
employees, and/or employees of the Coast Guard Academy by 
administrative action. In contrast, the basic pay system established 
under the DC Code for Secret Service Uniformed Division (SSUD) officers 
cannot be altered administratively. Legislative action would be 
required to modify the basic pay system for SSUD officers.
    Also, the section 9701 authority does not cover systems or rules in 
other title 5 chapters, such as the employment provisions in chapters 
31 and 33, the premium pay provisions in chapter 55, or the retirement 
systems in chapters 83 and 84. However, section 881 of the Homeland 
Security Act does require DHS to review the pay and benefits plans 
applicable to its employees, identify possible disparities, and submit 
a plan for eliminating any unwarranted disparities. DHS provided a 
preliminary report to Congress on possible pay and benefits disparities 
on March 5, 2003, and continues to review these issues.
    DHS' authority to modify or waive the six chapters of title 5 cited 
above (and the associated implementing regulations) is subject to 
certain limitations set forth in section 9701 of title 5 and elsewhere 
in the Homeland Security Act. These limitations are designed to ensure 
that fundamental merit system principles and employee protections are 
preserved. The limitations include the following:
     Any new or modified system must be consistent 
with the merit system principles in 5 U.S.C. 2301. Similarly, 
protections against prohibited personnel practices (e.g., reprisal 
against whistleblowing or discrimination) remain in force.
     The section 9701 regulations may not modify 
regulations implementing nonwaivable laws.
     DHS may not modify the pay system for Executive 
Schedule officials, even though that system is authorized under chapter 
53.
     DHS employees remain subject to the aggregate 
limitation on pay established under 5 U.S.C. 5307, and the annual rate 
of pay for employees covered by the pay system proposed here may not 
exceed the rate for level I of the Executive Schedule.
     DHS must ensure that employees may organize, 
bargain collectively, and participate through labor organizations of 
their own choosing in decisions which affect them, subject to any 
exclusion from coverage or limitation on negotiability established by 
law.
     Any modification of chapter 77 appeals 
procedures must be consistent with the requirements of due process, 
must provide for expeditious handling of DHS cases to the maximum 
extent practicable, and must make modifications only insofar as those 
modifications are designed to further the fair, efficient, and 
expeditious resolution of DHS cases.
     DHS and OPM may not issue new regulations under 
the section 9701 authority after the 5-year period following the 12-
month transition period beginning on the effective date of the Homeland 
Security Act. Since the Act became effective on January 24, 2003, the 
section 9701 regulatory authority sunsets on January 23, 2009. Any 
section 9701 regulations issued before that date will remain in effect.

Collaboration With Employee Representatives

    Section 9701 also prescribes certain procedural requirements in 
connection with the exercise of the joint DHS/OPM regulatory authority. 
Section 9701(e) sets forth provisions to ensure collaboration with 
employee representatives in the planning, development, and 
implementation of any new or modified HR system. These provisions are 
described in detail in the ``Next Steps'' section of this Supplementary 
Information.
    In addition to the procedural requirements related to consultation 
with employee representatives, the Homeland Security Act also requires 
the Secretary and the Director to consult with the Merit Systems 
Protection Board (MSPB) before issuing regulations modifying the 
appeals procedures under chapter 77.

Designing Options for a New HR System

Design Team Membership and Purpose

    With the enactment of the Homeland Security Act of 2002, DHS 
Secretary Tom Ridge and OPM Director Kay Coles James made a commitment 
that the Department's new HR system would be the result of a 
collaborative and inclusive process involving managers, employees, the 
Department's largest unions, and a broad array of stakeholders and 
experts from the Federal sector and private industry. This commitment 
went far beyond the strict requirements of the Homeland Security Act, 
as described above, because the Secretary and the Director felt it was 
critical to involve employees, the unions that represent them, and DHS 
managers in a direct and meaningful way throughout the entire design 
process--not just at the end of the process, as required by law.
    In April 2003, the Secretary and the Director established a DHS/OPM 
HR Systems Design Team composed of DHS managers and employees, HR 
experts from DHS and OPM, and professional staff from the agency's 
three largest Federal employee unions (the American Federation of 
Government Employees, the National Treasury Employees Union, and the 
National Association of Agriculture Employees). The 48 team members 
were assigned to one of two sub-teams: (1) pay, performance, and 
classification or (2) labor and employee relations. Each sub-team had 
two co-leaders, one from DHS and one from OPM.
    The team was not asked to reach agreement on a single solution or 
the best approach in any of the six areas where DHS was given 
flexibility. Instead, the team's mission was to develop a wide-ranging 
set of options for a new HR system at DHS. To help in this effort, the 
team conducted extensive research into human capital practices in the 
public and private sectors, talked with many leading human resources 
experts, heard directly from DHS employees and managers through a 
series of town hall meetings and focus groups, and gathered insights 
from a Field Team composed of DHS managers and local union officials 
who were asked to provide feedback and a front-line perspective to the 
Design Team. The lessons learned through these outreach and research 
efforts helped the Design Team develop a total of 52 options that 
addressed one or more of the six HR areas under consideration. The 
options were presented to the DHS Human Resource Management Senior 
Review Advisory

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Committee on October 20-22, 2003. (The Senior Review Committee and its 
review of the options are described in detail below.)

Guiding Principles

    During the Design Team's inaugural meeting in April 2003, Secretary 
Ridge, Director James, and the presidents of the three largest Federal 
employee unions at DHS discussed the fundamental elements of a model HR 
system for the Department. They stated, for example, that any new 
system must be responsive to the mission of the agency, that it must be 
performance-based, that it must be a 21st century system agile enough 
to respond to 21st century threats, and that it must be credible and 
fair.
    Building on these requirements, the Design Team developed a set of 
``guiding principles'' that were reviewed by the Field Team and 
approved by the Senior Review Committee. The Senior Review Committee 
agreed that options for a new HR system must, first and foremost, be 
mission-centered. The new system must be performance-focused, 
contemporary, and excellent. It must generate respect and trust; it 
must be based on the principles of merit and fairness embodied in the 
statutory merit system principles; and it must comply with all other 
applicable provisions of law. In addition, the Design Team and the 
Senior Review Committee agreed that the process for developing HR 
options must be collaborative, reflecting the input of managerial and 
non-managerial employees at all levels in DHS and of employee unions. 
These guiding principles served as the basis for conducting research 
and outreach activities and, later, for evaluating options for a new HR 
system.

Research and Outreach Activities

    The research phase of the design process took place from April 
until July 2003. The pay, performance, and classification (PPC) sub-
team focused its work on those chapters of title 5 which cover pay 
systems, performance management, and classification. The labor 
relations/employee relations (LR/ER) sub-team focused its research on 
those chapters of title 5 dealing with labor relations, adverse 
actions, and appeals. Both sub-teams researched promising and 
successful practices and systems in their respective areas. Both also 
sought to understand the reasons for less-than-successful practices and 
systems. The two sub-teams followed the same methodology in conducting 
research by identifying sources of information and devising and 
implementing methods of collecting, categorizing, and storing the 
information so that it was available to the entire team. In addition, 
the Design Team collected and analyzed statistical information about 
the DHS workforce. To understand what employees thought about the 
current systems, team members also attended DHS town hall meetings and 
employee focus groups at various locations around the country, as 
described in greater detail below.
    The PPC sub-team identified 25 areas of interest and assigned 
groups to research each area. The areas of interest included the 
structure of pay ranges, methods for categorizing types of work, and 
different appraisal and rating methods. The PPC sub-team identified 
research sources from State and local governments, international 
organizations, non-profit organizations, other Federal agencies with 
different pay systems, and private sector organizations. These sources 
were asked to give presentations to the sub-team or full team, as 
appropriate. Some sources, who could not meet with the Design Team, 
were interviewed by team members.
    The LR/ER sub-team followed similar practices and identified 
similar groups. However, since Federal sector labor relations are 
conducted differently than in the private sector and in State and local 
governments, few outside sources were identified by the LR/ER sub-team 
as suitable models in the labor relations area. Instead, the LR/ER sub-
team identified experts in the field of Federal sector labor relations 
to be interviewed or to give presentations to the sub-team. There were, 
however, a number of sources in the private sector and in State and 
local governments that had innovative or promising processes for 
handling adverse actions and appeals.
    Both sub-teams made an effort to ensure that their fact-finding and 
data-gathering activities were balanced. For instance, in the labor 
relations area, the LR/ER sub-team identified organizations with strong 
labor relations programs, as well as those with restricted programs or 
no labor relations programs at all. The Design Team also conducted a 
literature review to identify articles, reports, and other 
publications, which added to the body of information on current HR 
practices. Altogether, the Design Team contacted and received 
information from almost 200 individuals. A summary of the research 
conducted by the Design Team can be found at http://www.epa.gov/edocket.

Town Hall Meetings and Focus Groups

    As noted above, Design Team members, along with senior DHS and OPM 
officials, attended a series of town hall meetings and focus groups 
sponsored by DHS. Consistent with the team's collaborative approach, 
these meetings were planned jointly with employee representatives and 
were conducted to inform employees about the design process and to 
solicit employees' perceptions of current HR policies.
    To ensure that each town hall meeting and focus group meeting was 
attended by a diverse group of DHS employees, careful consideration was 
given to participant selection methodology. Diverse representation was 
sought and achieved by DHS component; geographic location; job/series; 
bargaining unit and non-bargaining unit status; and age, gender, and 
ethnicity demographics.
    Town hall meetings with DHS employees were held between May and 
July 2003 in El Paso, Texas; Los Angeles, California; Seattle, 
Washington; Detroit, Michigan; New York, New York; Norfolk, Virginia; 
Miami, Florida; and Atlanta, Georgia. Senior DHS and OPM officials, 
including Janet Hale, DHS' Under Secretary for Management, Asa 
Hutchinson, Under Secretary for Border and Transportation Security, and 
Mike Brown, Under Secretary for Emergency Preparedness and Response, 
presided over each town hall meeting, with senior union officials 
joining them in some locations. Concurrent with the town hall meetings, 
54 focus groups--44 with non-supervisory employees and 10 with 
supervisors--were held in the same 8 locations, as well as in Baltimore 
and Washington, DC. One of the Baltimore focus groups was composed 
entirely of blue-collar (``wage grade'') employees. In addition, two 
focus groups were conducted with DHS HR professionals. In total, more 
than 2,000 DHS employees participated in these town hall meetings and 
focus groups.
    Each focus group was professionally facilitated and included 
several Design Team members as observers, note takers, and/or technical 
experts. For each of the six HR areas under review, focus group 
participants were asked, among other things, what they thought worked 
well in the current HR systems and what they thought should be changed. 
The information received from focus group participants was summarized 
and made a part of the Design Team's research. A comprehensive and 
detailed report on the focus group process and findings can be found at 
http://www.epa.gov/edocket.

Communications Strategy

    A comprehensive communications strategy is essential for designing 
and implementing a new HR system. DHS

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therefore developed a communications strategy in order to build and 
sustain high levels of respect and trust among DHS employees--one of 
the guiding principles for the design process--and to gain insight and 
support and address the concerns of stakeholders inside and outside of 
DHS. The objectives of DHS' communications strategy were to (1) raise 
awareness, disseminate information, and promote a clear understanding 
of the purpose for designing a new HR system; (2) manage stakeholder 
expectations and address their concerns; (3) provide opportunities for 
two-way dialogue between the Design Team and the stakeholders; and (4) 
generate a flow of timely, accurate, and consistent messages.
    DHS identified channels for disseminating relevant, timely, and 
consistent information (including a wide variety of print and 
electronic media, e-mail, town hall meetings, focus groups, speeches, 
and briefings) and developed an action plan for communicating with each 
stakeholder. The Design Team also developed key messages to include in 
stakeholder communications to reinforce the guiding principles of the 
DHS HR systems design process. Finally, the Design Team developed 
mechanisms for providing feedback to ensure an on-going two-way 
dialogue between the design team and its stakeholders and to evaluate 
the effectiveness of communication activities in meeting the 
communication strategy objectives.

Outreach to Stakeholders

    In addition to reaching out to DHS employees and to organizations 
and individuals of interest to the Design Team as part of its research 
activity, the Design Team reached out to stakeholders who were thought 
to be keenly interested in the design of new HR systems for DHS. As 
part of the communications strategy developed by DHS, the Design Team 
invited selected stakeholders to participate in two stakeholder 
briefings held at OPM in late August 2003.
    The first stakeholder briefing was for Federal employee unions not 
represented on the Design Team. Seven individuals representing six 
employee unions attended this briefing. The second stakeholder briefing 
was for other stakeholders identified by DHS through its communications 
strategy. About 20 individuals representing 13 organizations or other 
Federal agencies participated in the second briefing. Attendees at both 
briefings received background information about the Homeland Security 
Act, an update on the Design Team's work plan, a presentation on the 
guiding principles developed by the Design Team, and updates on the 
research activities of the team, including town hall meetings and focus 
groups. Attendees were afforded an opportunity to participate in a 
question-and-answer session following these presentations.
    Both before and after the stakeholder briefings, the Design Team 
also responded to requests from other stakeholders, including the 
General Accounting Office and the Coalition for Effective Change (an 
umbrella organization consisting of more than 30 Federal management 
associations), to bring them up to date on the team's activities. 
Design Team leaders also briefed the staff of key congressional 
committees regarding the progress of the design process, and officials 
from DHS and OPM testified before the House Committee on Government 
Reform's Subcommittee on Civil Service and Agency Organization and the 
Senate Committee on Governmental Affairs.

Options Development Process

    The options development process was grounded in the extensive 
research described above. The resulting product was a set of 52 options 
that cover a broad range of variations on the six areas of focus.
    The options development process was collaborative and inclusive, 
with ample opportunity for input from employees and their 
representatives. To ensure that the options reflected the wide range of 
views and concerns expressed by various entities, the Design Team did 
not attempt to reach consensus regarding the merits of the options. 
Consequently, none of the 52 options presented represents a consensus 
view of the Design Team.
    Some of the options integrate approaches to developing new HR 
systems across two or more of the six subject matter areas under 
consideration. This is especially true of many of the pay, performance, 
and classification options, which were intended to illustrate how 
various pay, performance, and classification system elements might work 
in combination. The pay, performance, and classification options also 
tended to cluster around several distinct themes, such as ``time-
focused'' options, ``performance-focused'' options, and ``competency-
focused'' options.
    The initial draft options were reviewed by the Field Team to 
capture feedback prior to finalizing them for submission to the Senior 
Review Committee. The options presented to the Senior Review Committee 
do not exhaust all of the possible combinations of subsystems, nor were 
the options intended to imply that there might not be other possible 
ways of combining the approaches incorporated in the different options. 
In addition, the Secretary and the Director remain free to suggest and 
adopt other ways of combining various design elements to establish a 
new HR system for DHS.

Summary and Review of Options

Overview of Pay, Performance Management, and Classification Options

    The pay, performance, and classification sub-team developed a total 
of 27 options. The majority of these options attempted to present an 
integrated set of proposals across the pay, performance management, and 
classification areas. Among these options, four were traditional, time-
focused graded systems under which pay progression would be based 
primarily on time in grade. Under these options, any general 
adjustments to the pay structure would be passed on automatically to 
all employees whose performance is at least acceptable. (The status quo 
General Schedule option provides across-the-board and locality pay 
increases to all employees, regardless of performance.)
    The eight performance-focused options would link individual base 
pay and bonuses to individual, team, and/or organizational performance. 
Several of these options do not provide for any automatic pay 
increases. They usually (but not always) make use of a streamlined 
classification and paybanding system that groups similar occupations 
together in ``clusters'' that contain up to four pay bands each.
    The four competency-focused options would make use of a set of 
competencies (i.e., knowledge, skills, and abilities) developed for 
specific positions or occupations as a key component in classifying 
jobs, setting basic pay, and managing performance. Each of these 
options would use competencies to some degree, but most also would have 
a strong performance component, with pay progression based on the 
acquisition and application of competencies or the evaluation of 
performance.
    Among the remaining pay, performance management, and classification 
options, there was one ``rank-in-person'' option that would make use of 
a person-based, rather than position-based, pay and classification 
system (similar to military or Foreign Service systems) and one 
collective bargaining option, under which all aspects of pay, 
performance

[[Page 8034]]

management, and classification systems would be subject to collective 
bargaining for all DHS bargaining unit employees. Finally, the pay, 
performance, and classification sub-team developed five ``stand-alone'' 
performance management or classification options and four ``plug-and-
play'' options. A ``stand-alone'' option is one that provides a self-
contained alternative to one of the three major components of an 
integrated pay/performance management/classification option. For 
example, a ``stand-alone'' performance management option could be 
substituted in its entirety for the performance management portion of 
an integrated option. A ``plug-and-play'' option, in contrast, 
generally addresses only one feature or aspect of a pay/performance 
management/classification system and cannot be substituted in its 
entirety for any of the major components of an integrated option. For 
example, a gainsharing/goalsharing program could be added to an 
integrated pay/performance management/classification option without 
altering the basic character of that option

Overview of Labor Relations, Adverse Action, and Appeals Options

Labor Relations
    The labor and employee relations sub-team developed seven labor 
relations options that describe, among other things, the parties' 
bargaining obligations and how the labor relations program would be 
administered. One of the options would retain the status quo as 
codified in chapter 71 of title 5, United States Code, which sets out 
the rights and obligations of labor and management and authorizes the 
three-member Federal Labor Relations Authority (FLRA) to administer the 
labor relations program.
    Some of the labor relations options proposed to narrow the scope of 
bargaining and/or place additional limitations on when the duty to 
bargain would arise. Some also would place time limits on bargaining 
over term and mid-term agreements. All of the options (except for the 
status quo) would replace FLRA and the Federal Service Impasses Panel 
with an internal DHS labor relations panel or administrator that would 
assume all or some of the functions performed by those two bodies. All 
of the options also would, for homeland security reasons or to meet 
operational needs, permit DHS management to act quickly with no 
bargaining at all or bargaining only after the action is taken.
Adverse Actions and Appeals
    The sub-team developed 16 adverse action and/or appeals options, 
including a status quo option. The current adverse action process is 
found in chapter 75 of title 5, U.S. Code, which identifies the 
procedures for proposing and taking adverse actions against certain 
categories of employees. The current appeals process is found in 
chapter 77 of title 5, which identifies the procedure that covered 
employees must follow to appeal certain adverse actions to MSPB.
    Some of the adverse action options would provide protections to 
more employees than are covered today under chapter 75, while others 
would narrow employee coverage. Similarly, some options would expand 
the range of matters that would be considered adverse actions (e.g., 
any suspension) while others would narrow that range (e.g., adverse 
actions limited to removals and suspensions of more than 30 days). All 
options (except the status quo) would replace the two current statutory 
processes for handling misconduct and poor performance with a single 
process.
    Some of the appeals options would provide appeal rights to more 
employees than have such protections today (e.g., appeal rights for 
probationary employees), while other options provide appeals rights to 
fewer employees (e.g., appeal rights only for employees who complete 2 
years or more of Federal service). Some of the options would replace 
MSPB with an internal DHS panel that would adjudicate adverse action 
appeals. Some options would raise management's burden or standard of 
proof required to win an appeal, while other options would lower that 
burden.
    There were also two ``plug-and-play'' LR/ER options. One provides 
for a bargaining impasse standard that third parties would use to 
resolve impasse disputes between management and labor, and the other 
would establish alternative dispute resolution programs to address 
employee claims arising from adverse actions.

Review of Options by Senior Review Committee

    In June 2003, DHS appointed 13 individuals to the DHS Human 
Resource Management System Senior Review Advisory Committee, which was 
chartered as a Federal advisory committee under the Federal Advisory 
Committee Act (FACA). Members included six top officials from DHS, four 
top officials from OPM, and the presidents of the three largest 
employee unions representing DHS employees. In addition, five non-
Federal experts in public administration were designated as technical 
advisors to the Senior Review Committee. A complete listing of Senior 
Review Committee members and technical advisors follows:

Members From the Department of Homeland Security:
    Janet Hale, Under Secretary for Management (Co-Chair);
    Robert Bonner, Commissioner of Customs and Border Protection;
    James Loy, Administrator, Transportation Security Administration;
    Eduardo Aguirre, Director, Bureau of Citizenship and Immigration 
Services;
    J. Michael Dorsey, Chief of Administrative Services;
    Ralph Basham, Director, United States Secret Service.
Members From the Office of Personnel Management:
    Steven R. Cohen, Senior Advisor for Homeland Security (Co-Chair);
    Doris L. Hausser, Senior Policy Advisor to the Director and Chief 
Human Capital Officer;
    Ronald P. Sanders, Associate Director for Strategic Human Resources 
Policy;
    Marta B. Perez, Associate Director for Human Capital Leadership and 
Merit System Accountability.
    Members From Unions:
    John Gage, President, American Federation of Government Employees;
     Colleen Kelley, President, National Treasury Employees Union;
     Michael Randall, President, National Association of Agricultural 
Employees.
    Technical Advisors:
    Robert Tobias, Distinguished Adjunct Professor, American 
University;
    Patricia Ingraham, Professor of Public Administration, Maxwell 
School, Syracuse University;
    Maurice McTigue, Visiting Scholar, Mercatus Center, George Mason 
University;
    Bernard Rosen, Distinguished Adjunct Professor in Residence 
Emeritus, American University;
    Pete Smith, President and Chief Executive, Private Sector Council.

    The Senior Review Committee held its first meeting on July 25, 
2003, in Washington, DC. The meeting was open to the public and was 
conducted in accordance with FACA rules and regulations. At this 
meeting, the Committee heard presentations from Design Team leaders 
about the team's research strategy and methods, the guiding principles 
developed by the

[[Page 8035]]

Design Team, and the options development process. The Committee agreed 
to a slightly modified version of the guiding principles and an options 
template developed by the Design Team for the purpose of presenting 
options in a consistent fashion.
    The Senior Review Committee held its second and last meeting on 
October 20-22, 2003, in Washington, DC. Once again, this meeting was 
open to the public and conducted in accordance with FACA rules and 
regulations. The purpose of the meeting was to discuss possible options 
for new HR systems in the areas of pay, performance management, 
classification, labor relations, adverse actions, and appeals and to 
express views that would inform decisions to be made subsequently by 
DHS Secretary Ridge and OPM Director James regarding which systems 
should be implemented within DHS.
    The October 2003 meeting, in downtown Washington, DC, was 
professionally facilitated and well-attended. Following opening 
statements on the first day, the Committee members and technical 
advisors received a presentation from Design Team leaders about the 
pay, performance management, and classification options developed by 
the Design Team. The facilitator then asked Committee members for their 
views on the various categories of options presented. The second day 
followed a similar pattern, with presentations by Design Team leaders 
on the labor relations, adverse actions, and appeals options developed 
by the Design Team, followed by a facilitated discussion of those 
options. On the final day of the meeting, Committee members and 
technical advisors were afforded an opportunity to summarize their 
views for the benefit of the Secretary and the Director.
    Over the course of this 3-day meeting, discussion and debate 
centered on the best design for DHS' HR system. Several topics evoked 
wide-ranging perspectives, but core areas and principles related to 
system design and the design process drew a great deal of consensus 
among the members. For example, the members agreed that--
     Above all else, any new HR system for DHS must 
be mission-focused, and its design must facilitate mission performance;
     the future system should be fair, transparent, 
and credible;
     establishing broad general principles as a 
foundation for the future system will be important to ensure 
integration, but HR options might have to be tailored to specific parts 
of DHS;
     employee and union participation, as well as 
effective communication, will be critical to creating, implementing, 
and operating a successful HR management system;
     creating a new system will take time and require 
a substantial investment of resources, including training and 
development, particularly for managers who must implement the changes 
in a manner that is seen by employees and the public as fair and 
credible.
    Discussion of the various Design Team options revealed a wide range 
of opinions, with some options evoking greater discussion than others. 
A comprehensive summary of the October Senior Review Committee meeting 
can be found at http://www.epa.gov/edocket.

Summary of Public Comments on Options

    Comments regarding the options discussed at the October Senior 
Review Committee meeting were received from a total of 16 organizations 
and individuals, including 5 employee organizations and 1 organization 
representing senior executives. Some of these comments were presented 
orally during the public comment period on October 21. Other comments 
were submitted to the Senior Review Committee in writing.
    The comments reflected a range of views that included strong 
support for flexibility, as well as some concern for preserving due 
process for employees. It was suggested that inequities should not be 
permitted under the guise of national security and that it is not 
necessary to ``fix'' systems that are working well. At the same time, 
some comments stressed that DHS would need considerable HR flexibility 
to carry out its mission efficiently.
    Comments also addressed the importance of recognizing and rewarding 
excellence. Some commenters expressed trepidation about implementing a 
pay-for-performance system, noting a potential for favoritism which can 
discourage teamwork. Others expressed support for the concept, while 
urging that such a system be adequately funded and ample training be 
provided. The importance of good communication with employees 
throughout the design and implementation of the new system was also 
noted.

Evaluation of Design Process

    The creation of DHS is the largest undertaking of its kind since 
the creation of the Department of Defense in the late 1940s. The 
success of merging more than 20 agency components and more than 180,000 
employees into a single organization with a clear mission and focus 
will depend to a considerable degree on how effectively and efficiently 
the Department addresses its human capital issues.
    Accordingly, the General Accounting Office (GAO) evaluated the DHS/
OPM HR systems design process. GAO's findings and recommendations are 
found in GAO report GAO-03-1099 (September 2003).
    The report praises the collaborative and inclusive process 
developed for designing new DHS HR systems and for ``reflecting 
important elements of effective transformation.'' Specifically, the 
report indicates that the design process incorporated the following 
essential ingredients to successful transformation:
     Leadership--on-going commitment of both DHS and 
OPM leadership to stimulate and support the design effort.
     Key Principles--the guiding principles of the 
design process reflected support for the mission and the employees of 
the new department, protection of basic merit system principles, and 
the commitment to incorporate employee accountability for performance.
     Employee Involvement--collaboration with 
employee representatives and employee involvement through the focus 
group interviews, town hall meetings, and Field Team participation.
    The report further states that the analysis of DHS' effort to 
design a human capital system ``can be particularly instructive in 
light of legislative requests for agency-specific human capital 
flexibilities at the Department of Defense and the National Aeronautics 
and Space Administration.''
    The report also includes some valuable recommendations for ensuring 
effective implementation of the new system. These recommendations 
include effective communication characterized by two-way dialogue, 
integration of the human capital policy into the strategic plan and 
programmatic goals, and continued employee feedback.

Summary of Proposed HR System for DHS

    The Department of Homeland Security was created in recognition of 
the paramount responsibility to safeguard the American people from 
terrorist attack and other threats to homeland security. Congress 
stressed that any HR system established by DHS and OPM must be 
``flexible'' and ``contemporary'' (5 U.S.C. 9701(b)(1) and (2)). The 
Secretary of Homeland Security and the Director of OPM are

[[Page 8036]]

determined to create a new HR system for DHS that is, first and 
foremost, mission-centered. In other words, the most important 
objective of the new system must be to serve and advance the 
Department's critical homeland security mission. At the same time, DHS 
and OPM remain committed to ensuring that the new DHS HR system 
generates respect and trust and that it is based on the principles of 
merit and fairness embodied in the statutory merit system principles.
    Secretary Ridge and Director James have determined that the best 
way to achieve these goals is to create a system that is performance-
focused, flexible, and contemporary, since these qualities are critical 
to freeing the DHS workforce to focus on the Department's mission. For 
example--
     The proposal to establish a pay-for-performance 
system for DHS is designed to ensure that employees have a clear 
understanding of their expected performance and to reinforce and reward 
high-performing employees who advance and support the Department's 
mission by, for example, guarding our Nation's borders, protecting our 
Nation's critical infrastructure, and enhancing the security of air 
travel.
     Providing for greater flexibility in collective 
bargaining within DHS allows the Department to take action against 
terrorist threats, secure the Nation's borders and ports of entry, and 
meet other critical mission needs without unnecessary delay. We have 
narrowed the duty to bargain over core management rights where 
flexibility and swift implementation are most critical to achieving the 
mission, while preserving the right to bargain over important HR 
polices.
     Authorizing the Secretary to designate offenses 
that merit mandatory removal and establishing a special independent DHS 
panel to review such actions is designed to recognize both the harm 
certain acts of misconduct can inflict on the Department's critical 
mission and to permit DHS to move quickly to address and resolve very 
serious misconduct.
     The adoption of a single, lower standard of 
proof (``substantial evidence'' rather than ``preponderance of the 
evidence'') for all adverse actions, whether based on performance or 
conduct, is designed to recognize the appropriate deference that should 
be granted to DHS officials responsible for overseeing the Department's 
critical operations and to ensure consistency in the review of all 
adverse actions involving DHS employees, thus reinforcing the single 
overarching mission of the new Department.
     The streamlined process for adverse action 
appeals and the creation of a DHS Labor Relations Board will balance 
employee rights with critical mission needs.
    As explained previously, the Secretary of Homeland Security and the 
Director of OPM are authorized by the Homeland Security Act of 2002 to 
waive specified chapters of title 5, United States Code, to create a 
new HR system for DHS. The Secretary and the Director have reviewed and 
given full consideration to all of the options developed by the DHS/OPM 
HR Systems Design Team. In addition, they have given due weight to the 
views and opinions expressed by DHS employees in the town hall meetings 
and focus groups hosted by DHS from May to July 2003. They have given 
special consideration to the thoughtful review of the options conducted 
by the DHS HRMS Senior Review Advisory Committee in October 2003 and to 
all public comments received in connection with that meeting. Finally, 
as required by law, they have consulted with MSPB regarding possible 
changes in the appeals procedures established under chapter 77 of title 
5, United States Code. They also consulted with many other Federal 
officials and external stakeholders.
    The proposed regulations reflect authorities that are extended to 
the Secretary and the Director through January 23, 2009. During that 
period, DHS and OPM are committed to conducting an ongoing evaluation 
of the HR system described here--overall, as well as with regard to its 
separate elements--to ensure that it is achieving its intended 
purposes. Further, DHS and OPM are committed to making appropriate 
modifications to that system as circumstances warrant, particularly 
with respect to any unanticipated consequences that may emerge during 
its implementation. To that end, these regulations will be issued in 
interim final form, so as to provide the Secretary and the Director 
with sufficient flexibility (subject to appropriate consultation with 
stakeholders) to make additional changes to the HR system that may 
result from initial evaluations. Subsequent evaluations may result in 
further changes in the regulations.
    The proposed regulations in part 9701 of title 5, Code of Federal 
Regulations, are organized into six subparts that correspond to the 
specific chapters in title 5, United States Code, which DHS and OPM are 
authorized to waive, plus an opening subpart (subpart A) that sets 
forth general provisions applicable throughout part 9701. Subpart B 
sets forth a new job evaluation (classification) system for DHS that 
waives chapter 51 of title 5 for most purposes. Subpart C sets forth a 
new pay and pay administration system that waives substantial portions 
of chapter 53. Subpart D sets forth new performance management 
provisions that replace chapter 43. Subpart E sets forth new labor-
management relations provisions that replace chapter 71. Subpart F sets 
forth new rules for adverse actions that replace the rules set forth in 
chapter 75. And subpart G sets forth new rules governing appeals that 
replace the rules set forth in chapter 77.

General Provisions--Subpart A

    Subpart A of the proposed regulations sets forth their purpose, 
establishes general provisions governing coverage under the new DHS HR 
system, and defines terms that are used throughout the new part 9701. 
Part 9701 will apply to DHS employees who are identified under the 
regulations as eligible for coverage and who are approved for coverage, 
as of a specified date, by the Secretary of Homeland Security. This 
will enable DHS to phase in coverage of particular groups of employees 
or components of the Department. Subpart A also allows DHS to issue 
internal Departmental regulations that further define the design 
characteristics of the new HR system. (See the ``Next Steps'' section 
at the end of this Supplementary Information.) Finally, subpart A 
clarifies the relationship of these regulations to other provisions of 
law and regulation outside those that are being waived with respect to 
DHS.

A New Job Evaluation, Pay, and Performance Management System for DHS

    DHS and OPM have determined that a performance-focused job 
evaluation and pay system best meets the critical operations and 
mission-focused needs of DHS and that changes are needed in the current 
performance management provisions to support a new, performance-focused 
job evaluation and pay system.
    DHS and OPM have concluded that the current GS classification and 
pay system, as a whole, does not focus sufficiently on creating and 
sustaining a high performance culture within DHS and that other ``time-
focused'' options considered during the design process rely too much on 
longevity and not enough on recognizing and rewarding high performance 
at all levels of the workforce. DHS and OPM found some aspects of 
``competency-focused'' options to be attractive, particularly for 
employees early in their careers, who are still acquiring the 
competencies,

[[Page 8037]]

skills, and knowledge needed to make significant contributions to the 
mission of DHS. DHS and OPM agree that a new job evaluation and pay 
system should focus primarily on encouraging the development of a high 
performance culture.
    All DHS employees currently covered by the job evaluation and pay 
systems established under chapter 51 or 53 of title 5, United States 
Code, are eligible for coverage under this job evaluation and pay 
system at the discretion of DHS, in coordination with OPM, except for 
(1) Executive Schedule officials (who, by law, remain covered by 
subchapter II of chapter 53) and (2) administrative law judges paid 
under 5 U.S.C. 5372. At present, DHS plans to cover only GS employees 
and employees in senior-level (SL) and scientific or professional (ST) 
positions.
    SES members employed by DHS will be eligible for coverage under the 
new DHS pay system. However, the proposed regulations provide that any 
new pay system covering SES members must be consistent with the 
performance-based features of the new Governmentwide SES pay-for-
performance system authorized by section 1125 of the National Defense 
Authorization Act for Fiscal Year 2004 (Public Law 108-136, November 
24, 2003). If DHS wishes to establish an SES pay system that varies 
substantially from the new Governmentwide SES pay-for-performance 
system, DHS and OPM will issue joint authorizing regulations consistent 
with all of the requirements of the Homeland Security Act, as set forth 
in 5 U.S.C. 9701. In addition, DHS and OPM will involve SES members and 
other interested parties in the design and implementation of any new 
pay system for SES members employed by DHS.
    As explained in the ``Background'' section, above, the new job 
evaluation and pay system proposed in these regulations cannot apply 
directly to DHS employees covered by a basic pay system authorized by 
an authority outside title 5. However, it is possible for DHS to extend 
this job evaluation and pay system by administrative action to 
Transportation Security Administration (TSA), Stafford Act, Coast Guard 
Academy, and other similarly situated employees under authorities 
provided to the Secretary or other DHS officials.
    The transitional provisions in subparts B and C include a special 
authority to deal with the possibility that DHS may transfer Federal 
Air Marshal Service positions from TSA to another DHS component before 
a new DHS job evaluation and pay system is in place. This special 
authority allows DHS to establish a temporary job evaluation and pay 
system for any such transferred Federal Air Marshal Service positions 
that parallels the system established for TSA employees. Absent this 
authority, these transferred positions generally would be covered by 
the GS classification and pay system. Thus, without the transitional 
authority in subparts B and C, this would mean that Air Marshals could 
be moved from the TSA job evaluation and pay system to the GS system, 
and then to the new DHS system, all in a relatively short period of 
time. This would be far too disruptive to these critical employees, and 
the proposed regulations minimize this disruption. The regulations 
authorize DHS to modify the TSA-parallel system after coordination with 
OPM. For example, DHS may adjust the rate ranges to be more consistent 
with the ranges that apply to other employees in the same DHS 
component.
    By necessity and design, the proposed regulations on job 
evaluation, pay, and performance management provide considerable 
discretion to design many of the detailed features of the new system, 
by DHS at its sole and exclusive discretion and/or in coordination with 
OPM. What follows, therefore, is intended to provide a general 
description of the system DHS and OPM will establish under the 
authority provided by 5 U.S.C. 9701 and the regulations set forth in 
the proposed 5 CFR part 9701. DHS is committed to a high degree of 
employee involvement in developing the details of the new job 
evaluation, pay, and performance management system.
    Throughout the development and implementation of the new DHS job 
evaluation, pay, and performance management system, DHS will coordinate 
with OPM to ensure the flexibilities afforded by the Homeland Security 
Act are exercised in a manner that takes Governmentwide impact into 
account. This coordination role is consistent with OPM's institutional 
responsibility, as codified in 5 U.S.C. chapter 11 and Executive Order 
13197 of January 18, 2001, to provide Governmentwide oversight in human 
resources management programs and practices.

Job Evaluation (Classification)--Subpart B

    Subpart B will provide DHS with the authority to replace the 
current 15-grade structure of the GS classification and qualifications 
system with a new method of evaluating or classifying jobs to determine 
their relative value to the organization by grouping them into 
occupational categories and levels of work for pay and other related 
purposes. Under this new ``job evaluation'' system, DHS will have the 
authority to establish qualifications for positions and to assign 
occupations and positions to broad occupational ``clusters'' and pay 
levels (or ``bands''). (Note: ``Job evaluation'' is a common term of 
art used among HR professionals. It is separate and distinct from the 
evaluation or appraisal of an employee's performance, which is 
addressed as part of the performance management system established 
under subpart D of the proposed regulations.)
    In coordination with OPM, DHS will establish broad occupational 
clusters by grouping occupations and positions that are similar in 
terms of type of work, mission, developmental/career paths, 
competencies, and/or skill sets. These occupational clusters will serve 
as the basic framework for the DHS job evaluation system. DHS may elect 
to phase in the coverage of specific categories of employees or 
occupations under the new job evaluation and pay system established 
under these proposed regulations. Within each occupational cluster, DHS 
(in coordination with OPM) will establish broad salary ranges, commonly 
referred to as ``bands.'' DHS may use OPM-approved occupational series 
and titles to identify and assign positions to a particular cluster and 
band. Occupational clusters typically will include the following bands, 
each with progressively higher pay ranges:
     Entry/Developmental--Employees in positions 
assigned to this band focus on gaining the competencies and skills 
needed to perform successfully at the full performance level.
     Full Performance--Employees in positions 
assigned to this band have completed all necessary entry-level training 
and/or developmental activities and have demonstrated they are capable 
of performing the full range of non-supervisory work required for 
positions in that occupation. Employees assigned to positions in this 
band will be evaluated primarily on their contributions to the mission 
of DHS.
     Senior Expert--Positions assigned to this band 
will be reserved for a relatively small number of non-supervisory 
employees who possess an extraordinary level of technical knowledge or 
expertise upon which DHS relies for the accomplishment of critical 
mission goals and objectives. Typically, entry will be controlled and/
or competitive.
     Supervisory--Positions assigned to this band 
will be reserved primarily for first-level supervisors of employees in

[[Page 8038]]

the same occupational cluster. Typically, entry will be competitive.
    This typical structure will provide a clearly-defined career path 
for each occupation within a cluster. DHS also will establish a 
separate cluster for higher-level managers. The accompanying table 
(table 1) illustrates the occupational cluster structure concept.
[GRAPHIC] [TIFF OMITTED] TP20FE04.011

    Employees will be permitted to request reconsideration as to 
whether their job has been placed in the appropriate series or whether 
their job is covered by the system itself. An employee's assignment to 
a particular cluster or band within a cluster will not be subject to 
this reconsideration process.
    The new job evaluation system for DHS will result in a streamlined 
method of evaluating jobs that no longer relies on lengthy 
classification standards and position descriptions or requires fine 
distinctions among closely related levels of work, as is now required 
under the GS classification system, without compromising internal 
equity and the merit system principle of equal pay for work of equal 
value. In addition, the system described here, together with the new 
DHS pay system described below, will provide DHS with greater 
flexibility to adapt the Department's job and pay structure to meet 
present and future DHS mission requirements.

Pay and Pay Administration--Subpart C

    DHS, in coordination with OPM, will set the minimum and maximum 
rates for each band in each occupational cluster based on factors such 
as labor market rates, recruitment and retention information, mission 
requirements, operational needs, and overall budgetary constraints. The 
bands will have open pay ranges, with no fixed step rates. OPM will 
manage cross-agency consistency, competition, and movement within the 
Federal Government.
    Pay adjustments under the new system will fall into three general 
categories: market-related adjustments comprising annual rate range 
adjustments and locality pay supplements, annual performance-based pay 
increases, and other individual adjustments. In keeping with the desire 
of the Secretary and the Director to achieve and sustain a culture of 
high performance, the proposed regulations provide that these pay 
adjustments will be provided only to employees who meet or exceed 
performance expectations. Under criteria to be developed by DHS, an 
employee whose performance is unacceptable and who does not receive 
annual market adjustments may have those adjustments granted 
prospectively if performance improves to the fully successful level or 
better.
    Annual rate range adjustments and locality pay supplements will be 
determined by DHS, considering mission requirements, labor market 
conditions, availability of funds, pay adjustments received by 
employees in other Federal agencies, and other relevant factors. Annual 
rate range adjustments and locality pay supplements may differ by 
occupational cluster or band. DHS will determine locality pay areas in 
coordination with OPM. DHS will determine the timing of these annual 
pay adjustments. If DHS finds that recruitment and/or retention efforts 
are, or are likely to become, significantly handicapped for particular 
subcategories of employees within a band or cluster because of 
insufficient pay, DHS may, in coordination with OPM, establish special 
basic pay supplements that provide higher pay levels for those 
subcategories of employees.
    Employees also will receive annual performance-based pay increases. 
For employees in a Full Performance or higher band, this pay increase 
will be based on their rating of record. The performance-based pay 
increase for a given rating of record will be expressed as a dollar 
amount or percentage of basic pay, and that amount or percentage will 
be the same for all employees assigned to a given ``performance pay 
pool.'' A performance pay pool consists of the money allocated for 
performance-based pay increases for a defined group of employees. 
Generally speaking, performance pay pools will be established by 
occupational cluster and by band within each cluster, but may also be 
further divided by organizational unit and/or location.
    In response to concerns expressed by employees and employee 
representatives during the DHS HR system design process, managers will 
not have complete discretion regarding the amount of performance-based 
pay

[[Page 8039]]

increases. Instead, performance-based pay increases will be a function 
of the amount of money in the performance pay pool, the relative point 
value placed on performance ratings, and the distribution of 
performance ratings within that performance pay pool. The relative 
point value of a performance rating will be established in advance 
through DHS implementing regulations or instructions.
    A performance-based pay increase may be calculated as a dollar 
amount or as a percentage of basic pay. For example, consider a group 
of 100 employees for whom the performance pay pool is determined to be 
$84,390. If 30 employees receive a ``fully successful'' rating valued 
at 1 point, 46 employees receive an ``exceeds fully successful'' rating 
valued at 2 points, and 24 employees receive an ``outstanding'' rating 
valued at 3 points, then the total number of points for this group 
would be 194: (30 x 1) + (46 x 2) + (24 x 3) = 194. Therefore, the 
value of 1 point is $435 ($84,390/194 = $435). In this example, a 
``fully successful'' rating would result in a $435 performance-based 
pay increase ($435 x 1), an ``exceeds fully successful'' rating would 
result in an $870 pay increase ($435 x 2), and an ``outstanding'' 
rating would result in a $1,305 pay increase ($435 x 3).
    A similar calculation could be made to determine the amount of 
performance-based pay increases in terms of a percentage of salary. 
Under this method, employees who receive a specific rating of record 
would receive the same percentage increase in basic pay, though the 
actual dollar amount of that increase would vary in proportion to each 
employee's rate of basic pay. The proposed regulations allow DHS to 
adopt either of these methods. In addition, DHS could adopt different 
point values for ratings of record than those used in this example.
    If a performance-based pay increase would cause an employee's 
salary to exceed the band maximum, the proposed regulations allow DHS 
to grant a lump-sum payment in lieu of that portion of the pay increase 
that otherwise would exceed the band maximum. In addition, the proposed 
regulations allow DHS to establish a ``control point'' within a band, 
beyond which basic pay increases may be granted only for meeting 
criteria established by DHS, such as an ``outstanding'' performance 
rating. If a performance-based pay increase would cause an employee's 
salary to exceed such a control point, DHS could grant a lump-sum 
payment in lieu of that portion of the pay increase that otherwise 
would exceed the control point. Lump-sum payments in lieu of a basic 
pay increase generally will be granted at the same time as performance-
based pay increases.
    Employees in a Senior Expert band generally will move through the 
band range by means of the performance-based pay increases described 
above. In addition to those pay increases, however, DHS reserves the 
discretion to grant additional pay increases to those employees having 
specified mission-critical skills or those who make exceptional 
contributions to the DHS mission. Such additional payments will be 
limited to employees in the Senior Expert band and will not affect the 
performance pay pool associated with that band.
    Employees in an Entry/Developmental band will receive pay 
adjustments as they acquire the competencies, skills, and knowledge 
necessary to advance to the target Full Performance band. The training 
program and competencies required for a given occupation will not 
change as a result of the new DHS pay system. Under the new system, DHS 
will be able to advance an employee through the Entry/Developmental 
band to the target Full Performance band without regard to the limits 
and constraints of the GS system, such as time-in-grade restrictions 
and rigid salary setting rules.
    Other individual pay adjustments may be granted by DHS. These 
payments will not be considered part of basic pay. They include special 
skills payments for specializations for which the incumbent is trained 
and ready to perform at all times, such as proficiency in foreign 
languages or dog-handling; special assignment payments for assignments 
of greater difficulty or complexity within the same cluster and band; 
and special staffing payments to address recruitment and retention 
difficulties in particular occupations and/or locations. Some of these 
payments may require that employees enter into a service agreement as a 
condition of receiving additional pay.
    Promotion pay increases (from a lower band to a higher band in the 
same cluster or to a higher band in a different cluster) generally will 
be fixed at 8 percent of the employee's rate of basic pay or the amount 
necessary to reach the minimum rate of the higher band, whichever is 
greater. (This amount is roughly equivalent to the value of a promotion 
to a higher grade within the GS system.) As with the current system, in 
the case of a demotion to a lower band for performance or conduct 
reasons, pay may be set at any lower rate within the lower band at 
management's discretion. Where pay retention is applicable (e.g., 
following a reduction in force), the employee's pay will be frozen 
until such time as the maximum rate of the applicable band catches up 
to the frozen rate.
    Upon implementation of the new system, employees will be converted 
based on their official position of record. Employees on temporary 
promotions will be returned to their official position of record prior 
to conversion. GS employees will be converted at their current rate of 
basic pay, including any locality payment, adjusted on a one-time, pro-
rata basis for the time spent towards their next within-grade increase. 
Employees in career-ladder positions below the full performance level 
generally will be placed in the Entry/Developmental band in the 
appropriate cluster.
    The new DHS pay system will provide DHS with an enhanced ability to 
establish and adjust overall pay levels in keeping with changes in 
national and local labor markets. It is designed to adjust individual 
pay levels based on the acquisition and assessment of competencies, 
skills, and knowledge for employees below the Full Performance band and 
on the basis of performance or contribution to mission for employees in 
the Full Performance band or higher. Above all, the new DHS pay system 
will be capable of adapting to changing circumstances and mission 
requirements.

Performance Management--Subpart D

    DHS and OPM have decided to waive the provisions of chapter 43 of 
title 5, United States Code, in order to design a performance 
management system that will complement and support the Department's 
proposed performance-based pay system described above. The proposed 
system will also ensure greater employee accountability with respect to 
individual performance expectations, as well as organizational results.
    Over the past 25 years, legal interpretations of the current 
chapter 43 have produced a system that is procedurally complex, 
inflexible, and paper-intensive, requiring a manager to set an 
employee's specific written elements and standards at the beginning of 
an annual appraisal period. In so doing, the manager must anticipate 
the myriad work assignments (each potentially with its own unique 
performance expectations) the employee will receive during the course 
of that appraisal period. These static, often generic standards make it 
difficult for managers to adjust performance requirements and 
expectations in response to the Department's rapidly

[[Page 8040]]

changing work environment, hold individual employees accountable for 
those general and/or assignment-specific work requirements and 
expectations, and make meaningful distinctions in employee performance 
as they accomplish those assignments.
    The proposed regulations are designed to address these 
deficiencies. They continue to require that managers establish and 
communicate performance expectations to employees; however, they no 
longer require that this be accomplished exclusively through written 
performance elements and standards set at the beginning of the 
appraisal period. Instead, they give managers the option of 
establishing and communicating performance expectations during the 
course of the appraisal period through specific work assignments or 
other means (including standard operating procedures, organizational 
directives, manuals, and other generally established job requirements 
that apply to employees in a particular occupation and/or unit). 
However, managers may also continue to use performance plans, elements, 
and standards.
    By providing managers more realistic alternatives for setting 
employee expectations and assessing their performance against those 
expectations, the Department will be better able to hold its employees 
accountable and to recognize and reward those who exceed expectations. 
By the same token, managers will also be held accountable for clearly 
and effectively communicating those expectations, giving employees 
feedback regarding their performance in relation to those expectations, 
making meaningful performance distinctions in support of the 
Department's new performance-based pay system, and identifying and 
addressing unacceptable performance.
    Finally, in order to enable managers to make meaningful 
distinctions in performance, the regulations provide for a single level 
of unacceptable performance, a fully successful level, and at least one 
level above fully successful. The regulations do not permit two-level 
(``pass/fail'') ratings for employees above the entry/developmental 
level, nor do they allow any type of rating quotas or forced ratings 
distribution. The regulations also provide for DHS to appoint 
Performance Review Boards to provide oversight and ensure consistent 
application of the performance management system.
    Further, the regulations provide managers with a broad range of 
options for dealing with poor performance, including remedial training, 
an improvement period, reassignment, verbal warnings, letters of 
counseling, written reprimands, and/or adverse actions as defined in 
subpart F of the regulations. Adverse actions will include the 
reduction of an employee's pay within a band, giving managers another 
means of dealing with poor performance, short of demotion or removal. 
The proposed regulations also streamline and simplify the procedures 
involved in taking an adverse action without compromising an employee's 
right to due process (described below and in subpart F). In this 
regard, the proposed regulations require a manager to take the nature 
and consequences of the poor performance into account in deciding among 
these options.
    As provided in subpart C of the proposed regulations, performance 
ratings of record will be used to make individual pay adjustments under 
the new DHS pay system. In recognition of these pay consequences, the 
regulations permit employees to grieve their ratings of record. Non-
bargaining unit employees may grieve such ratings through the 
Department's internal administrative grievance procedure; bargaining 
unit employees will have access to negotiated grievance procedures. In 
the latter case, an exclusive representative may seek arbitration of an 
appraisal grievance, but the rating of record will be sustained unless 
the union is able to prove that it was arbitrary or capricious. Either 
party may file exceptions to an arbitration award with the DHS Labor 
Relations Board established under subpart E of these proposed 
regulations.
    Generally, DHS employees who are currently covered by chapter 43 of 
title 5, U.S. Code, are eligible for coverage under the new performance 
management provisions in subpart D of the proposed regulations. 
Therefore, administrative law judges and Presidential appointees will 
not be eligible for coverage, because they are currently excluded from 
chapter 43 of title 5. However, certain categories of employees are 
currently excluded from chapter 43 by OPM administrative action, as 
authorized by 5 CFR 430.202(d), such as those hired under the Stafford 
Act; these employees are eligible for coverage under the new DHS 
performance management provisions. DHS will decide which of those 
categories of otherwise eligible employees will be covered by the 
Department's new performance management system or systems. The proposed 
regulations also allow DHS to develop, implement, and administer 
performance management systems tailored to specific organizations and/
or categories of employees (for example, in a particular occupational 
cluster).
    These proposed regulations lay the foundation for a performance 
management system that is fair, credible, and transparent, and that 
holds employees and managers accountable for results. However, a 
performance management system is only as effective as its 
implementation and administration. To that end, DHS is committed to 
providing its employees and managers with extensive training on the new 
performance management system and its relationship to other HR policies 
and programs, as well as on effective performance management generally.

A New Labor Relations, Adverse Actions, and Appeals System for DHS

Labor-Management Relations--Subpart E

    As noted previously, the Department of Homeland Security was 
created in recognition of the paramount responsibility to safeguard the 
American people from terrorist attack and other threats to homeland 
security. In enacting the Homeland Security Act, Congress stressed that 
any HR system established by DHS and OPM must be ``flexible'' and 
``contemporary,'' enabling a swift response to the ever-evolving 
threats to our homeland. The labor-management regulations in this part 
are designed to meet these compelling concerns.
1. Purpose
    DHS has a unique mission not duplicated elsewhere in the Federal 
Government. When Congress passed the Homeland Security Act and created 
DHS, it could have relied upon the current labor-management relations 
statute at 5 U.S.C. chapter 71 with respect to the Department's labor 
relations obligations. However, Congress chose not to maintain the 
status quo and gave the Secretary and the Director of OPM clear 
authority to waive or modify the provisions of chapter 71. (See 5 
U.S.C. 9701(c).) In so doing, Congress provided DHS the option of 
exploring and implementing new and innovative human resources 
management systems that would be more responsive to the unique and 
critical mission of DHS. (See 5 U.S.C. 9701(a) and (c).)
    These regulations define the purpose of the labor relations system. 
They implement the requirements of 5 U.S.C. 9701(b) by ensuring the 
right of employees to organize, bargain collectively, and participate 
through labor organizations of their own choosing in decisions which 
affect

[[Page 8041]]

them, subject to the limitations on negotiability established in law, 
including the authority that Congress delegated to OPM and DHS to 
promulgate these regulations.
    Chapter 71 of title 5, United States Code, enacted in 1978, 
recognizes that the ``special requirements and needs of the 
Government'' demand special procedures and that its provisions must be 
interpreted in a manner consistent with the requirement of ``an 
effective and efficient Government.'' These regulations state that 
every provision of this subpart must be interpreted in a way that 
recognizes the critical mission of the Department, and each must be 
interpreted to promote the swift, flexible, effective, and efficient 
day-to-day accomplishment of that mission as defined by the Secretary.
2. Definitions
    Unless otherwise provided, these regulations leave intact many of 
the definitions contained in chapter 71 of title 5. The regulations 
adopt the following terms and their associated definitions from that 
chapter and apply them to DHS: ``employee,'' ``labor organization,'' 
``exclusive representative,'' ``supervisor,'' ``collective 
bargaining,'' and ``management official.'' The term ``agency,'' as 
referenced in chapter 71, will be replaced by the term ``Department'' 
and refers to the Department of Homeland Security. The term 
``components'' applies to the major entities under the Department, 
e.g., Customs and Border Protection.
    The regulations revise other definitions from chapter 71 as they 
would apply to DHS. The term ``conditions of employment'' has been 
redefined to exclude matters specifically provided for by Department-
wide personnel regulations and to exclude pay, pay adjustments, and job 
evaluation under subparts B and C. The term ``grievance'' has been 
modified somewhat to mean any claimed violation, misinterpretation, or 
misapplication of any law, rule, or regulation only if the law, rule, 
or regulation was issued for the purpose of affecting the working 
conditions of employees--not one that does so indirectly or 
incidentally. To this extent, DHS and OPM adopt the D.C. Circuit's 
interpretation of what constitutes a ``grievance.''
    Chapter 71 of title 5, U.S. Code, defines employees who are 
excluded from coverage in a bargaining unit. In addition to managers 
and supervisors, ``confidential employees'' are excluded from coverage 
under chapter 71 if the employee acts in a confidential capacity with 
respect to an individual who ``formulates or effectuates management 
policies in the field of labor relations.'' We believe this definition 
is drawn too narrowly. There are many management officials who do not 
formulate labor relations policy but who have labor-management 
relations responsibilities. For example, officials who resolve 
grievances at the second or third step of a negotiated grievance 
procedure or who serve on negotiating teams or help decide the position 
management takes in negotiating labor agreements. We propose to exclude 
from coverage any employees who work for such managers in a 
confidential capacity because of the sensitive nature of the 
information they might be privy to and the potential for real or 
perceived conflicts of interest.
3. Administration
    The Department will create a Homeland Security Labor Relations 
Board (Board) composed of three external members appointed to fixed 
terms. These three members will be appointed by the Secretary, and one 
member will be nominated by the Chair of the Federal Labor Relations 
Authority (FLRA) from among the current members of FLRA. Members will 
be chosen not only for their background in labor-management relations, 
but also for their knowledge of the DHS mission and their leadership 
experience in comparable organizations. The Board must interpret the 
regulations in subpart E and related decisions and policies in a way 
that recognizes the critical mission of the Department and the need for 
flexibility.
    The Board will issue decisions in the following types of cases: 
bargaining unit determinations; unfair labor practice claims arising 
out of the duty to bargain; information request disputes; bargaining 
impasses and negotiability disputes; and exceptions to arbitration 
awards. In order to maintain the integrity of the Governmentwide labor 
relations program and preserve DHS resources, FLRA will continue to 
supervise and conduct representation elections and retain jurisdiction 
over the processing of unfair labor practice charges concerning the 
rights and obligations of individual employees and labor organizations 
(i.e., 5 U.S.C. 7116 (a)(1)-(4) and (b)(1)-(4)).
    In evaluating the merits of a separate Homeland Security Labor 
Relations Board that would largely replace FLRA, DHS and OPM put a high 
premium on the Board members' understanding of and appreciation for the 
unique challenges the Department faces in carrying out its homeland 
security mission. Given its responsibilities to administer a 
Governmentwide labor relations program for over 1 million Federal 
employees, FLRA is less likely than an independent DHS Labor Relations 
Board to develop the mission-focus and homeland security expertise that 
the Department and its unions will need, nor will it be as able to 
dedicate its resources to prioritize DHS cases. However, to ensure 
independence and impartiality, the DHS Labor Relations Board will not 
report to the Secretary; rather, its members will be appointed to fixed 
terms and subject to removal only for inefficiency, neglect of duty, or 
malfeasance.
    DHS and OPM also gave great weight to the benefits of a unified, 
expeditious process to resolve bargaining issues and disputes. Under 
the current system, a bargaining dispute can be investigated and 
pursued by FLRA's Office of General Counsel to determine whether there 
was an obligation to bargain; by FLRA itself to determine whether the 
matter is within the scope of bargaining; and by the Federal Service 
Impasses Panel to resolve the bargaining issue on its merits. This 
division of critical adjudicatory functions causes excessive delays and 
repeated litigation and contributes significantly to the cost of 
collective bargaining. OPM and DHS concluded that there are significant 
advantages to be gained from ``one-stop shopping'' to resolve 
bargaining disputes.
    In sum, we determined that the Department should establish a 
separate Labor Relations Board focused on the DHS mission but 
completely independent. In addition, we concluded that the Board should 
oversee a unified dispute resolution process that will decide 
bargaining disputes more efficiently and effectively than is possible 
today under FLRA and chapter 71. However, the fragmentation and 
overlapping jurisdiction that makes resolving bargaining disputes so 
complex and protracted is not a problem in the way employee appeals are 
adjudicated by MSPB. As a single forum with a unified statutory 
process, MSPB already employs the ``one-stop shop'' approach to adverse 
action appeals that OPM and DHS will apply to bargaining disputes. That 
is why OPM and DHS are creating the DHS Labor Relations Board to 
resolve bargaining matters while preserving MSPB for deciding most 
employee appeals, subject to streamlined rules and new substantive 
standards, discussed more fully in the ``Appeals'' section of this 
Supplementary Information.
    OPM and DHS also concluded that an understanding of the 
Department's mission is essential to resolving bargaining disputes, 
which involve

[[Page 8042]]

general conditions of employment affecting most or all bargaining unit 
employees. Except for offenses designated as ``mandatory removal 
offenses'' under subpart G, which will be resolved by an independent 
DHS panel, an appreciation for the Department's unique mission, while 
important, is not as essential for resolving individual employee 
appeals to MSPB.
    Both the DHS Labor Relations Board and FLRA must interpret the 
regulations in subpart E in a way that promotes the swift, flexible, 
effective, and efficient day-to-day accomplishment of the Department's 
mission as defined by the Secretary. In addition, the Board is 
authorized to promulgate its own operating procedures and issue 
advisory opinions on important issues of law. These opinions will help 
both labor and management understand how key provisions of the 
regulations will be interpreted without the time and expense of years 
of litigation.
    Matters that come before the DHS Labor Relations Board may be 
reviewed de novo, which means that the Board will have the discretion 
to reevaluate the evidence presented by the record and reach its own 
independent conclusions with respect to the matters at issue. Under 
chapter 71, FLRA reviews issues of law de novo. The Board will have the 
same authority, but it may also employ a de novo review to factual 
findings and contract interpretation. Given the inherently executive 
branch nature of decisions relating to homeland security and the 
Department's unique responsibilities in this area, the Board is 
authorized to conduct a thorough review of all matters, including 
factual determinations by its adjudicators or arbitrators, to safeguard 
the Department's homeland security mission.
    Under 5 U.S.C. 7123, the United States courts of appeals have 
jurisdiction over appeals filed from final orders of FLRA, with limited 
exceptions. Similar judicial review in the U.S. Court of Appeals for 
the Federal Circuit exists for MSPB pursuant to 5 U.S.C. 7703. Ideally, 
these regulations would have applied the same standards and procedures 
as set forth in 5 U.S.C. 7123 and 7703 to the decisions of the DHS 
Labor Relations Board and the DHS Panel that will decide ``mandatory 
removal offenses.'' This would have been the most efficient way in 
which to accord the right of judicial review to individuals adversely 
affected or aggrieved by a decision of the Board or the Panel. However, 
DHS and OPM currently lack the statutory authority to confer 
jurisdiction to hear such appeals in the United States courts of 
appeals or the U.S. Court of Appeals for the Federal Circuit. In light 
of these issues, the proposed regulatory language is silent on judicial 
review of decisions of the Board or the Panel. DHS and OPM seek 
comments on available options, including (1) remaining silent on 
judicial review and (2) retaining the current statutory judicial review 
provisions by permitting FLRA and MSPB to review decisions of the Board 
and the Panel.
    Option 1. Under this option, DHS and OPM would not include appeal 
language in the regulation addressing any form of judicial review, but 
would allow existing governing legal principles to determine the 
circumstances under which there would be judicial review.
    Option 2. Under 5 U.S.C. 7123, the United States courts of appeals 
have jurisdiction over appeals filed from final orders of FLRA, with 
limited exceptions. Under this option the final regulations would 
provide that Board decisions are appealable to the three-member FLRA 
but with a deferential standard of review appropriate for an appellate 
procedure of this type. FLRA would be required to decide an appeal from 
a final decision of the Board within 20 days. All decisions of FLRA, 
including those decisions on appeals from the Board, would be subject 
to judicial review in accordance with 5 U.S.C. 7123. Under this option, 
judicial deference would be given to the decisions of the Board because 
the Board is charged by regulation with interpreting and implementing 
the Homeland Security Act and was created to apply its specialized 
expertise in homeland security matters.
4. Employee Rights
    The regulations retain the statement of employee rights enumerated 
in chapter 71. Employees, as defined in the regulations, will have the 
right to form, join, or assist any labor organization, or to refrain 
from any such activity. Each employee will be protected in the exercise 
of any rights under the regulations through existing FLRA procedures.
5. Union Rights and Obligations
    As in chapter 71, these regulations provide that recognized unions 
are the exclusive representatives of the employees in the unit and act 
for and negotiate on their behalf, consistent with law and regulation. 
This section also preserves what has come to be known as the 
``Weingarten'' right, which permits union representation at the 
employee's request when management examines an employee during an 
investigation and the employee reasonably believes that discipline will 
follow. The proposed regulations provide that representatives of the 
Office of the Inspector General, Office of Security, and Office of 
Internal Affairs are not representatives of the Department for this 
purpose.
    Under current law, a union has the right to send a representative 
to a ``formal meeting'' called by management to discuss general working 
conditions with employees. Determining what is and is not a ``formal 
meeting'' as the FLRA and courts have interpreted that term requires 
managers to balance numerous factors concerning the relative formality 
of the meeting and the precise subject matter discussed. Front-line 
managers and supervisors are expected to be familiar with and know how 
to apply these complicated, nuanced criteria, and they get it wrong at 
their legal peril. This can have a chilling effect on discussions 
between management and employees concerning everyday workplace issues 
and can inhibit creative thinking and problem solving. This is 
particularly disruptive to the mission at ports of entry, where there 
are often multiple unions.
    The rights associated with ``formal meetings'' were intended to 
safeguard against management efforts to bypass the union and deal 
directly with employees in ways that undermine the union's status as 
exclusive representative. We agree that such protections are needed, 
but these regulations eliminate the concept of a formal meeting. 
Instead, the regulations treat management efforts to bypass the union 
as a breach of the duty to bargain in good faith and an unfair labor 
practice. This change does not affect or limit the union's right to 
attend meetings at which an employee's grievance is discussed.
    In conjunction with the regulation concerning grievances, this 
regulation resolves any uncertainty resulting from litigation about 
whether unions are entitled to participate in EEO proceedings, 
including mediation, after a formal EEO complaint has been filed. Under 
these regulations, unions do not have such a right unless the 
complainant requests union representation. This change will preserve 
the informality and confidentiality of the entire EEO complaint 
process.
    Under these regulations, the Department will hold employee 
representatives to the same conduct requirements as any other DHS 
employees. The intent is to not bind the Department to FLRA's 
``flagrant

[[Page 8043]]

misconduct'' standard or any other test developed through case 
decisions which may immunize union representatives engaged in otherwise 
actionable misconduct. The regulations clarify that the Department may 
address the misconduct of any employee, including employees acting as 
union representatives, as long as the agency does not treat employees 
more severely because they are engaging in union activity. The 
regulation is not intended to target the content of ideas; rather, it 
applies to misconduct in any manner expressed.
6. Information Disclosure
    Under chapter 71, a union has the right to information maintained 
by the agency if the information is necessary and relevant to the 
union's representational responsibilities. This right is maintained 
with some modifications under these regulations.
    Under the regulations, disclosure of information is not required if 
adequate alternative means exist for obtaining the requested 
information, or if proper discussion, understanding, or negotiation of 
a particular subject within the scope of collective bargaining is 
possible without recourse to the information. This change was made to 
relieve management of the administrative burden of producing 
information that can readily be obtained some other way or information 
that the union does not really need to fulfill its representational 
obligations. The regulations further provide that information may not 
be disclosed if the Secretary or his designee determines that 
disclosure would compromise the Department's mission, security, or 
employee safety.
    The proposed regulations specify that sensitive information such as 
home addresses, home telephone numbers, e-mail addresses, and other 
personal identifiers, may not be disclosed to unions without employees' 
express written consent. While this is not a change in existing 
statutory interpretation, it is necessary to specify these limitations 
in the regulations, given the extremely sensitive nature of the 
Department's mission and the serious consequences if such information 
fell into the wrong hands.
7. Management Rights
    The Department's ability to respond rapidly to a variety of 
critical challenges, ranging from terrorist threats to natural 
disasters, is vital. To carry out its wide ranging mission, the 
Department must have the authority to move employees quickly when 
circumstances demand; it must be able to develop and rapidly deploy new 
technology to confront threats to security; and it must be able to act 
without unnecessary delay to properly secure the Nation's borders and 
ports of entry.
    Actions such as these involve the exercise of management's reserved 
rights and lie at the very core of how DHS carries out its mission. 
Under chapter 71 of title 5, the obligation to notify the union well 
ahead of any changes in the workplace and complete all negotiations 
before making any changes could seriously impede the Department's 
ability to meet mission demands. For example, before the Department 
could redeploy personnel from one border to another, it could be 
required to bargain over the procedures it would have to follow in 
deciding how assignments are made, who gets deployed, and for how long. 
Based on these negotiations, the Department may have to spend valuable 
time canvassing for volunteers or considering seniority before moving 
people from one location to another. In the face of a committed and 
unpredictable enemy, these excessive limitations on the Department's 
authority to act where and when needed would significantly impede the 
Department's ability to accomplish its mission.
    To ensure that the Department has the flexibility it needs, we 
propose to revise the management rights provisions of chapter 71. We 
will expand the list of nonnegotiable subjects in section 7106 to 
include what are now permissive subjects of bargaining--the numbers, 
types, and grades of employees and the technology, methods, and means 
of performing work. The Department will not be required to bargain over 
the Department's exercise of these rights or over most of the other 
rights enumerated in chapter 71, including the right to determine 
mission, budget, organization, and internal security practices, and the 
right to hire, assign and direct employees, and contract out. The 
Department can take action in any of these areas without advance notice 
to the union and without bargaining. After the Department acts, it will 
have discretion to bargain over procedures and appropriate 
arrangements. The regulations also provide for consultation with 
employee representatives both before and after implementation when 
circumstances permit.
    The Department will have the same bargaining obligation it has 
today concerning the exercise of the remaining management rights in 
chapter 71. These include the right to lay-off and retain employees, to 
take disciplinary action, and to promote. With respect to these rights, 
management will be obligated to bargain over procedures and 
arrangements prior to implementation, as provided under chapter 71.
    These changes were carefully crafted to meet the operational needs 
of DHS. We focused on those areas where flexibility and swift 
implementation are most critical to preserving and safeguarding our 
Nation. We concluded that the Department's mission could not be met 
merely by setting time limits on how long the Department would have to 
bargain before taking action or by streamlining the system in other 
ways. DHS must have flexibility in these core management right areas to 
respond without delay to an evolving and ever changing threat. We 
believe these proposed rules accommodate the collective bargaining 
rights provided by the Homeland Security Act without compromising the 
Department's paramount responsibility to protect the lives and security 
of the American people.
8. Bargaining Unit Determinations
    In determining bargaining units, the Board will continue to apply 
the same factors set forth under chapter 71 (i.e., do the employees in 
a proposed unit have a clear and identifiable community of interest, 
and does the unit promote effective and efficient dealings with the 
Department?). However, in applying these criteria, the Board will give 
the most weight to effectiveness and efficiency and determine 
bargaining units based on what is ``an appropriate unit consistent with 
the Department's organizational structure.'' Using this standard will 
help align the Department's bargaining units as closely as possible 
with the agency's mission and organizational structure, reduce the 
threat of fragmented bargaining units, provide for more uniform 
conditions of employment, and facilitate contract administration, all 
of which contribute to more efficient and effective agency operations.
9. Duty To Bargain
    In order to ensure a consistent approach to managing the Department 
within a multi-union, multi-bargaining unit environment, the proposed 
regulations specify that there is no duty to bargain over DHS-wide 
personnel policies and regulations including the human resources 
management system established by OPM and DHS (management must bargain 
over personnel policies and regulations issued by the Department's 
components). In addition, proposals that do not significantly impact a 
substantial portion of the bargaining unit are

[[Page 8044]]

outside the duty to bargain. This will focus bargaining on those 
matters that are of significant concern and relieve the parties of 
potentially lengthy negotiations over matters that are limited in scope 
and effect.
    If parties bargain over an initial term agreement or its successor 
and do not reach agreement within 60 days, the parties will be able to 
agree to continue bargaining or either party may refer the matter to 
the Board for resolution. Mid-term bargaining over proposed changes in 
conditions of employment must be completed within 30 days or management 
will be able to implement the change after notifying the union.
    As is currently the case, collective bargaining provisions that are 
contrary to law, regulation, or the exercise of reserved management 
rights cannot be enforced; the Secretary may disapprove any collective 
bargaining provision whenever he determines that a provision is 
contrary to law, regulation, or management rights; and matters reserved 
to the sole and exclusive discretion of the Secretary or his designee 
will be non-negotiable.
10. Grievance/Arbitration
    DHS' grievance and arbitration process generally follows the 
contours of chapter 71. Under DHS' system, matters excluded from the 
grievance procedure under 5 U.S.C. 7121(c) will remain excluded from 
coverage in the DHS system. However, in order to enhance consistency, 
discourage forum shopping, and provide for faster and more consistent 
resolution of appeals, the regulations propose to eliminate those 
adverse actions that are appealable to MSPB (e.g., removals, 
suspensions of more than 14 days, and demotions) from the scope of the 
grievance procedure. To ensure fairness, these actions will be 
appealable under subpart G. Lesser disciplinary and adverse actions 
will still be covered by the negotiated grievance procedure. Employees 
alleging discrimination may file a grievance under a negotiated 
grievance procedure or a complaint with the Equal Employment 
Opportunity Commission (EEOC), but not both.
    Performance appraisal grievances will be handled in a similar 
manner. An employee can file a grievance and the union can pursue 
arbitration regarding a performance rating. However, if management 
subsequently takes an appealable adverse action based on the rating and 
the employee files an appeal with MSPB under subpart G, any grievance 
or arbitration will be merged with the MSPB appeal and adjudicated 
under subpart G.
    Finally, subpart E includes a savings provision to make clear that 
the procedures established under these regulations will not apply to 
grievances and other administrative proceedings that were already in 
progress when the affected employee(s) became covered by subpart E.

Adverse Actions--Subpart F

    The regulations propose several revisions and additions to the 
current adverse actions system. These changes are directed at the 
cumbersome and restrictive requirements for addressing and resolving 
unacceptable performance and misconduct. The proposed changes 
streamline the rules and procedures for taking adverse actions, to 
better support the mission of the Department while ensuring that 
employees receive due process and fair treatment guaranteed by the 
Homeland Security Act.
    The following sections identify the major changes proposed by this 
subpart and briefly describe the purpose of each change.

1. Employees Covered

    All DHS employees are eligible for coverage under subpart F of the 
proposed regulations, except where specifically excluded by law or 
regulation. For example, employees of the Transportation Security 
Administration are not eligible for coverage under subpart F because 
they are excluded from coverage under 5 U.S.C. chapter 75, and 5 U.S.C. 
9701 does not allow the joint regulations issued by DHS and OPM to 
cover such employees.
    The regulations provide an ``initial service period'' of one-to-two 
years for all employees upon appointment to DHS. Prior Federal service 
counts toward this requirement. Employees who are on time-limited 
appointments and those serving in an ``initial service period'' are not 
covered by this subpart. However, so as to ensure that the rights 
currently granted preference eligible employees are not diminished, all 
preference eligible employees are covered by the adverse action 
protections of subpart F after completing one year of an ``initial 
service period.'' Furthermore, employees who are in the competitive 
service and who are removed during an ``initial service period'' are 
covered by the adverse action protections of 5 CFR 315.804 and 315.805. 
The specific length of the ``initial service period'' will be tied to 
specific occupations to reflect varying job demands and training needs. 
For example, certain occupations have long periods of formalized 
training which impact the ability of management to assess employee job 
performance. Other occupations require employees to demonstrate skills 
and competencies that also cannot be adequately measured or assessed 
within 1 year.

2. Actions Covered

    Adverse actions will continue to be defined as they are now in 
chapter 75 of title 5, U.S. Code, to include removals, suspensions of 
any length, demotions, and reductions in pay. These regulations propose 
to change the coverage from furloughs for 30 days or less to furloughs 
for 90 days or less.
    A small number of Federal agencies are covered under the national 
security provisions of 5 U.S.C. 7532. Under these provisions, an 
employee may be immediately suspended without pay or removed if the 
agency head considers the action ``necessary in the interests of 
national security.'' Before taking such an action, however, the agency 
head must afford the employee procedural rights as set forth in the 
statute. An agency head's decision in these cases is not subject to 
appeal or judicial review. This regulation incorporates the current 
provisions of the law and makes them applicable to DHS.

3. Mandatory Removal Offenses

    This subpart permits the Secretary or designee to identify offenses 
that have a direct and substantial impact on the ability of the 
Department to protect homeland security'' for example, accepting or 
soliciting a bribe that would compromise border security or willfully 
disclosing classified information. These offenses carry a mandatory 
penalty of removal from Federal service. This change allows management 
to act swiftly to address and resolve misconduct or unacceptable 
performance that would be most harmful to the Department's critical 
mission. These mandatory removal offenses will be identified in advance 
and made known to all employees. Employees alleged to have committed 
these offenses will have the right to advance notice, an opportunity to 
respond, a written decision, a review by an adjudicating official, and 
a further appeal to an independent DHS panel, as set forth in subpart G 
of this part. However, only the Secretary or his or her designee can 
mitigate the penalty for committing a mandatory removal offense.
    The regulations do not list the infractions that will constitute 
mandatory removal offenses. DHS has not yet identified a list of such 
offenses, and it is important to preserve the Secretary's flexibility 
to carefully and narrowly determine the offenses that

[[Page 8045]]

will fall into this category and to make changes over time. The absence 
of this flexibility has been problematic at the Internal Revenue 
Service (IRS) where the IRS Restructuring Act codified mandatory 
disciplinary offenses in law and limited the agency's ability to make 
needed changes. The Department will identify mandatory removal offenses 
well in advance and make sure that employees know what these offenses 
are. The Department invites public comment on the best and most 
effective way to provide such notice to employees.

4. Adverse Action Procedures

    This subpart retains an employee's right to representation and a 
written decision but provides shorter advance notice periods and reply 
periods than are currently required for appealable adverse actions. 
Except where a mandatory removal offense is involved, employees are 
entitled to a minimum of 15 days advance notice. In cases involving a 
mandatory removal offense, the advance notice period is a minimum of 5 
days. In all cases, employees are granted a minimum of 5 days to reply, 
which runs concurrently with these notice periods. These changes 
facilitate timely resolution of adverse actions while preserving 
employee rights.

5. Single Process and Standard for Action for Unacceptable Performance 
and Misconduct

    This subpart establishes a single system for taking adverse actions 
based on misconduct or unacceptable performance. This change represents 
a return to a simplified approach that existed prior to the 1978 
passage of the Civil Service Reform Act and chapter 43 of title 5, U.S. 
Code.
    Congress enacted chapter 43 in part to create a simple, dedicated 
process for agencies to use in taking adverse actions based on 
unacceptable performance. Since that time, however, chapter 43 has not 
worked as Congress intended. In particular, interpretations of chapter 
43 have made it difficult for agencies to take actions against poor 
performers and to have those actions upheld. As a result, agencies have 
consistently preferred to use the procedures available under chapter 75 
of title 5 rather than chapter 43 when taking actions for unacceptable 
performance.
    The regulations eliminate the requirement for a formal, set period 
for an employee to improve performance before management can take an 
adverse action. Management selects employees for their positions 
because the employees are well qualified. In addition, employees must 
complete an ``initial service period'' during which they will have 
learned the specific requirements of their positions. As set forth in 
subpart D, management must explain to employees what is expected of 
them when it comes to performance. If an employee fails to perform at 
an acceptable level, management may use a variety of measures, 
including training, regular feedback, counseling and, at management's 
discretion, an improvement period, to address and resolve performance 
deficiencies. If an employee is still unable or unwilling to perform as 
expected, it is reasonable for management to take an action against the 
employee.
    We revised the standard for taking an adverse action to require 
that the Department establish a factual basis for any adverse action 
and a connection between the action and a legitimate Departmental 
interest. We replaced the current title 5 ``efficiency of the service'' 
standard for action to allay any confusion that might arise from case 
law linking this standard with the authority to review and mitigate 
penalties, an authority we generally do not provide third parties in 
adjudicating DHS cases. We intend no substantive change to the 
efficiency of the service standard.

Appeals--Subpart G

    Subpart G of part 9701 covers employee appeals of certain adverse 
actions taken under subpart F. As is currently the case, these 
appealable adverse actions include removals, suspensions of 15 days or 
more, demotions, and reductions in pay. In addition, the regulations 
provide for appeals of reductions in pay band and substantially 
increase the length of furloughs that may be appealed. Suspensions 
shorter than 15 days and other lesser disciplinary measures are not 
appealable to MSPB, but may be grieved through a negotiated grievance 
procedure or agency administrative grievance procedure, whichever is 
applicable. Furthermore, employees who are in the competitive service 
and who are removed during the first year of an ``initial service 
period'' are provided the appeal rights found in 5 CFR 315.806.
    Section 9701 of title 5, U.S. Code, requires that these new appeal 
regulations provide DHS employees fair treatment, are consistent with 
the protections of due process, and, to the maximum extent practicable, 
provide for the expeditious handling of appeals. The law also specifies 
that modifications to the current chapter 77 of title 5 should further 
the fair, efficient, and expeditious resolution of appeals.
    This subpart establishes procedures and timeframes for filing 
appeals with MSPB and modifies rules that MSPB will use to process 
appeals from DHS employees. These regulations are intended to ensure 
appropriate deference to the adverse actions taken by DHS and to 
streamline the way MSPB cases are handled while continuing to preserve 
and safeguard employee due process protections. In addition, they 
provide for an internal appeals process for ``mandatory removal 
offenses.''
    As noted earlier in the Supplementary Information, the Secretary 
and the Director will conduct an ongoing evaluation of the DHS HR 
system to ensure that it is achieving its intended purposes. As part of 
this evaluation, the Department and OPM will pay particular attention 
to the proposed adverse action and appeal procedures established by 
these regulations. As noted (and discussed in more detail below), those 
proposed procedures continue to permit employees to appeal most adverse 
actions to MSPB, despite the fact that DHS and OPM could have 
established a separate appellate body for all such actions.
    In proposing these appellate procedures, the Secretary and the 
Director were especially mindful of 5 U.S.C. 9701(f)(2), which requires 
that they consult with MSPB on changes to chapter 77 of title 5. This 
requirement was met through extensive consultations between members and 
staffs of MSPB, DHS, and OPM. During those consultations, DHS and OPM 
officials described specific concerns with existing procedures and 
discussed the range of appellate options and alternatives that were 
under consideration. For their part, MSPB officials were particularly 
constructive in responding to those concerns, offering numerous 
suggestions to address them, including several modifications to their 
own rules and regulations.
    The appellate procedures proposed below reflect many of those 
suggestions, as well as the constructive dialogue that gave rise to 
them. Indeed, the proposal to retain MSPB was predicated on the results 
of that dialogue. However, the cumulative effect of these changes can 
be assessed only as they are actually implemented and administered by 
MSPB. Accordingly, DHS and OPM, with MSPB, intend to conduct a formal 
evaluation of these appellate procedures after they have been in effect 
for 2 years in order to determine whether the procedures have given the 
Department's critical mission due weight and deference and whether 
additional

[[Page 8046]]

modifications to 5 U.S.C. chapter 77 and/or these regulations need to 
be proposed.

1. Appeals to MSPB

    The proposed regulations retain MSPB as the adjudicator of employee 
appeals of adverse actions, except as described below for mandatory 
removal offenses. At the same time, the regulations propose new 
substantive standards that MSPB will apply to DHS cases to improve the 
appeals process and accommodate and support the agency's critical 
homeland security mission. The regulations also propose new case-
handling procedures to facilitate the efficient and expeditious 
resolution of appeals.
    We gave serious consideration to establishing a DHS internal 
appeals board to replace MSPB. However, we concluded that the 
advantages of creating an internal DHS appeals board--greater 
efficiency of decisionmaking and deference to agency mission and 
operations among them--could be achieved if MSPB were retained as the 
appeals body for adverse actions but with substantive and significant 
procedural modifications. However, for mandatory removal offenses, we 
decided to establish an internal appeals process that fully preserves 
due process because we believe that, for these offenses, it is critical 
that the adjudicator of the appeal be intimately familiar with the 
mission of DHS in order to understand the particular impact of these 
offenses on the Department's ability to carry out its mission.

2. Appeals of Mandatory Removal Offenses

    An employee will be able to appeal a DHS removal action based on a 
mandatory removal offense to an adjudicating official, who may conduct 
a full evidentiary hearing and will issue a written decision. Either 
party may appeal that decision to an independent DHS Panel.
Option 1
    Under this option, DHS and OPM would not include appeal language in 
the regulation addressing any form of judicial review, but would allow 
existing governing legal principles to determine the circumstances 
under which there would be judicial review.
Option 2
    We are proposing to adopt the same procedures and standards for 
review of Panel decisions that we developed for Board decisions. 
Specifically, under 5 U.S.C. 7703, the United States Court of Appeals 
for the Federal Circuit has jurisdiction over appeals filed from final 
orders of MSPB. Under this option the final regulations would provide 
that Panel decisions are appealable to the three-member MSPB but with a 
deferential standard of review appropriate for an appellate procedure 
of this type. MSPB would be required to decide an appeal from a final 
decision of the Panel within 20 days. All decisions of MSPB, including 
those decisions on appeals from the Panel, would be subject to judicial 
review in accordance with 5 U.S.C. 7703. Under this option, judicial 
deference would be given to the decisions of the Panel because the 
Panel is charged by regulation with interpreting and implementing the 
Homeland Security Act and was created to apply its specialized 
expertise in homeland security matters.

3. MSPB Appellate Procedures

    MSPB will continue to have the authority to review and adjudicate 
actions covered by this subpart (except for mandatory removal offenses) 
as prescribed in chapter 12 of title 5, U.S. Code. However, these 
regulations propose to modify certain case processing rules and 
substantive standards. The initial review and adjudication of adverse 
action appeals will be governed by current title 5 provisions and MSPB 
regulations, as well as the modifications identified in this section. 
The modifications being made to current MSPB requirements will further 
the mission of DHS without impairing fair treatment and due process 
protections. Key procedural modifications include the following:
     When there are no material facts in dispute, the 
adjudicating official must grant a motion for summary judgment without 
an evidentiary hearing. Currently, appellants are entitled to a 
hearing.
     The appeal filing deadline, including the 
deadline for class appeals, is decreased from 30 days to 20 days.
     The adjudicating official's initial decision 
must be made no later than 90 days after the date on which the appeal 
is filed. Moreover, if MSPB reviews an initial decision, MSPB must 
render its final decision no later than 90 days after the close of 
record. Also, if OPM seeks reconsideration of a final MSPB decision or 
order, MSPB must render its decision no later than 60 days after 
receipt of the opposition to OPM's petition in support of such 
reconsideration.
     Currently, the parties to an appeal may submit 
unilateral requests for additional time to pursue discovery or 
settlement. The ability of the parties to unilaterally submit a request 
for case suspension is eliminated.
     The parties may seek discovery regarding any 
matter that is relevant to any of their claims or defenses. However, by 
motion to MSPB, either party can seek to limit any discovery being 
sought because it is privileged; not relevant; unreasonably cumulative 
or duplicative; or can be secured from some other source that is more 
convenient, less burdensome, or less expensive. Discovery can also be 
limited through such a motion if the burden or expense of providing a 
response outweighs its benefit. Prior to filing such a motion with 
MSPB, the parties must confer and attempt to resolve any pending 
objections. Further, when engaging in discovery, either party can 
submit only one set of interrogatories, requests for production, and 
requests for admissions. Additionally, the number of interrogatories or 
requests for production or admissions may not exceed 25 per pleading, 
including subparts, and each party may not conduct more than two 
depositions. However, either party may file a motion requesting MSPB to 
allow more discovery. A motion will be granted only if MSPB determines 
that good cause has been shown to justify additional discovery.
    All of these modifications will expedite and streamline the appeals 
process so that both employees and the Department will be able to 
resolve appeals more quickly and efficiently than is possible today. 
The proposed regulations also retain due process protections--notice, 
an opportunity to respond, and a post-action review, either in person 
or on the record--for removal actions. We provide the same procedural 
protections for all actions covered in subpart F. Further, these 
regulations retain the statutory requirement that the appealability of 
a removal be unaffected by the individual's status under any retirement 
system.
    Section 7701 of title 5, U.S. Code, currently authorizes the 
Director of OPM to intervene in an MSPB proceeding or to petition MSPB 
for review of a decision if the Director believes that an erroneous 
decision will have a substantial impact on a civil service law, rule, 
or regulation under OPM's jurisdiction. Given OPM's responsibility for 
Governmentwide personnel management, these regulations authorize OPM to 
intervene in such situations regardless of whether the law, rule or 
regulation is one that falls under OPM jurisdiction. A similar 
authority is provided to OPM with

[[Page 8047]]

respect to decisions of the independent Panel that will decide appeals 
of removals based on mandatory removal offenses.

4. Standard of Proof

    Currently, actions taken under chapter 75 are sustained if 
supported by a preponderance of the evidence, and performance actions 
taken under chapter 43 are sustained if supported by substantial 
evidence, a lower standard of proof than preponderance. In all cases 
arising under this subpart, dealing either with performance or conduct, 
the Department's decision will be sustained if it is supported by 
substantial evidence. Changing the standard of proof to a single, lower 
standard regardless of the nature of the action simplifies the appeal 
process, grants appropriate deference to DHS officials in recognition 
of the critical nature of the agency mission, and assures consistency 
without compromising fairness.

5. Affirmative Defenses

    The Department's action will not be sustained if MSPB (as is 
currently the case) determines that (1) a harmful procedural error 
occurred; (2) the decision was based on any prohibited personnel 
practice; or (3) the decision was not otherwise in accordance with law. 
The Board/Panel will defer to OPM and DHS in their interpretation of 
these regulations and the Homeland Security Act, and will defer to OPM 
in its interpretation of civil service law.
    These regulations require the Department to prove by substantial 
evidence the factual basis of the charge brought against an employee, 
but do not permit MSPB or the Panel to reverse the charge based on the 
way in which the charge is labeled or the conduct is characterized. 
This will eliminate excessively technical pleading requirements in 
adverse action proceedings imposed by MSPB and the U.S. Court of 
Appeals for the Federal Circuit in King v. Nazelrod, 43 F.3d 663, and 
similar cases. As long as the employee is on fair notice of the facts 
sufficient to respond to the allegations of a charge, the Department 
will have complied with the notice and due process requirements of 
these regulations.

6. Penalty Review

    In all cases arising under this subpart, the penalty selected by 
the Department may not be reduced or otherwise modified by MSPB or the 
Panel. This is a significant but necessary departure from current rules 
permitting MSPB to mitigate penalties in certain circumstances. We have 
modified the current practice because DHS management is in the best 
position to determine the penalty that most effectively supports the 
Department's mission. That decision should not be subject to MSPB or 
Panel review. However, nothing in these regulations would limit the 
Secretary or designee's sole and exclusive authority to mitigate any 
penalty imposed on, or rescind any action taken against, a DHS employee 
pursuant to subpart F.

7. Attorney Fees

    OPM and DHS have simplified the current standard for recovering 
attorney fees. Under the current two-pronged test set forth in 5 U.S.C. 
7701(g), appellants may recover fees if (1) they are prevailing parties 
and (2) if an award is ``in the interest of justice.'' Much judicial 
ink has been spilled interpreting both elements of this imprecise 
standard. Accordingly, in an attempt to clarify the test for recovering 
attorney fees, the regulations specify that an appellant may recover 
fees if the action is reversed in its entirety and the Department's 
action constituted a prohibited personnel practice or was taken in bad 
faith or without any basis in fact and law. Requiring the Department to 
pay attorney fees simply because some of its charges were not sustained 
would deter the Department from taking action in appropriate cases and 
have a chilling effect on the Department's ability to carry out its 
mission.

8. Alternative Dispute Resolution

    These regulations encourage the use of alternative dispute 
resolution procedures (ADR) and provide for DHS, OPM, and MSPB to 
jointly develop expedited appeals procedures. However, because ADR and 
settlement efforts are most successful when voluntary, the regulations 
prohibit MSPB from requiring ADR or settlement in connection with any 
action taken under this subpart. Once either party decides that 
settlement is not desirable, the matter will proceed to adjudication. 
Eliminating settlement efforts that are contrary to the expressed 
wishes of one or both of the parties will speed up the adjudication 
process and strengthen management decisionmaking authority.
    Where the parties agree to engage in settlement discussions, the 
case will be assigned to an official specifically designated for that 
sole purpose, rather than the official responsible for adjudication. 
This is necessary to avoid actual or perceived conflicts of interest on 
the part of MSPB adjudicating officials.

9. Discrimination Allegations

    We have decided to retain the current statutory provisions dealing 
with the processing of mixed cases, i.e., cases involving allegations 
of discrimination which are also appealable to MSPB. However, we 
revised those provisions to reflect the establishment of the DHS Panel.

10. Judicial Review

    Decisions of MSPB are subject to review by the U.S. Court of 
Appeals for the Federal Circuit based on the same standard currently 
provided for in 5 U.S.C. 7703.

Next Steps

    The Homeland Security Act provides that the development and 
implementation of a new HR system for DHS will be carried out with the 
participation of, and in collaboration with, employee representatives. 
The DHS Secretary and OPM Director must provide employee 
representatives with a written description of the proposed new or 
modified HR system. The description contained in this Federal Register 
notice satisfies this requirement. The Act further provides that 
employee representatives must be given 30 calendar days to review and 
make recommendations regarding the proposal. Any recommendations must 
be given full and fair consideration. If the Secretary and Director do 
not accept one or more recommendations, they must notify Congress of 
the disagreement and then meet and confer with employee representatives 
for at least 30 calendar days in an effort to reach agreement. The 
Federal Mediation and Conciliation Service may provide assistance at 
the Secretary's option or if requested by a majority of employee 
representatives who have made recommendations.
    If a proposal is not challenged, it may be implemented immediately. 
Similarly, when the Secretary and the Director accept any 
recommendation from employee representatives, the revised proposal may 
be implemented immediately. If the Secretary and the Director do not 
fully accept a recommendation, the Secretary may implement the proposal 
(including any modifications made in response to the recommendations) 
at any time after 30 calendar days have elapsed since the initiation of 
congressional notification, consultation, and mediation procedures. To 
proceed with implementation in this circumstance, the Secretary must 
determine (in his sole and unreviewable discretion) that further 
consultation and mediation are unlikely to produce

[[Page 8048]]

agreement. The Secretary must notify Congress promptly of the 
implementation of any such contested proposal.
    The Secretary and the Director must develop a method under which 
each employee representative may participate in any further planning or 
development in connection with implementation of a proposal. Also, the 
Secretary and the Director must give each employee or representative 
adequate access to information to make that participation productive.
    DHS plans to make the new labor relations, adverse actions, and 
appeals provisions effective 30 days after the issuance of interim 
final regulations later this year. At this time, DHS intends to 
implement the new job evaluation, pay, and performance management 
system in phases. The tentative schedule for implementing these 
provisions is outlined below.
    In the first phase, employees of DHS Headquarters, Science and 
Technology, and Intelligence Analysis and Infrastructure Protection, as 
well as GS employees of the Coast Guard, will be converted to the new 
performance management system in the fall of 2004. These employees will 
be converted to the new job evaluation and pay system in early 2005. At 
that time, affected employees will be converted to the new system as 
described in the above summary, with one-time within-grade buyouts 
where appropriate. The first performance-based pay increases will 
become effective in late summer 2005 for affected Coast Guard 
employees, to coincide with the completion of their performance 
appraisal cycle. The first annual market adjustments for these 
employees will be made in early 2006. DHS will determine the timing of 
pay increases for its Headquarters, Science and Technology, and 
Intelligence Analysis and Infrastructure Protection employees at a 
later date.
    In the second phase, all remaining GS employees in DHS are expected 
to be covered by the new performance management system no later than 
fall 2005. These employees would then be converted to the new job 
evaluation and pay system in early 2006, with one-time within-grade 
buyouts where appropriate. DHS anticipates that the first pay increases 
for these employees under the new system will be made effective no 
later than early 2007. Transportation Security Administration employees 
(except screeners), Stafford Act employees, and Coast Guard Academy 
employees will be converted to a similar or identical job evaluation, 
pay, and performance management system during the second phase.
    The Department will determine whether Secret Service Uniformed 
Division (SSUD) officers should be covered by a similar or identical 
system. Legislation would be required to alter the SSUD pay system.

Public Participation

    DHS and OPM invite interested persons to participate in this 
rulemaking by submitting written comments, data, or views. Commenters 
should refer to a specific portion of the proposal, explain the reason 
for any recommended change, and include supporting data or information.
    All comments received in an approved format will be posted in the 
e-docket. The e-docket will be available online for public inspection 
before and after the comment closing date. You may also review the 
hard-copy originals of mailed and hand-delivered comments by visiting 
the OPM Resource Center, as explained in the Addresses section of this 
preamble.
    Before acting on this proposal, we will consider all comments we 
receive on or before the closing date for comments. We will consider 
comments filed late if it is possible to do so without incurring 
expense or delay. We may change this proposal in light of the comments 
we receive.

Electronic Access and Filing

    You may access the DHS/OPM e-docket on the Internet at: http://www.epa.gov/edocket. This official e-docket will contain the various 
documents specifically referenced in this Supplementary Information, 
any public comments received, and other information used by 
decisionmakers related to the proposed rule. You may use the DHS/OPM e-
docket to access available public docket materials online, as well as 
submit electronic comments during the open comment period.
    The U.S. Environmental Protection Agency (EPA) has been designated 
by the Office of Management and Budget (OMB) as the official Managing 
Partner in the ``e-Rulemaking Initiative.'' DHS and OPM are pleased to 
partner with EPA to provide the e-docket for this DHS/OPM proposed 
rule. As a result of this partnership, you will notice references to 
EPA when you access the DHS/OPM e-docket.
    Public comments will be made available for public viewing in this 
e-docket system, without change, as DHS/OPM receive them, unless the 
comment contains copyrighted material, confidential business 
information, or other information whose public disclosure is restricted 
by statute. When DHS/OPM identifies a comment containing copyrighted 
material, we will provide a reference to that material in the version 
of the comment that is placed in the e-docket.
    The e-docket system is DHS/OPM's preferred method for receiving 
comments. The system is an ``anonymous access'' system, which means 
DHS/OPM will not know your identity, e-mail address, or other contact 
information unless you provide it in the body of your comment. All 
comments may be viewed electronically on the e-docket; thus, unless a 
comment is submitted anonymously, the names of commenters will be 
public information.
    You should ensure that your comments are submitted within the 
specified open comment period. Comments received after the close of the 
comment period will be marked ``late,'' and DHS/OPM are not required to 
consider them in formulating a final decision.

E.O. 12866, Regulatory Review

    DHS and OPM have determined that this action is a significant 
regulatory action within the meaning of Executive Order 12866 because 
there is a significant public interest in revisions of the Federal 
employment system. DHS and OPM have analyzed the expected costs and 
benefits of the proposed HR system to be adopted for DHS, and that 
analysis is presented below.
    Integral to the administration of the proposed new DHS pay system 
is a commitment to ``manage to budget.'' Accordingly, the new pay 
system carries with it potential implications relative to the base pay 
of individual employees, depending upon local labor market conditions 
and individual, team, and organizational performance. However, actual 
payroll costs under this system will be constrained by the amount 
budgeted for overall DHS payroll expenditures, as is the case with the 
present GS pay system. Moreover, assuming that a normal, static 
population will exist over time, DHS anticipates that accessions, 
separations, and promotions will net out and, as with the present 
system, not add to the overall cost of administering the system.
    The creation of a new DHS pay and performance management system 
will, however, result in some initial implementation costs, including 
some payroll related conversion costs (e.g., the ``buyout'' of within-
grade increases). In addition, DHS will incur costs relating to such 
matters as training (including the cost of overtime pay required to 
backfill for front-line DHS employees during periods of training), 
reprogramming automated payroll and HR information systems, developing

[[Page 8049]]

and conducting pay surveys to determine future pay adjustments in 
relation to the labor market, and conducting employee education and 
communication activities. The extent of these costs will be directly 
related to the level of comprehensiveness desired by DHS, especially in 
relation to training in the new system and developing and conducting 
labor market pay surveys for the wide variety of jobs in DHS.
    Programming costs relating to automating the payroll, HR 
information, and performance management systems and for administering 
pay in a performance-focused pay system should not be extensive, since 
such systems already are in use elsewhere in the Federal Government and 
could be adapted for use by DHS. In some cases, however, DHS could 
benefit from contracting with outside providers for the development and 
maintenance of such systems.
    DHS estimates the overall costs associated with implementing the 
new DHS HR system--including the development and implementation of a 
new pay and performance system, the conversion of current employees to 
that system, and the creation of the new DHS Labor Relations Board--
will be approximately $130 million through FY 2007 (i.e., over a 4-year 
period); less than $100 million will be spent in any 12-month period.
    The primary benefit to the public of this new system resides in the 
HR flexibilities that will enable DHS to build a high-performance 
organization focused on mission accomplishment. The new job evaluation, 
pay, and performance management system provides DHS with an increased 
ability to attract and retain a more qualified and proficient 
workforce. The new labor relations, adverse actions, and appeals system 
affords DHS greater flexibility to manage its workforce in the face of 
constantly changing threats to the security of our homeland. Taken as a 
whole, the changes included in these proposed regulations will result 
in a contemporary, merit-based HR system that focuses on performance, 
generates respect and trust, and above all, supports the primary 
mission of DHS--protecting our homeland.

Regulatory Flexibility Act

    DHS and OPM have determined that these regulations would not have a 
significant economic impact on a substantial number of small entities 
because they would apply only to Federal agencies and employees.

E.O. 12988, Civil Justice Reform

    This proposed regulation is consistent with the requirements of 
E.O. 12988. The regulation: would not preempt, repeal, or modify any 
Federal statute; provides clear legal standards; has no retroactive 
effects; specifies procedures for administrative and court actions; 
defines key terms; and is drafted clearly.

E.O. 13132, Federalism

    DHS and OPM have determined these proposed regulations would not 
have Federalism implications because they would apply only to Federal 
agencies and employees. The proposed regulations would not have 
financial or other effects on States, the relationship between the 
Federal Government and the States, or the distribution of power and 
responsibilities among the various levels of government.

Unfunded Mandates

    These proposed regulations would not result in the expenditure by 
State, local, or tribal governments of more than $100 million annually. 
Thus, no written assessment of unfunded mandates is required.

List of Subjects in 5 CFR Part 9701

    Administrative practice and procedure, Government employees, Labor 
management relations, Labor unions, Reporting and recordkeeping 
requirements, Wages.

    Department of Homeland Security.
Tom Ridge,
Secretary.
    Office of Personnel Management.
Kay Coles James,
Director.
    Accordingly, under the authority of section 9701 of title 5, United 
States Code, the Department of Homeland Security and the Office of 
Personnel Management are proposing to amend title 5, Code of Federal 
Regulations, by establishing chapter XCVII consisting of part 9701 as 
follows:

CHAPTER XCVII--DEPARTMENT OF HOMELAND SECURITY HUMAN RESOURCES 
MANAGEMENT SYSTEM (DEPARTMENT OF HOMELAND SECURITY--OFFICE OF PERSONNEL 
MANAGEMENT)

PART 9701--DEPARTMENT OF HOMELAND SECURITY HUMAN RESOURCES 
MANAGEMENT SYSTEM

Subpart A--General Provisions

Sec.
9701.101 Purpose.
9701.102 Applicability and coverage.
9701.103 Definitions.
9701.104 Scope of authority.
9701.105 DHS regulations.
9701.106 Relationship to other provisions.
Subpart B--Job Evaluation

General

9701.201 Purpose.
9701.202 Coverage.
9701.203 Waivers.
9701.204 Definitions.
9701.205 Relationship to other provisions.

Job Evaluation Structure

9701.211 Occupational clusters.
9701.212 Bands.

Job Evaluation Process

9701.221 Job evaluation requirements.
9701.222 Reconsidering job evaluation decisions.

Transitional Provisions

9701.231 Conversion.
9701.232 Special transition rules for Federal Air Marshal Service.
Subpart C--Pay and Pay Administration

General

9701.301 Purpose.
9701.302 Coverage.
9701.303 Waivers.
9701.304 Definitions.
9701.305 Bar on collective bargaining.

Overview of Pay System

9701.311 Major features.
9701.312 Maximum rates.
9701.313 DHS responsibilities.

Setting and Adjusting Rate Ranges

9701.321 Structure of bands.
9701.322 Setting and adjusting rate ranges.
9701.323 Eligibility for pay increase associated with a rate range 
adjustment.

Locality and Special Pay Supplements

9701.331 General.
9701.322 Locality pay supplements.
9701.333 Special pay supplements.
9701.334 Setting and adjusting locality and special pay supplements.
9701.335 Eligibility for pay increase associated with a supplement 
adjustment.

Performance-Based Pay

9701.341 General.
9701.342 Performance pay increases.
9701.343 Within-band reductions.
9701.344 Special within-band increases for certain employees in a 
Senior Expert band.
9701.345 Developmental pay adjustments.

Pay Administration

9701.351 Setting an employee's starting pay.
9701.352 Use of highest previous rate.
9701.353 Setting pay upon promotion.
9701.354 Setting pay upon demotion.
9701.355 Setting pay upon movement to a different occupational 
cluster.
9701.356 Pay retention.
9701.357 Miscellaneous.

Special Payments

9701.361 Special skills payments.

[[Page 8050]]

9701.362 Special assignment payments.
9701.363 Special staffing payments.

Transitional Provisions

9701.371 General.
9701.372 Creating initial pay ranges.
9701.373 Conversion of employees to the DHS pay system.
9701.374 Special transition rules for Federal Air Marshal Service.
Subpart D--Performance Management
9701.401 Purpose.
9701.402 Coverage.
9701.403 Waivers.
9701.404 Definitions.
9701.405 Performance management systems.
9701.406 Setting and communicating performance expectations.
9701.407 Monitoring performance.
9701.408 Developing performance.
9701.409 Rating performance.
9701.410 Rewarding performance.
9701.411 Performance Review Boards.
9701.412 DHS responsibilities.
Subpart E--Labor-Management Relations
9701.501 Purpose.
9701.502 Rule of construction.
9701.503 Waiver.
9701.504 Definitions.
9701.505 Coverage.
9701.506 Impact on existing agreements.
9701.507 Employee rights.
9701.508 Homeland Security Labor Relations Board.
9701.509 Powers and duties of the Board.
9701.510 Powers and duties of the Federal Labor Relations Authority.
9701.511 Management rights.
9701.512 Consultation.
9701.513 Exclusive recognition of labor organizations.
9701.514 Determination of appropriate units for labor organization 
representation.
9701.515 Representation rights and duties.
9701.516 Allotments to representatives.
9701.517 Unfair labor practices.
9701.518 Duty to bargain in good faith.
9701.519 Negotiation impasses.
9701.520 Standards of conduct for labor organizations.
9701.521 Grievance procedures.
9701.522 Exceptions to arbitration awards.
9701.523 Official time.
9701.524 Compilation and publication of data.
9701.525 Regulations of the Board.
9701.526 Continuation of existing laws, recognitions, agreements, 
and procedures.
9701.527 Savings provision.
Subpart F--Adverse Actions

General

9701.601 Purpose.
9701.602 Waivers.
9701.603 Definitions.
9701.604 Coverage.

Requirements for Suspension, Demotion, Reduction in Pay, Removal, or 
Furlough of 90 Days or Less

9701.605 Standard for action.
9701.606 Mandatory removal offenses.
9701.607 Procedures.
9701.608 Departmental record.

National Security

9701.609 Suspension and removal.
Subpart G--Appeals
9701.701 Purpose.
9701.702 Waivers.
9701.703 Definitions.
9701.704 Coverage.
9701.705 Alternative dispute resolution.
9701.706 MSPB appellate procedures.
9701.707 Appeals of mandatory removal actions.
9701.708 Actions involving discrimination.

    Authority: 5 U.S.C. 9701.

Subpart A--General Provisions


Sec.  9701.101  Purpose.

    This part contains regulations governing the establishment of a new 
human resources management system within the Department of Homeland 
Security (DHS), as authorized by 5 U.S.C. 9701. As permitted by section 
9701, these regulations modify or waive various statutory provisions 
that would otherwise be applicable to affected DHS employees. The 
modified provisions are designed to establish a modern, flexible system 
that supports DHS mission requirements and efforts to improve employee 
and organizational performance, while maintaining merit system 
principles and employee civil service protections. These regulations 
are issued jointly by the Secretary of Homeland Security and the 
Director of the Office of Personnel Management (OPM).


Sec.  9701.102  Applicability and coverage.

    (a) The provisions of this part apply to DHS employees who are in a 
category--
    (1) Eligible for coverage under one or more provisions of subparts 
B through G of this part; and
    (2) Approved for coverage by the Secretary or designee under a 
specific set of provisions as of a specified effective date, at the 
Secretary's or designee's sole and exclusive discretion after 
coordination with OPM.
    (b) Any new DHS job evaluation, pay, or performance management 
system covering Senior Executive Service (SES) members must be 
consistent with the performance-based features and the pay caps 
applicable to employees covered by the Governmentwide SES pay-for-
performance system authorized by 5 U.S.C. chapter 53, subchapter VIII, 
and applicable implementing regulations issued by OPM. If the Secretary 
determines that SES members employed by DHS should be covered by job 
evaluation, pay, or performance management provisions that differ 
substantially from the Governmentwide SES pay-for-performance system, 
the Secretary and the Director must issue joint authorizing regulations 
consistent with all of the requirements of 5 U.S.C. 9701.
    (c) The Secretary or designee, at his or her sole and exclusive 
discretion, may rescind approval granted under paragraph (a)(2) of this 
section on a prospective basis and prescribe procedures for converting 
a category of employees to coverage under applicable title 5 
provisions.
    (d) The regulations in this part do not apply to employees covered 
by a component of a human resources system established under the 
authority of a provision outside the waivable chapters of title 5, U.S. 
Code, identified in Sec.  9701.104. For example, Transportation 
Security Administration employees, employees appointed under the Robert 
T. Stafford Disaster Relief and Emergency Assistance Act, Secret 
Service Uniformed Division officers, Coast Guard Academy faculty 
members, and Coast Guard military members are not eligible for coverage 
under any job evaluation or pay system established under subpart B or C 
of this part. Similarly, Transportation Security Administration 
employees also are not eligible for coverage under any performance 
management system established under subpart D of this part or the 
adverse action provisions established under subpart F of this part. 
(Please refer to subparts B through G of this part for specific 
information regarding the coverage of each subpart.)
    (e) Notwithstanding paragraph (d) of this section, nothing in this 
part prevents the Secretary or other authorized DHS official from using 
an independent discretionary authority to establish a parallel system 
that follows some or all of the requirements in this part for a 
category of employees who are not eligible for coverage under the 
authority provided by 5 U.S.C. 9701.


Sec.  9701.103  Definitions.

    In this part:
    Authorized agency official means the Secretary or an official who 
is authorized to act for the Secretary in the matter concerned.
    Coordination means the process by which DHS, after appropriate 
staff-level consultation, officially provides OPM with notice of a 
proposed action and intended effective date. If OPM concurs, or does 
not respond to that notice within 30 calendar days, DHS may proceed 
with the proposed action. However, in the event that OPM indicates the 
matter has

[[Page 8051]]

Governmentwide implications or consequences, DHS will not proceed until 
the matter is resolved. The coordination process is intended to give 
due deference to the flexibilities afforded DHS by the Homeland 
Security Act and the regulations in this part, without compromising 
OPM's institutional responsibility, as codified in 5 U.S.C. chapter 11 
and Executive Order 13197 of January 18, 2001, to provide 
Governmentwide oversight in human resources management programs and 
practices.
    Department or DHS means the Department of Homeland Security.
    Director means the Director of the Office of Personnel Management.
    Employee means an employee within the meaning of that term in 5 
U.S.C. 2105, except as otherwise provided in this subpart for specific 
purposes.
    General Schedule or GS means the General Schedule classification 
and pay system established under chapter 51 and subchapter III of 
chapter 53 of title 5, U.S. Code.
    OPM means the Office of Personnel Management.
    Secretary means the Secretary of Homeland Security or, as 
authorized, the Deputy Secretary of Homeland Security.
    Secretary or designee means the Secretary or a DHS official 
authorized to act for the Secretary in the matter concerned who--
    (1) Reports directly to the Secretary; or
    (2) Serves as the Chief Human Capital Officer for DHS.


Sec.  9701.104  Scope of authority.

    Subject to the requirements and limitations in 5 U.S.C. 9701, the 
provisions in the following chapters of title 5, U.S. Code, and any 
related regulations, may be waived or modified in exercising the 
authority in 5 U.S.C. 9701:
    (a) Chapter 43, dealing with performance appraisal systems;
    (b) Chapter 51, dealing with General Schedule job classifications;
    (c) Chapter 53, dealing with pay for General Schedule employees, 
pay and job grading for Federal Wage System employees, and pay for 
certain other employees;
    (d) Chapter 71, dealing with labor relations;
    (e) Chapter 75, dealing with adverse actions and certain other 
actions; and
    (f) Chapter 77, dealing with the appeal of adverse actions and 
certain other actions.


Sec.  9701.105  DHS regulations.

    DHS may issue internal Departmental directives to further define 
the design characteristics of any system established in accordance with 
this part.


Sec.  9701.106  Relationship to other provisions.

    (a) DHS employees who are covered by a system established under 
this part are considered to be covered by chapters 43, 51, 53, 71, 75, 
and 77 of title 5, U.S. Code, for the purpose of applying other 
provisions of law or Governmentwide regulations outside those chapters 
to DHS employees, except as specifically provided in this part or in 
DHS regulations.
    (b) Selected examples of provisions that continue to apply to any 
eligible DHS employees (despite coverage under subparts B through G of 
this part) include, but are not limited to, the following:
    (1) Foreign language awards for law enforcement officers under 5 
U.S.C. 4521-4523;
    (2) Pay for firefighters under 5 U.S.C. 5545b;
    (3) Differentials for duty involving physical hardship or hazard 
under 5 U.S.C. 5545(d);
    (4) Recruitment, relocation, and retention payments under 5 U.S.C. 
5753-5754;
    (5) Physicians' comparability allowances under 5 U.S.C. 5948; and
    (6) The higher cap on relocation bonuses for law enforcement 
officers established by section 407 of the Federal Employees Pay 
Comparability Act of 1990 (section 529 of Public Law 101-509).
    (c) The following provisions do not apply to DHS employees covered 
by a DHS job evaluation and pay system established under subparts B and 
C in place of the General Schedule:
    (1) Time-in-grade restrictions that apply to competitive service GS 
positions under 5 CFR part 300, subpart F;
    (2) Supervisory differentials under 5 U.S.C. 5755; and
    (3) Law enforcement officer special rates and geographic 
adjustments under sections 403 and 404 of the Federal Employees Pay 
Comparability Act of 1990 (section 529 of Public Law 101-509).
    (d) Nothing in this part waives, modifies or otherwise affects the 
employment discrimination laws that the Equal Employment Opportunity 
Commission (EEOC) enforces under 42 U.S.C. 2000e et seq., 29 U.S.C. 621 
et seq., 29 U.S.C. 791 et seq., and 29 U.S.C. 206(d). Employees and 
applicants for employment in DHS will continue to be covered by EEOC's 
Federal sector regulations found at 29 CFR part 1614.

Subpart B--Job Evaluation

General


Sec.  9701.201  Purpose.

    This subpart contains regulations establishing a modified job 
evaluation structure and rules for covered DHS employees and positions 
in place of the classification structure and rules in 5 U.S.C. chapter 
51 and the job grading system in 5 U.S.C. chapter 53, subchapter IV.


Sec.  9701.202  Coverage.

    (a) This subpart applies to eligible DHS employees and positions 
listed in paragraph (b) of this section, subject to approval by the 
Secretary or designee under Sec.  9701.102(a)(2).
    (b) The following employees and positions are eligible for coverage 
under this subpart:
    (1) Employees and positions that would otherwise be covered by the 
General Schedule classification system established under 5 U.S.C. 
chapter 51;
    (2) Employees and positions that would otherwise be covered by a 
prevailing rate system established under 5 U.S.C. chapter 53, 
subchapter IV;
    (3) Employees in senior-level (SL) and scientific or professional 
(ST) positions who would otherwise be covered by 5 U.S.C. 5376; and
    (4) Members of the Senior Executive Service who would otherwise be 
covered by 5 U.S.C. chapter 53, subchapter VIII, subject to Sec.  
9701.102(b).


Sec.  9701.203  Waivers.

    (a) The provisions of 5 U.S.C. chapter 51 and 5 U.S.C. 5346, and 
related regulations, are waived except as provided in Sec.  9701.106 
and paragraph (b) of this section.
    (b) Section 5108 of title 5, U.S. Code, dealing with the 
classification of positions above GS-15, is not waived or modified.
    (c) For the purpose of applying provisions of title 5, U.S. Code, 
and title 5, Code of Federal Regulations, that are not otherwise waived 
or modified by this subpart, the term ``job evaluation'' includes 
``classification'' and ``reclassification''. (See also Sec.  9701.106.)


Sec.  9701.204  Definitions.

    In this subpart:
    Band means a work level or pay range within an occupational 
cluster.
    Job evaluation means the process of evaluating or classifying a job 
or position to determine its relative value to an organization by 
assigning it to an occupational series, cluster, and band for pay and 
other related purposes. This term does not refer to the evaluation or 
appraisal of an employee's performance

[[Page 8052]]

under a performance management system established under subpart D of 
this part.
    Occupational cluster means a grouping of one or more associated or 
related occupations or positions.
    Occupational series means the four-digit number OPM or DHS assigns 
to a group or family of similar positions for identification purposes 
(for example: 0110, Economist Series; 1410, Librarian Series).
    Position or Job means the duties, responsibilities, and related 
competency requirements that are assigned to an employee whom the 
Secretary or designee approves for coverage under Sec.  9701.202(a).


Sec.  9701.205  Relationship to other provisions.

    (a) Any job evaluation program described under this subpart must be 
established in conjunction with the pay system described in subpart C 
of this part.
    (b) As provided in the definition of ``conditions of employment'' 
in Sec.  9701.504, any job evaluation program established under this 
subpart is not subject to collective bargaining. This bar on collective 
bargaining applies to all aspects of the job evaluation program, 
including coverage determinations, the design of the job evaluation 
structure, and job evaluation methods, criteria, and administrative 
procedures and arrangements.

Job Evaluation Structure


Sec.  9701.211  Occupational clusters.

    For purposes of evaluating positions, DHS may establish 
occupational clusters in coordination with OPM based on factors such as 
mission; nature of work; qualifications, competencies, or skill sets; 
typical career or pay progression patterns; relevant labor-market 
features; and other characteristics of those occupations or positions. 
DHS must document in writing the criteria for grouping occupations or 
positions into occupational clusters.


Sec.  9701.212  Bands.

    (a)(1) For purposes of identifying relative levels of work and 
corresponding pay ranges, DHS may establish one or more bands within 
each occupational cluster in coordination with OPM. Each occupational 
cluster may include, but is not limited to, the following bands:
    (i) Entry/Developmental--involving work that focuses on gaining the 
competencies and skills needed to perform successfully in a Full 
Performance band through appropriate formal training and/or on-the-job 
experience.
    (ii) Full Performance--involving work that requires the successful 
completion of any required entry-level training and/or developmental 
activities necessary to independently perform the full range of non-
supervisory duties of a position in an occupational cluster.
    (iii) Senior Expert--involving work that requires an extraordinary 
level of specialized knowledge or expertise upon which DHS relies for 
the accomplishment of critical mission goals and objectives; reserved 
for a limited number of non-supervisory employees.
    (iv) Supervisory--reserved primarily for first-level supervisors.
    (2) DHS must document the definitions for each band which specify 
the type and range of difficulty and responsibility; qualifications, 
competencies, or skill sets; or other characteristics of the work 
encompassed by the band.
    (b) DHS may establish qualification standards and requirements for 
each occupational cluster, occupational series, and/or band in 
coordination with OPM.

Job Evaluation Process


Sec.  9701.221  Job evaluation requirements.

    (a) DHS must develop a methodology for describing and documenting 
the duties, qualifications, and other requirements of categories of 
jobs, and DHS must make such descriptions and documentation available 
to affected employees.
    (b) An authorized agency official must--
    (1) Assign occupational series to jobs consistent with occupational 
series definitions established by OPM under 5 U.S.C. 5105 and 5346 or 
by DHS in coordination with OPM; and
    (2) Apply the criteria and definitions required by Sec.  9701.211 
and Sec.  9701.212 to assign jobs to an appropriate occupational 
cluster and band.
    (c) DHS must establish procedures for evaluating jobs and may make 
such inquiries or investigations of the duties, responsibilities, and 
qualification requirements of jobs as it considers necessary for the 
purposes of this section.
    (d) Job evaluation decisions become effective on the date 
designated by the authorized agency official who makes the decision.
    (e) DHS must establish a plan to review the accuracy of job 
evaluation decisions.


Sec.  9701.222  Reconsidering job evaluation decisions.

    (a) An employee may request that DHS reconsider the occupational 
series or pay system assignment of the employee's official position of 
record. An employee may not request that DHS reconsider any other job 
evaluation determination made under this subpart (e.g., an employee's 
placement in a band or cluster).
    (b) DHS must establish policies and procedures for handling 
reconsideration requests.
    (c) DHS reconsideration decisions made under this section are 
final.

Transitional Provisions


Sec.  9701.231  Conversion.

    (a) This section describes the transitional provisions that apply 
when DHS positions and employees are converted to a job evaluation 
system established under this subpart. Affected positions and employees 
may convert from the GS system, a prevailing rate system, the SL/ST 
system, or the SES system, as provided in Sec.  9701.202. For the 
purpose of this section, the terms ``convert,'' ``converted,'' and 
``converting'' refer to positions and employees that become covered by 
the job evaluation system as a result of a coverage determination made 
under Sec.  9701.102(a)(2) and exclude employees who are reassigned or 
transferred from a noncovered position to a position already covered by 
the DHS system.
    (b) DHS must prescribe policies and procedures for converting the 
GS and prevailing rate grade of a position to a band and for converting 
SL/ST and SES positions to a band upon initial implementation of the 
DHS job evaluation system. Such procedures must include provisions for 
converting an employee who is retaining a grade under 5 U.S.C. chapter 
53, subchapter VI, immediately prior to conversion. As provided in 
Sec.  9701.373, DHS must convert employees without a reduction in an 
employee's rate of basic pay (taking into account any applicable 
locality payment, special rate, or other similar supplemental pay).


Sec.  9701.232  Special transition rules for Federal Air Marshal 
Service.

    Notwithstanding any other provision in this subpart, if DHS 
transfers Federal Air Marshal Service positions from the Transportation 
Security Administration (TSA) to another organization within DHS, DHS 
may cover those positions under a job evaluation system that is 
parallel to the job evaluation system that was applicable to the 
Federal Air Marshal Service within TSA. DHS may modify that system 
after coordination

[[Page 8053]]

with OPM. DHS may prescribe rules for converting Federal Air Marshal 
Service employees to any new job evaluation system that may 
subsequently be established under this subpart.

Subpart C--Pay and Pay Administration

General


Sec.  9701.301  Purpose.

    This subpart contains regulations establishing pay structures and 
pay administration rules for covered DHS employees in place of the pay 
structures and pay administration rules established under 5 U.S.C. 
chapter 53, as authorized by 5 U.S.C. 9701. These regulations are 
designed to provide DHS with the flexibility to allocate available 
funds strategically in support of DHS mission priorities and 
objectives. Various features that link pay to employees' performance 
ratings are designed to promote a high-performance culture within DHS.


Sec.  9701.302  Coverage.

    (a) This subpart applies to eligible DHS employees in the 
categories listed in paragraph (b) of this section, subject to approval 
by the Secretary or designee under Sec.  9701.102(a)(2).
    (b) The following employees are eligible for coverage under this 
subpart:
    (1) Employees who would otherwise be covered by the General 
Schedule pay system established under 5 U.S.C. chapter 53, subchapter 
III;
    (2) Employees who would otherwise be covered by a prevailing rate 
system established under 5 U.S.C. chapter 53, subchapter IV;
    (3) Employees in senior-level (SL) and scientific or professional 
(ST) positions who would otherwise be covered by 5 U.S.C. 5376; and
    (4) Members of the Senior Executive Service who would otherwise be 
covered by 5 U.S.C. chapter 53, subchapter VIII, subject to Sec.  
9701.102(b).


Sec.  9701.303  Waivers.

    (a) The provisions of 5 U.S.C. chapter 53, and related regulations, 
are waived except as provided in Sec.  9701.106 and paragraphs (b) 
through (e) of this section.
    (b) The following provisions of 5 U.S.C. chapter 53 are not waived 
or modified:
    (1) Section 5307, dealing with the aggregate limitation on pay;
    (2) Sections 5311 through 5318, dealing with Executive Schedule 
positions; and
    (3) Section 5377, dealing with the critical pay authority.
    (c) The following provisions of 5 U.S.C. chapter 53 are modified 
but not waived:
    (1) Section 5371 is modified to allow DHS, in coordination with 
OPM, to apply the provisions of 38 U.S.C. chapter 74 to health care 
positions covered by section 5371 in lieu of any DHS pay system 
established under this subpart or the following provisions of title 5, 
U.S. Code: chapters 51, 53, and 61, and subchapter V of chapter 55. The 
reference to ``chapter 51'' in section 5371 is deemed to include a job 
evaluation system established under subpart B of this part.
    (2) Section 5373 is modified to raise the limit on certain rates of 
basic pay fixed by administrative action (including any applicable 
locality payment or supplement) to the rate for level III of the 
Executive Schedule. Notwithstanding Sec.  9701.302(a), any DHS employee 
otherwise covered by section 5373 is eligible for coverage under the 
modified provisions established under this paragraph, subject to 
approval by the Secretary or designee under Sec.  9701.102(a)(2).
    (3) Section 5379 is modified to allow DHS and OPM to establish and 
administer a modified student loan repayment program for DHS employees, 
except that DHS may not make loan payments for any noncareer appointees 
to the SES (as defined in 5 U.S.C. 3132(a)(7)) or for any employee 
occupying a position that is excepted from the competitive service 
because of its confidential, policy-determining, policy-making, or 
policy-advocating character. Notwithstanding Sec.  9701.302(a), any DHS 
employee otherwise covered by section 5379 is eligible for coverage 
under the modified provisions established under this paragraph, subject 
to approval by the Secretary or designee under Sec.  9701.102(a)(2).
    (d) In approving the coverage of employees who would otherwise be 
covered by a prevailing rate system established under 5 U.S.C. chapter 
53, subchapter IV, DHS may limit the waiver so that affected employees 
remain entitled to environmental or other differentials established 
under 5 U.S.C. 5343(c)(4) and night shift differentials established 
under 5 U.S.C. 5343(f) if such employees are grouped in separate 
occupational clusters (established under subpart B of this part) that 
are limited to employees who would otherwise be covered by a prevailing 
rate system.
    (e) Employees in SL/ST positions and SES members who are covered by 
a basic pay system established under this subpart are considered to be 
paid under 5 U.S.C. 5376 and 5382, respectively, for the purpose of 
applying 5 U.S.C. 5307(d).


Sec.  9701.304  Definitions.

    In this part:
    48 contiguous States means the States of the United States, 
excluding Alaska and Hawaii, but including the District of Columbia.
    Band has the meaning given that term in Sec.  9701.204.
    Band rate range means the range of rates of basic pay (excluding 
any locality pay supplements or special pay supplements) applicable to 
employees in a particular band, as described in Sec.  9701.321. Each 
band rate range is defined by a minimum and maximum rate.
    Basic pay means an employee's rate of pay before any deductions and 
exclusive of additional pay of any kind, except as expressly provided 
by law or regulation. For the specific purposes prescribed in 
Sec. Sec.  9701.332(c) and 9701.333, respectively, basic pay includes 
locality pay supplements and special pay supplements.
    Control point means a specified rate in a band rate range used to 
limit initial pay setting or pay progression as described in Sec.  
9701.321(d).
    Demotion means a reduction to a lower band within the same 
occupational cluster or a reduction to a lower band in a different 
occupational cluster under rules prescribed by DHS pursuant to Sec.  
9701.355.
    Locality pay supplement means a geographic-based addition to basic 
pay, as described in Sec.  9701.332.
    Occupational cluster has the meaning given that term in Sec.  
9701.204.
    Promotion means an increase to a higher band within the same 
occupational cluster or an increase to a higher band in a different 
occupational cluster under rules prescribed by DHS pursuant to Sec.  
9701.355.
    Rating of record has the meaning given that term in Sec.  9701.404.
    SES means the Senior Executive Service established under 5 U.S.C. 
chapter 31, subchapter II.
    SL/ST refers to an employee serving in a senior-level position paid 
under 5 U.S.C. 5376. The term ``SL'' identifies a senior-level employee 
covered by 5 U.S.C. 3324 and 5108. The term ``ST'' identifies an 
employee who is appointed under the special authority in 5 U.S.C. 3325 
to a scientific or professional position established under 5 U.S.C. 
3104.
    Special pay supplement means an addition to basic pay for a 
particular category of employees to address staffing problems, as 
described in

[[Page 8054]]

Sec.  9701.333. A special pay supplement is paid in place of any lesser 
locality pay supplement that would otherwise apply.
    Unacceptable performance has the meaning given that term in Sec.  
9701.404.
    Unacceptable rating of record means a rating of record indicating 
unacceptable performance.


Sec.  9701.305  Bar on collective bargaining.

    As provided in the definition of conditions of employment in Sec.  
9701.504, any pay program established under authority of this subpart 
is not subject to collective bargaining. This bar on collective 
bargaining applies to all aspects of the pay program, including 
coverage decisions, the design of pay structures, the setting and 
adjustment of pay levels, pay administration rules and policies, and 
administrative procedures and arrangements.

Overview of Pay System


Sec.  9701.311  Major features.

    DHS will establish a pay system that governs the setting and 
adjusting of covered employees' rates of pay. The DHS pay system will 
include the following features:
    (a) A structure of rate ranges linked to various bands for each 
occupational cluster, in alignment with the job evaluation structure 
described in subpart B of this part;
    (b) Policies regarding the setting and adjusting of basic pay 
ranges based on mission requirements, labor market conditions, and 
other factors, as described in Sec. Sec.  9701.321 through 9701.322;
    (c) Policies regarding the setting and adjusting of supplements to 
basic pay based on local labor market conditions and other factors, as 
described in Sec. Sec.  9701.331 through 9701.334;
    (d) Policies regarding employees' eligibility for pay increases 
based on adjustments in rate ranges and supplements, as described in 
Sec. Sec.  9701.323 and 9701.335;
    (e) Policies regarding performance-based pay increases, as 
described in Sec. Sec.  9701.341 through 9701.345;
    (f) Policies on basic pay administration, including movement 
between occupational clusters, as described in Sec. Sec.  9701.351 
through 9701.356;
    (g) Policies regarding special payments that are not basic pay, as 
described in Sec. Sec.  9701.361 through 9701.363; and
    (h) Linkages to employees' performance ratings of records, as 
described in subpart D of this part.


Sec.  9701.312  Maximum rates.

    (a) DHS may not pay any employee an annual rate of basic pay in 
excess of the rate for level III of the Executive Schedule, except as 
provided in paragraph (b) of this section.
    (b) DHS may establish the maximum annual rate of basic pay for 
members of the SES at the rate for level II of the Executive Schedule 
if DHS obtains the certification specified in 5 U.S.C. 5307(d).


Sec.  9701.313  DHS Responsibilities.

    DHS responsibilities in implementing this subpart include the 
following:
    (a) Providing OPM with information regarding the implementation of 
the programs authorized under this subpart at OPM's request;
    (b) Participating in any interagency pay coordination council or 
group established by OPM to ensure that DHS pay policies and plans are 
coordinated with other agencies; and
    (c) Fulfilling all other responsibilities prescribed in this 
subpart.

Setting and Adjusting Rate Ranges


Sec.  9701.321  Structure of bands.

    (a) In coordination with OPM, DHS may establish ranges of basic pay 
for bands, with minimum and maximum rates set and adjusted as provided 
in Sec.  9701.322. A band may include control points, as described in 
paragraph (d) of this section. Rates must be expressed as annual rates.
    (b) For each band within an occupational cluster, DHS will 
establish a common rate range that applies in all locations, except as 
provided in paragraph (c) of this section.
    (c) DHS may establish a different rate range for employees in a 
band who are stationed in locations outside the contiguous 48 States.
    (d) DHS may establish control points within a band that limit 
initial pay-setting or pay progression for specified categories of 
employees. DHS may require that employees meet certain criteria (e.g., 
performance rating) before exceeding certain control points.


Sec.  9701.322  Setting and adjusting rate ranges.

    (a) Within its sole discretion, DHS, after coordination with OPM, 
may set and adjust the rate ranges established under Sec.  9701.321. In 
determining the rate ranges, DHS and OPM may consider mission 
requirements, labor market conditions, availability of funds, pay 
adjustments received by employees of other Federal agencies, and any 
other relevant factors.
    (b) In coordination with OPM, DHS may determine the effective date 
of newly set or adjusted band rate ranges. Generally, these rate ranges 
will be adjusted on an annual basis.
    (c) DHS may provide different rate range adjustments for different 
occupational clusters or for different bands within an occupational 
cluster.
    (d) For a given band, DHS may provide rate range adjustments in 
locations outside the contiguous 48 States that differ from the 
adjustments within the contiguous 48 States. DHS must take into account 
any cost-of-living allowance received by employees stationed outside 
the contiguous 48 States in determining the appropriate amount of the 
band rate range adjustment.
    (e) DHS may adjust the minimum and maximum rates of a band by 
different percentages.


Sec.  9701.323  Eligibility for pay increase associated with a rate 
range adjustment.

    (a) An employee who meets or exceeds performance expectations 
(i.e., has a rating of record above the unacceptable performance level) 
must receive an increase in basic pay equal to the percentage value of 
any increase in the minimum rate of the employee's band resulting from 
a rate range adjustment under Sec.  9701.322. The pay increase takes 
effect at the same time as the corresponding rate range adjustment, 
except as provided in paragraph (d) of this section.
    (b) An employee who has an unacceptable rating of record may not 
receive a pay increase as a result of a rate range adjustment. The 
denial of this increase is not considered an adverse action under 
subpart F of this part.
    (c) If an employee does not have a rating of record, he or she must 
be deemed to meet or exceed performance expectations and is entitled to 
receive an increase based on the rate range adjustment, as provided in 
paragraph (a) of this section.
    (d) DHS may adopt policies under which an employee who is initially 
denied a pay increase under this section (based on an unacceptable 
rating of record) may receive, at management's discretion, a delayed 
increase after demonstrating significantly improved performance and 
receiving a new rating of record. Any such delayed increase will be 
made effective prospectively.

Locality and Special Pay Supplements


Sec.  9701.331  General.

    The basic pay ranges established under Sec. Sec.  9701.321 through 
9701.323 may be supplemented by locality and special pay supplements, 
as described in Sec. Sec.  9701.332 through 9701.335. These supplements 
are expressed as a

[[Page 8055]]

percentage of basic pay and are set and adjusted as described in Sec.  
9701.334.


Sec.  9701.332  Locality pay supplements.

    (a) For each band rate range and in coordination with OPM, DHS may 
establish locality pay supplements that apply in specified locality pay 
areas. Locality pay supplements apply to employees whose official duty 
station is located in the given area. DHS may provide different 
locality pay supplements for different occupational clusters or for 
different bands within the same occupational cluster.
    (b) In coordination with OPM, DHS may set the boundaries of 
locality pay areas. If DHS does not use the locality pay areas 
established by the President's Pay Agent under 5 U.S.C. 5304, it may 
make boundary changes by regulation or other means. Judicial review of 
any DHS regulation on boundary changes is limited to whether or not any 
regulation was promulgated in accordance with 5 U.S.C. 553. A DHS 
decision to apply the boundaries established under 5 U.S.C. 5304 does 
not require regulations and is not subject to judicial review.
    (c) Locality pay supplements are considered basic pay for the 
following purposes:
    (1) Retirement under 5 U.S.C. chapter 83 or 84;
    (2) Life insurance under 5 U.S.C. chapter 87;
    (3) Premium pay under 5 U.S.C. chapter 55, subchapter V, or similar 
payments under other legal authority;
    (4) Severance pay under 5 U.S.C. 5595;
    (5) Other payments and adjustments authorized under this subpart as 
specified by DHS internal regulations;
    (6) Other payments and adjustments under other statutory or 
regulatory authority that are basic pay for the purpose of locality-
based comparability payments under 5 U.S.C. 5304; and
    (7) Any provisions for which DHS locality pay supplements must be 
treated as basic pay by law.


Sec.  9701.333  Special pay supplements.

    In coordination with OPM, DHS may establish special pay supplements 
that provide higher pay levels for subcategories of employees within an 
occupational cluster if warranted by current or anticipated recruitment 
and/or retention needs. DHS may establish rules necessary to implement 
such supplements. Any special pay supplement must be treated as basic 
pay for the same purposes as locality pay supplements, as described in 
Sec.  9701.332(c), and for the purpose of computing cost-of-living 
allowances and post differentials in nonforeign areas under 5 U.S.C. 
5941.


Sec.  9701.334  Setting and adjusting locality and special pay 
supplements.

    (a) Within its sole discretion, DHS, after coordination with OPM, 
may set and adjust locality and special pay supplements. In determining 
the amounts of the supplements, DHS and OPM may consider mission 
requirements, labor market conditions, availability of funds, pay 
adjustments received by employees of other Federal agencies, and other 
relevant factors.
    (b) In coordination with OPM, DHS may determine the effective date 
of newly set or adjusted locality and special pay supplements. 
Generally, established supplements will be reviewed for possible 
adjustment on an annual basis in conjunction with rate range 
adjustments under Sec.  9701.322.


Sec.  9701.335  Eligibility for pay increase associated with a 
supplement adjustment.

    (a) An employee who meets or exceeds performance expectations 
(i.e., has a rating of record above the unacceptable performance level) 
is entitled to the pay increase resulting from an increase in any 
applicable locality or special pay supplement authorized by DHS. This 
includes an increase resulting from the initial establishment and 
setting of a special pay supplement. The pay increase takes effect at 
the same time as the applicable supplement is set or adjusted, except 
as provided in paragraph (d) of this section.
    (b) An employee who has an unacceptable rating of record may not 
receive a pay increase as a result of an increase in an applicable 
locality or special pay supplement. DHS may determine the method of 
preventing a pay increase in this circumstance. If DHS chooses to 
reduce the employee's rate of basic pay by the amount necessary to 
prevent an increase, this reduction will not be considered an adverse 
action under subpart F of this part.
    (c) If an employee does not have a rating of record, he or she must 
be deemed to meet or exceed performance expectations and is entitled to 
any pay increase associated with a supplement adjustment, as provided 
in paragraph (a) of this section.
    (d) DHS may adopt policies under which an employee who is initially 
denied a pay increase under this section (based on an unacceptable 
rating of record) may receive, at management's discretion, a delayed 
increase after demonstrating significantly improved performance and 
receiving a new rating of record. Any such delayed increase will be 
made effective prospectively.

Performance-Based Pay


Sec.  9701.341  General.

    Sections 9701.342 through 9701.345 describe various types of 
performance-based pay increases that are part of the pay system 
established under this subpart. Generally, these within-band pay 
increases are directly linked to an employee's rating of record (as 
assigned under the performance management system described in subpart D 
of this part). These provisions are designed to provide DHS with the 
flexibility to allocate available funds based on performance as a means 
of fostering a high-performance culture that supports mission 
accomplishment. While performance measures primarily focus on an 
employee's contributions (as an individual or as part of a team) in 
accomplishing work assignments and achieving mission results, 
performance also may be reflected in the acquisition and demonstration 
of required competencies.


Sec.  9701.342  Performance pay increases.

    (a) Overview. The DHS pay system provides employees in a Full 
Performance or higher band with increases in basic pay based on 
individual performance ratings of record as assigned under a system 
established under subpart D of this part. The rating of record used as 
the basis for a performance pay increase is the one assigned for the 
most recently completed appraisal period, except that if an employee's 
current performance is determined to be inconsistent with that rating, 
an authorized agency official must prepare a more current rating of 
record, subject to the requirements of subpart D of this part. The DHS 
pay system uses pay pool controls to allocate pay increases based on 
performance points that are directly linked to the employee's rating of 
record, as described in this section. Performance pay increases are a 
function of the amount of money in the performance pay pool, the 
relative point value placed on ratings, and the distribution of ratings 
within that performance pay pool.
    (b) Performance pay pools. (1) DHS will establish pay pools to 
allocate monies budgeted for performance pay increases.
    (2) Each pay pool covers a defined group of DHS employees, as 
determined by DHS.
    (3) The Secretary or designee may determine the size of the pay 
pools and may adjust those amounts based on overall levels of 
organizational performance or contribution to the Department's mission.

[[Page 8056]]

    (4) In allocating the monies to be budgeted for performance pay 
increases, the Secretary or designee must take into account the average 
value of within-grade and quality step increases under the General 
Schedule, as well as amounts that otherwise would have been spent on 
promotions among positions placed in the same band.
    (c) Performance point values. (1) DHS will establish point values 
that correspond to the performance rating levels established under 
subpart D of this part, so that a point value is attached to each 
rating level. For example, in a four-level rating program, the point 
value pattern could be 4-2-1-0, where 4 points are assigned to the 
highest (outstanding) rating and 0 points to an unacceptable rating. 
Performance point values will determine performance pay increases.
    (2) DHS will establish a point value pattern for each pay pool. 
Different pay pools may have different point value patterns.
    (3) DHS must assign zero performance points to any employee with an 
unacceptable rating of record.
    (d) Performance payout. (1) DHS will determine the value of a 
performance point, expressed as a percentage of an employee's rate of 
basic pay or as a fixed dollar amount.
    (2) To determine an individual employee's performance payout, DHS 
will multiply the point value determined under paragraph (d)(1) of this 
section by the number of performance points credited to the employee.
    (3) To the extent that the adjustment does not cause the employee's 
rate of basic pay to exceed the maximum rate (or applicable control 
point) of the employee's band rate range, DHS will pay the performance 
payout as an adjustment in the employee's annual rate of basic pay. Any 
excess amount may be granted as a lump-sum payment, which may not be 
considered basic pay for any purpose.
    (4) In coordination with OPM, DHS may determine the effective date 
of adjustments in basic pay under paragraph (d)(3) of this section.
    (e) Proration of performance payouts. DHS may establish policies 
governing the proration of performance payouts for employees who, 
during the period between performance pay adjustments, are--
    (1) Hired or promoted;
    (2) In a leave without pay status; or
    (3) In other circumstances where proration is considered 
appropriate.
    (f) Adjustments for employees returning after performing honorable 
service in the uniformed services. DHS will establish policies 
governing how it sets the rate of basic pay prospectively for an 
employee who leaves a DHS position to perform service in the uniformed 
services (as defined in 38 U.S.C. 4303 and 5 CFR 353.102) and returns 
through the exercise of a reemployment right provided by law, Executive 
order, or regulation under which accrual of service for seniority-
related benefits is protected (e.g., 38 U.S.C. 4316). Those policies 
must credit the employee with intervening performance pay adjustments 
based on the employee's last DHS rating of record. For employees who 
have no such rating of record, DHS policies must prescribe a 
methodology to be used in applying performance pay adjustments that 
occurred during the employee's absence.


Sec.  9701.343  Within-band reductions.

    Subject to the adverse action procedures set forth in subpart F of 
this part, DHS may reduce an employee's rate of basic pay within a band 
for unacceptable performance or conduct. A reduction under this section 
may not cause an employee's rate of basic pay to fall below the minimum 
rate of the employee's band rate range. These reductions may be made 
effective at any time.


Sec.  9701.344  Special within-band increases for certain employees in 
a Senior Expert band.

    DHS may approve special within-band basic pay increases for 
employees within a Senior Expert or equivalent band established under 
Sec.  9701.212 who possess exceptional skills in critical areas or who 
make exceptional contributions to mission accomplishment. Increases 
under this section are in addition to any performance pay increases 
made under Sec.  9701.342 and may be made effective at any time.


Sec.  9701.345  Developmental pay adjustments.

    DHS may establish policies and procedures for adjusting the pay of 
employees in an Entry/Developmental band. Those policies and procedures 
may use measures that link pay progression to the demonstration of 
required knowledge, competencies, skills, attributes, or behaviors. DHS 
may set standard timeframes for progression through an Entry/
Developmental band while allowing an employee to progress at a slower 
or faster rate based on his or her performance, demonstration of 
required competencies or skills, and/or other factors.

Pay Administration


Sec.  9701.351  Setting an employee's starting pay.

    In coordination with OPM, DHS may establish policies governing the 
starting rate of pay for an employee, including--
    (a) An individual who is newly appointed or reappointed to the 
Federal service;
    (b) An employee transferring to DHS from another Federal agency; 
and
    (c) A DHS employee who moves from a noncovered position to a 
position already covered by this subpart.


Sec.  9701.352  Use of highest previous rate.

    DHS may establish policies governing the discretionary use of an 
individual's highest previous rate of basic pay received as a Federal 
employee or as an employee of a Coast Guard nonappropriated fund 
instrumentality (NAFI) in setting pay upon reemployment, transfer, 
reassignment, promotion, demotion, placement in a different 
occupational cluster, or change in type of appointment. For this 
purpose, basic pay may include a locality-based payment or supplement 
under circumstances approved by DHS. If an employee in a Coast Guard 
NAFI position is converted to an appropriated fund position under the 
pay system established under this subpart, DHS must use the existing 
NAFI rate to set pay upon conversion.


Sec.  9701.353  Setting pay upon promotion.

    (a) Except as otherwise provided in this section, upon an 
employee's promotion, DHS must provide an increase in the employee's 
rate of basic pay equal to the greater of--
    (1) 8 percent; or
    (2) The amount necessary to reach the minimum rate of the higher 
band.
    (b) DHS may prescribe rules providing for an increase other than 
the amount specified in paragraph (a) of this section in the case of--
    (1) An employee promoted from an Entry/Developmental band to a Full 
Performance band (consistent with the pay progression plan established 
for the Entry/Developmental band);
    (2) An employee who was demoted and is then repromoted back to the 
higher band, if necessary to prevent the employee from receiving a rate 
of basic pay higher than the rate the employee would have received if 
he or she had not been demoted; or
    (3) Employees in other circumstances specified by DHS internal 
regulations.
    (c) An employee receiving a retained rate (i.e., a rate above the 
maximum of the band) before promotion is entitled to a rate of basic 
pay after promotion that is the greater of--

[[Page 8057]]

    (1) The rate that is 8 percent higher than the maximum rate of the 
employee's current band;
    (2) The minimum rate of the employee's new band rate range; or
    (3) The employee's existing rate of basic pay (which may continue 
as a retained rate if the rate does not fit within the employee's newly 
applicable band).
    (d) DHS may determine the circumstances under which and the extent 
to which any locality or special pay supplements are treated as basic 
pay in applying the promotion increase rules in this section.


Sec.  9701.354  Setting pay upon demotion.

    DHS may prescribe rules governing how to set an employee's pay when 
he or she is demoted. The rules must distinguish between demotions 
under adverse action procedures (as defined in subpart F of this part) 
and other demotions (e.g., due to expiration of a temporary promotion 
or canceling of a promotion during a new supervisor's probationary 
period).


Sec.  9701.355  Setting pay upon movement to a different occupational 
cluster.

    DHS may prescribe rules governing how to set an employee's pay when 
he or she moves voluntarily or involuntarily to a position in a 
different occupational cluster, including rules for determining whether 
such a movement is to a higher or lower band for the purpose of setting 
pay upon promotion or demotion under Sec. Sec.  9701.353 and 9701.354, 
respectively.


Sec.  9701.356  Pay retention.

    (a) Subject to the requirements of this section and in coordination 
with OPM, DHS must prescribe policies governing the application of pay 
retention. Pay retention prevents a reduction in basic pay that would 
otherwise occur by preserving the former rate of basic pay within the 
employee's new band or by establishing a retained rate that exceeds the 
maximum rate of the new band.
    (b) Pay retention must be based on the employee's rate of basic pay 
in effect immediately before the action that would otherwise reduce the 
employee's rate. A retained rate must be compared to the range of rates 
of basic pay applicable to the employee's position.
    (c) Under the DHS pay system, a retained rate is a frozen rate that 
is not adjusted in conjunction with rate range adjustments.


Sec.  9701.357  Miscellaneous.

    (a) Except in the case of an employee with an unacceptable rating 
of record, an employee's rate of basic pay may not be less than the 
minimum rate of the employee's band.
    (b) Except as provided in Sec.  9701.355, an employee's rate of 
basic pay may not exceed the maximum rate of the employee's band rate 
range.
    (c) DHS must follow the rules for establishing pay periods and 
computing rates of pay in 5 U.S.C. 5504 and 5505, as applicable. For 
employees covered by 5 U.S.C. 5504, annual rates of pay must be 
converted to hourly rates of pay in computing payments received by 
covered employees.
    (d) DHS may establish rules governing the movement of employees to 
or from a band rate range that is augmented by a special pay 
supplement.
    (e) For the purpose of applying the reduction-in-force provisions 
of 5 CFR part 351, DHS must establish representative rates for all band 
rate ranges.
    (f) If a DHS employee moves from the pay system established under 
this subpart to a higher-level GS position within DHS, DHS may provide 
for a special increase prior to the employee's movement in recognition 
that the employee will not be eligible for a promotion increase under 
the GS system.

Special Payments


Sec.  9701.361  Special skills payments.

    DHS may establish additional payments for specializations for which 
the incumbent is trained and ready to perform at all times. DHS may 
determine the amount of the payments and the conditions for 
eligibility, including any performance or service agreement 
requirements. Payments may be made at the same time as basic pay or in 
periodic lump-sum payments. Special skills payments are not basic pay 
for any purpose and may be terminated or reduced at any time without 
triggering pay retention or adverse action procedures.


Sec.  9701.362  Special assignment payments.

    DHS may authorize additional payments for employees serving on 
special assignments in positions placing significantly greater demands 
on the employee than other assignments within the employee's band. DHS 
may determine the amount of the payments and the conditions for 
eligibility, including any performance or service agreement 
requirements. Payments may be made at the same time as basic pay or in 
periodic lump-sum payments. Special assignment payments are not basic 
pay for any purpose and may be terminated or reduced at any time 
without triggering pay retention provisions or adverse action 
procedures.


Sec.  9701.363  Special staffing payments.

    DHS may establish additional payments for employees serving in 
positions for which DHS is experiencing or anticipates significant 
recruitment or retention problems. DHS may determine the amount of the 
payments and the conditions for eligibility, including any performance 
or service agreement requirements. Payments may be made at the same 
time as basic pay or in periodic lump-sum payments. Special staffing 
payments are not basic pay for any purpose and may be terminated or 
reduced at any time without triggering pay retention or adverse action 
procedures.

Transitional Provisions


Sec.  9701.371  General.

    Sections 9701.371 through 9701.375 describe the transitional 
provisions that apply when DHS employees are converted to a pay system 
established under this subpart. An affected employee may convert from 
the GS system, a prevailing rate system, the SL/ST system, or the SES 
system, as provided in Sec.  9701.302. DHS may prescribe policies and 
procedures as necessary to implement these transitional provisions. For 
the purpose of this section and Sec. Sec.  9701.372 through 9701.375, 
the terms ``convert'' or ``conversion'' refer to employees who become 
covered by the pay system without a change in position (as a result of 
a coverage determination made under Sec.  9701.102(a)(2)) and excludes 
employees who are reassigned or transferred from a noncovered position 
to a position already covered by the DHS system.


Sec.  9701.372  Creating initial pay ranges.

    (a) DHS must set the initial band rate ranges for the DHS pay 
system established under this subpart in coordination with OPM. The 
initial ranges may link to the ranges that apply to converted employees 
in their previously applicable pay system (taking into account any 
applicable special rates and locality payments or supplements).
    (b) For employees who are law enforcement officers as defined in 5 
U.S.C. 5541(3) and who were covered by the GS system immediately before 
conversion, the initial ranges must provide rates of basic pay that 
equal or exceed the rates of basic pay these officers received under 
the GS system (taking into account any applicable special rates and 
locality payments or supplements).

[[Page 8058]]

Sec.  9701.373  Conversion of employees to the DHS pay system.

    (a) When a pay system is established under this subpart and applied 
to a category of employees, DHS must convert employees to the system 
without a reduction in the employee's rate of basic pay (taking into 
account any applicable special rate or locality payment or supplement).
    (b) If an employee receiving a special rate under 5 U.S.C. 5305 
before conversion is converted to an equal rate of pay under the DHS 
pay system that consists of a basic rate and a locality or special pay 
supplement, the conversion is not considered an adverse action under 
subpart F of this part even if the supplement is not normally treated 
as basic pay for adverse action purposes.
    (c) If another personnel action (e.g., promotion, geographic 
movement) takes effect on the same day as the effective date of an 
employee's conversion to the new pay system, DHS must process the other 
action under the rules pertaining to the employee's former system 
before processing the conversion action.
    (d) An employee on a temporary promotion at the time of conversion 
must be returned to his or her official position of record prior to 
processing the conversion. If the employee is temporarily promoted 
immediately after the conversion, pay must be set under the rules for 
promotion increases under the DHS system.
    (e) The Secretary has discretion to make one-time pay adjustments 
for GS and prevailing rate employees when they are converted to the DHS 
pay system. DHS may prescribe rules governing any such pay adjustment, 
including rules governing employee eligibility, pay computations, and 
the timing of any such pay adjustment.
    (f) DHS must convert entry/developmental employees in 
noncompetitive career ladder paths to the pay progression plan 
established for the Entry/Developmental band to which the employee is 
assigned under the DHS pay system.


Sec.  9701.374  Special transition rules for Federal Air Marshal 
Service.

    Notwithstanding any other provision in this subpart, if DHS 
transfers Federal Air Marshal Service positions from the Transportation 
Security Administration (TSA) to another organization within DHS, DHS 
may cover those positions under a pay system that is parallel to the 
pay system that was applicable to the Federal Air Marshal Service 
within TSA. DHS may modify that system after coordination with OPM. DHS 
may prescribe rules for converting Federal Air Marshal Service 
employees to any new pay system that may subsequently be established 
under this subpart, consistent with the conversion rules in Sec.  
9701.373.

Subpart D--Performance Management


Sec.  9701.401  Purpose.

    (a) This subpart provides for the establishment in the Department 
of Homeland Security of at least one performance management system as 
authorized by 5 U.S.C. chapter 97.
    (b) DHS' performance management system(s) must--
    (1) Be fair, credible, and transparent;
    (2) Be designed, implemented, and administered to support the 
accomplishment of the Departmental and organizational mission and 
goals;
    (3) Promote and sustain a high-performance culture; and
    (4) Enable DHS to set mission-sensitive performance expectations, 
make meaningful distinctions among employees based on performance, 
address poor performance, and foster and reward excellent performance.


Sec.  9701.402  Coverage.

    (a) DHS employees who would otherwise be covered by 5 U.S.C. 
chapter 43 are eligible for coverage under this subpart, subject to 
approval by the Secretary or designee under Sec.  9701.102(a)(2), 
except as provided in paragraph (b) of this section. Those eligible for 
coverage include employees who were excluded from chapter 43 by OPM 
under 5 CFR 430.202(d) prior to the effective date of this subpart, as 
determined under Sec.  9701.102(a)(2).
    (b) Employees who are not expected to be employed longer than a 
minimum period (as defined in Sec.  9701.404) during a consecutive 12-
month period are excluded from coverage under this subpart.


Sec.  9701.403  Waivers.

    With respect to employees covered by this subpart, 5 U.S.C. chapter 
43 and 5 CFR part 430 are waived.


Sec.  9701.404  Definitions.

    In this subpart--
    Appraisal means the review and evaluation of an employee's 
performance.
    Appraisal period means the period of time established under a 
performance management system for reviewing employee performance.
    Competencies means the measurable or observable knowledge, skills, 
abilities, attributes, or behaviors required by the position.
    Contribution means a work product, service, output, or result 
provided or produced by an employee that supports the Departmental or 
organizational mission, goals, or objectives.
    Minimum period means period of time established by DHS during which 
an employee must perform before receiving a rating of record.
    Performance means accomplishment of work assignments or 
responsibilities.
    Performance management means applying the integrated processes of 
setting and communicating performance expectations, monitoring 
performance and providing feedback, and developing, rating, and 
rewarding employee performance to support the success of the 
organization and its employees in attaining goals and objectives.
    Performance management system means the policies and requirements 
established under this subpart, as supplemented by internal DHS 
implementing regulations, for setting and communicating employee 
performance expectations, monitoring performance and providing 
feedback, and developing, rating, and rewarding employee performance.
    Performance measures means observable or verifiable descriptions of 
quality, quantity, timeliness, cost-effectiveness, or manner of 
performance (including observable behaviors and attributes).
    Rating of record means a performance appraisal prepared--
    (1) At the end of an appraisal period covering an employee's 
performance of assigned duties over the applicable period; or
    (2) To support a pay determination, including one granted in 
accordance with subpart C of this part, a within-grade increase granted 
under 5 CFR 531.404, or a pay determination granted under other 
applicable rules.
    Unacceptable performance means the failure to meet one or more 
performance expectations.


Sec.  9701.405  Performance management systems.

    (a) DHS may issue internal implementing regulations that establish 
one or more performance management systems for DHS employees, subject 
to the requirements set forth in this subpart.
    (b) At a minimum, a DHS performance management system or systems 
must--
    (1) Comply with the provisions of 5 U.S.C. chapter 23 that set 
forth the merit system principles and prohibited personnel practices;
    (2) Support and otherwise comport with the Government Performance 
and Results Act of 1993 (GPRA), and Departmental and organizational

[[Page 8059]]

strategic goals and objectives and annual performance plans;
    (3) Identify the employees covered and provide a means for their 
involvement in the design and implementation of the system(s);
    (4) In design and application, be fair, credible, and transparent;
    (5) Align individual performance expectations with the Departmental 
or organizational mission, strategic goals, GPRA annual performance 
plans, or other DHS or organizational objectives and measures;
    (6) Promote individual accountability by clearly communicating 
performance expectations and holding employees responsible for 
accomplishing them and by holding supervisors and managers responsible 
for effectively managing the performance of employees under their 
supervision;
    (7) Provide for meaningful distinctions in performance to support 
adjustments in pay, awards, promotions, and performance-based adverse 
actions;
    (8) Specify--
    (i) The employees covered by the system(s);
    (ii) The minimum period during which an employee must perform 
before receiving a rating of record;
    (iii) Procedures for setting and communicating performance 
expectations, monitoring performance and providing feedback, and 
developing, rating, and rewarding performance; and
    (iv) Criteria and procedures to address the performance of 
employees who are detailed or transferred and for employees in other 
special circumstances.


Sec.  9701.406  Setting and communicating performance expectations.

    (a) Supervisors and managers must establish performance 
expectations and communicate them to employees.
    (b) Performance expectations must align with and support the DHS 
mission and its strategic goals, organizational program and policy 
objectives, annual performance plans, and other measures of 
performance.
    (c) Performance expectations may take the form of--
    (1) Goals or objectives that set general or specific performance 
targets at the individual, team, and/or organizational level;
    (2) Organizational, occupational, or other work requirements, such 
as standard operating procedures, administrative manuals, internal 
rules and regulations, and/or other instructions that are generally 
applicable and available to the employee;
    (3) A particular work assignment, including expectations regarding 
the quality, quantity, accuracy, timeliness, and/or other expected 
characteristics of the completed assignment;
    (4) Competencies an employee is expected to demonstrate on the job, 
and/or the contributions an employee is expected to make; or
    (5) Any other means, as long as it is reasonable to assume that the 
employee will understand the performance that is expected.
    (d) Employees must seek clarification and/or additional information 
when they do not understand their performance expectations.
    (e) Supervisors must involve employees, insofar as practicable, in 
the development of their performance expectations. However, final 
decisions regarding performance expectations are within the sole and 
exclusive discretion of the supervisor.


Sec.  9701.407  Monitoring performance.

    In applying the requirements of the performance management system 
and its internal implementing regulations, supervisors must--
    (a) Monitor the performance of their employees and the 
organization; and
    (b) Provide periodic feedback to employees on their actual 
performance as compared to their performance expectations, including 
one or more formal interim performance reviews during each appraisal 
period.


Sec.  9701.408  Developing performance.

    (a) Subject to budgetary and organizational constraints, a 
supervisor must--
    (1) Provide employees with the proper tools and technology to do 
the job; and
    (2) Facilitate employee development to enhance employees' ability 
to perform.
    (b) During the appraisal period, if a supervisor determines that an 
employee's performance is unacceptable, the supervisor must--
    (1) Consider the range of options available to address the 
performance deficiency, such as remedial training, an improvement 
period, a reassignment, a verbal warning, letters of counseling, 
written reprimands, and/or an adverse action (as defined in subpart F 
of this part); and
    (2) Take appropriate action to address the deficiency, taking into 
account the circumstances, including the nature and gravity of the 
unacceptable performance and its consequences.
    (c) As specified in subpart G of this part, employees may appeal 
adverse actions based on unacceptable performance.


Sec.  9701.409  Rating performance.

    (a)(1) Except as provided in paragraph (a)(2) of this section, the 
DHS performance management system(s) must establish a single rating 
level of unacceptable performance, a rating level of fully successful 
performance (or equivalent), and at least one rating level above fully 
successful performance.
    (2) For employees at the entry/ developmental level, the DHS 
performance management system(s) may establish two rating levels, i.e., 
an unacceptable rating level and a rating level of fully successful (or 
equivalent).
    (b) A supervisor or other rating official must prepare and issue a 
rating of record after the completion of the appraisal period. An 
additional rating of record may be issued to support--
    (1) A performance pay increase determination under Sec.  
9701.342(a);
    (2) A within-grade increase determination under 5 CFR 531.404; or
    (3) A pay determination under any other applicable pay rules.
    (c) A rating of record must assess an employee's performance with 
respect to his or her performance expectations and/or relative 
contributions and is considered final when issued to the employee with 
all appropriate reviews and signatures.
    (d) DHS may not impose a quota on any rating level or a mandatory 
distribution of ratings of record; i.e., forced distributions are 
prohibited.
    (e) A rating of record issued under this subpart is an official 
rating of record for the purpose of any provision of title 5, Code of 
Federal Regulations, for which an official rating of record is 
required.
    (f) As provided in Executive Order 5396, DHS may not lower the 
rating of record of a disabled veteran based on absences from work to 
seek medical treatment.
    (g) A rating of record may be grieved by a non-bargaining unit 
employee (or a bargaining unit employee when no negotiated procedure 
exists) through an administrative grievance procedure established by 
DHS. A bargaining unit employee may grieve a rating of record through a 
negotiated grievance procedure, as provided in subpart E of this part.
    (h) A supervisor or other rating official may prepare an additional 
performance appraisal for the purposes specified in the applicable 
performance management system (e.g., transfers and details) at any time 
after the completion of the minimum period. Such an appraisal is not a 
rating of record.
    (i) The DHS performance management system(s) must establish 
policies and procedures for crediting performance in

[[Page 8060]]

a reduction in force, including policies for assigning additional 
retention credit based on performance. Such policies must comply with 5 
U.S.C. chapter 35 and 5 CFR 351.504.


Sec.  9701.410  Rewarding performance.

    (a) Ratings of record will be used to make decisions regarding--
    (1) Performance pay increases under Sec.  9701.342;
    (2) Within-grade and quality step increases under 5 CFR 531.404 and 
531.504; and
    (3) Pay determinations under other applicable pay rules;
    (b) Ratings of record may be used as a basis for issuing awards 
under any legal authority, including 5 U.S.C. chapter 45, 5 CFR part 
451, and a Departmental or organizational awards program.


Sec.  9701.411  Performance Review Boards.

    (a) DHS will establish Performance Review Boards (PRBs) to--
    (1) Review ratings of record in order to promote consistency of 
application;
    (2) Provide general oversight of the performance management 
system(s) to ensure administration in a fair, credible, and transparent 
manner; and
    (3) At the PRB's sole and exclusive discretion and on a case-by-
case basis, remand one or more individual ratings of record for 
additional review and/or, where circumstances warrant, modify a rating 
or ratings of record.
    (b) DHS may establish PRBs for particular organizational units, 
occupations, and/or locations, or on such basis as it determines 
appropriate.
    (c) DHS may appoint as many PRBs as it deems necessary to carry out 
their intended function effectively.
    (d) When practicable, PRB members may include employees outside the 
organizational unit, occupation, and/or location of employees whose 
ratings of record are subject to review by that PRB.


Sec.  9701.412  DHS responsibilities.

    In carrying out its responsibility to design, implement, and apply 
a performance management system that is fair, credible, and 
transparent, DHS must--
    (a) Provide for training of supervisors, managers, and employees;
    (b) Transfer ratings between subordinate organizations and to other 
Federal departments or agencies;
    (c) Evaluate its performance management system(s) for effectiveness 
and compliance with this subpart, internal DHS regulations and 
policies, and the provisions of 5 U.S.C. chapter 23 that set forth the 
merit system principles and prohibited personnel practices; and
    (d) Provide OPM with a copy of the Departmental regulations, 
policies, and procedures that implement these regulations.

Subpart E--Labor-Management Relations


Sec.  9701.501  Purpose.

    This subpart contains the regulations implementing the provisions 
of 5 U.S.C. 9701(b) relating to the Department's labor-management 
relations system. The Department was created in recognition of the 
paramount interest in safeguarding the American people. For this reason 
Congress stressed that personnel systems established by the Department 
and OPM must be flexible and contemporary, enabling the Department to 
rapidly respond to threats to our Nation. The labor-management 
regulations in this subpart are designed to meet these compelling 
concerns and must be interpreted with the Department's mission foremost 
in mind. The regulations also recognize the rights of DHS employees 
described below to organize and bargain collectively, subject to any 
exclusion from coverage or limitation on negotiability established by 
law, including these regulations.


Sec.  9701.502  Rule of construction.

    This subpart must be interpreted in a way that recognizes the 
critical homeland security mission of the Department. Each provision of 
this subpart must be construed to promote the swift, flexible, 
effective day-to-day accomplishment of this mission, as defined by the 
Secretary or designee. The interpretation of these regulations by the 
Secretary or designee and the Director must be accorded great 
deference.


Sec.  9701.503  Waiver.

    Except as incorporated with modifications into these regulations, 
the provisions of 5 U.S.C. 7101 through 7135 are waived.


Sec.  9701.504  Definitions.

    In this his subpart:
    Authority means the Federal Labor Relations Authority described in 
5 U.S.C. 7104(a).
    Board means the Homeland Security Labor Relations Board.
    Collective bargaining means the performance of the mutual 
obligation of the management representative of the Department and the 
exclusive representative of employees in an appropriate unit in the 
Department to meet at reasonable times and to consult and bargain in a 
good faith effort to reach agreement with respect to the conditions of 
employment affecting such employees and to execute, if requested by 
either party, a written document incorporating any collective 
bargaining agreement reached, but the obligation referred to in this 
paragraph does not compel either party to agree to a proposal or to 
make a concession.
    Collective bargaining agreement means an agreement entered into as 
a result of collective bargaining pursuant to the provisions of this 
subpart.
    Component means any organizational subdivision of the Department.
    Conditions of employment means personnel policies, practices, and 
matters affecting working conditions--whether established by rule, 
regulation, or otherwise--except that such term does not include 
policies, practices, and matters relating to--
    (1) Political activities prohibited under 5 U.S.C. chapter 73, 
subchapter III;
    (2) The classification of any position, including any 
determinations regarding job evaluation under subpart B of this part;
    (3) The pay of any position, including any determinations regarding 
pay or adjustments thereto under subpart C of this part; or
    (4) Any matters specifically provided for by Federal statute, 
Executive order, Governmentwide or Departmental regulations, or the 
regulations in this part.
    Confidential employee means an employee who acts in a confidential 
capacity with respect to an individual who has labor-management 
relations responsibilities.
    Dues means dues, fees, and assessments.
    Employee means an individual employed by the Department or whose 
employment in the Department has ceased because of any unfair labor 
practice under Sec.  9701.517 and who has not obtained any other 
regular and substantially equivalent employment, as determined under 
regulations prescribed by the Federal Labor Relations Authority, but 
does not include--
    (1) An alien or noncitizen of the United States who occupies a 
position outside the United States;
    (2) A member of the uniformed services;
    (3) A supervisor or a management official; or
    (4) Any person who participates in a strike in violation of 5 
U.S.C. 7311.
    Exclusive representative means any labor organization which--
    (1) Is certified as the exclusive representative of employees in an 
appropriate unit consistent with the

[[Page 8061]]

Department's organizational structure, pursuant to 5 U.S.C. 7111; or
    (2) Held recognition on March 1, 2003, as the exclusive 
representative of employees in an appropriate unit on the basis of an 
election, or on any basis other than an election, and continues to be 
so recognized in accordance with the provisions of the Homeland 
Security Act.
    Grievance means any complaint concerning the effect or 
interpretation, or a claim of breach, of a collective bargaining 
agreement or any claimed violation, misinterpretation, or 
misapplication of any law, rule, or regulation affecting conditions of 
employment--
    (1) By any employee concerning any matter relating to the 
conditions of employment of the employee;
    (2) By any labor organization concerning any matter relating to the 
conditions of employment of any employee; or
    (3) By any employee, labor organization, or the Department; except 
that this definition does not apply with respect to any matters 
excluded from grievance procedures under Sec.  9701.521.
    Labor organization means an organization composed in whole or in 
part of Federal employees, in which employees participate and pay dues, 
and which has as a purpose the dealing with an agency concerning 
grievances and conditions of employment, but does not include--
    (1) An organization which, by its constitution, bylaws, tacit 
agreement among its members, or otherwise, denies membership because of 
race, color, creed, national origin, sex, age, preferential or 
nonpreferential civil service status, political affiliation, marital 
status, or handicapping condition;
    (2) An organization which advocates the overthrow of the 
constitutional form of government of the United States;
    (3) An organization sponsored by an agency; or
    (4) An organization which participates in the conduct of a strike 
against the Government or any agency thereof or imposes a duty or 
obligation to conduct, assist, or participate in such a strike.
    Management official means an individual employed by the Department 
in a position the duties and responsibilities of which require or 
authorize the individual to formulate, determine, or influence the 
policies of the Department or who has the authority to recommend such 
action, if the exercise of the authority is not merely routine or 
clerical in nature, but requires the consistent exercise of independent 
judgment.
    Supervisor means an individual employed by the Department having 
authority in the interest of the Department to hire, direct, assign, 
promote, reward, transfer, furlough, layoff, recall, suspend, 
discipline, or remove employees, to adjust their grievances, or to 
effectively recommend such action, if the exercise of the authority is 
not merely routine or clerical in nature but requires the consistent 
exercise of independent judgment.


Sec.  9701.505  Coverage.

    Subject to approval by the Secretary or designee under Sec.  
9701.102(a)(2), all Department employees are covered by these 
regulations unless otherwise excluded pursuant to 5 U.S.C. 7103(a) or 
(b), 7112(b) and (c), or any other legal authority.


Sec.  9701.506  Impact on existing agreements.

    The provisions of this subpart take precedence over any 
inconsistent provision contained in a collective bargaining agreement 
covering Department employees. Any such inconsistent provision in a 
collective bargaining agreement is unenforceable.


Sec.  9701.507  Employee rights.

    Each employee has the right to form, join, or assist any labor 
organization, or to refrain from any such activity, freely and without 
fear of penalty or reprisal, and each employee must be protected in the 
exercise of such right. Except as otherwise provided under this 
subpart, such right includes the right--
    (a) To act for a labor organization in the capacity of a 
representative and the right, in that capacity, to present the views of 
the labor organization to heads of agencies and other officials of the 
executive branch of the Government, the Congress, or other appropriate 
authorities; and
    (b) To engage in collective bargaining with respect to conditions 
of employment through representatives chosen by employees under this 
subpart.


Sec.  9701.508  Homeland Security Labor Relations Board.

    (a) The Homeland Security Labor Relations Board is composed of 
three members, each of whom is appointed for a term not to exceed 3 
years, except as provided in paragraph (d)(2) of this section. Members 
may be removed by the appointing official only for inefficiency, 
neglect of duty, or malfeasance.
    (b) The members of the Board are appointed by the Secretary. The 
Secretary will designate one of these members to serve as Chairman. 
Members will be chosen for their expertise in labor-management 
relations and their knowledge of the Department's mission.
    (c) The Secretary will appoint one member of the FLRA to serve as a 
member of the Board. The Chair of the FLRA will recommend a Board 
member to the Secretary from among the existing members of the FLRA. 
This member may serve on the Board only as long as he or she is a 
member of the FLRA. (d)(1) An individual chosen to fill a vacancy will 
be appointed for the unexpired term of the member who is replaced.
    (2) The term of any member may be extended beyond 3 years when 
necessary to provide for an orderly transition.
    (e) Any two members of the Board constitute a quorum. A vacancy in 
the Board may not impair the right of the remaining members to exercise 
all of the powers of the Board.


Sec.  9701.509  Powers and duties of the Board.

    (a) The Board may, to the extent provided in this subpart and in 
accordance with regulations prescribed by the Board--
    (1) Determine an appropriate unit consistent with the Department's 
organizational structure for labor organization representation under 
Sec.  9701.514;
    (2) Determine issues of individual bargaining unit eligibility 
under 5 U.S.C. 7112(b) and (c) and 6 U.S.C. 412(b)(2);
    (3) Resolve issues relating to the scope of bargaining and the duty 
to bargain in good faith under Sec.  9701.518 and conduct hearings and 
resolve complaints of unfair labor practices concerning--
    (i) The duty to bargain in good faith; and
    (ii) Strikes, work stoppages, slowdowns, and picketing, or 
condoning such activity by failing to take action to prevent or stop 
such activity.
    (4) Resolve information request disputes;
    (5) Resolve exceptions to arbitration awards;
    (6) Resolve negotiation impasses in accordance with Sec.  9701.519;
    (7) Conduct de novo review of legal conclusions and the 
interpretation of collective bargaining agreements;
    (8) Have discretion to evaluate the evidence presented in the 
record and reach its own independent conclusions with respect to the 
matters at issue; and

[[Page 8062]]

    (9) Assert jurisdiction over any matter concerning Department 
employees that has been submitted to the FLRA if the Board determines 
that the matter affects homeland security.
    (b) The Board may issue Department-wide advisory opinions with the 
force and effect of decisions on matters concerning--
    (1) The appropriateness and composition of the Department's 
bargaining units;
    (2) The labor-management relations obligations of both the 
Department and exclusive representatives, including the scope of 
bargaining, the duty to bargain, consultation, and the rights and 
duties of employees and exclusive representatives; and
    (3) The administration of the use of official time by employee 
representatives.
    (c) In issuing advisory opinions under paragraph (b) of this 
section, the Board may elect to consult with the Authority.


Sec.  9701.510  Powers and duties of the Federal Labor Relations 
Authority.

    The Federal Labor Relations Authority may, to the extent provided 
in this subpart and in accordance with regulations prescribed by the 
Authority, make the following determinations with respect to the 
Department:
    (a) Supervise or conduct elections to determine whether a labor 
organization has been selected as an exclusive representative by a 
majority of the employees in an appropriate unit and otherwise 
administer the provisions of 5 U.S.C. 7111 relating to the according of 
exclusive recognition to labor organizations; and
    (b) Conduct hearings and resolve complaints of unfair labor 
practices under Sec.  9701.517(a)(1) through (4) and (b)(1) through 
(4).


Sec.  9701.511  Management rights.

    (a) Subject to paragraphs (b) and (c) of this section, nothing in 
this subpart may affect the authority of any management official or 
supervisor of the Department--
    (1) To determine the mission, budget, organization, number of 
employees, and internal security practices of the agency;
    (2) To hire, assign, and direct employees in the Department; to 
assign work, make determinations with respect to contracting out, and 
to determine the personnel by which agency operations may be conducted; 
to determine the numbers, types, and grades of employees or positions 
assigned to any organizational subdivision, work project or tour of 
duty, and the technology, methods, and means of performing work; and to 
take whatever other actions may be essential to carry out the 
Department's mission; and
    (3) To lay off and retain employees, or to suspend, remove, reduce 
in grade, band, or pay, or take other disciplinary action against such 
employees or, with respect to filling positions, to make selections for 
appointments from properly ranked and certified candidates for 
promotion or from any other appropriate source.
    (b) Management has no duty to bargain over the exercise of any 
authority under paragraph (a)(1) or (2) of this section. Management may 
elect, in its sole and exclusive discretion, to bargain over--
    (1) Procedures that it will observe in exercising these 
authorities; and
    (2) Appropriate arrangements for employees adversely affected by 
the exercise of these authorities.
    (c) At the request of an exclusive representative, management will 
bargain over--
    (1) Procedures which management officials and supervisors will 
observe in exercising any authority under paragraph (a)(3) of this 
section; and
    (2) Appropriate arrangements for employees adversely affected by 
the exercise of any authority under paragraph (a)(3) of this section.


Sec.  9701.512  Consultation.

    (a) Before making any substantive change in conditions of 
employment through the exercise of a management right in Sec.  
9701.511(a)(1) or (2), management may request the exclusive 
representative to present its views and recommendations regarding the 
impact of the proposed change on bargaining unit employees.
    (b) After exercising any authority under Sec.  9701.511(a)(1) or 
(2), if management determines not to bargain with the exclusive 
representative, the exclusive representative may present its views and 
recommendations regarding the impact of the exercise of authority on 
bargaining unit employees. Management must consider those views and 
recommendations.


Sec.  9701.513  Exclusive recognition of labor organizations.

    The Department must accord exclusive recognition to a labor 
organization if the organization has been selected as the 
representative, in a secret ballot election, by a majority of the 
employees in an appropriate unit consistent with the Department's 
organizational structure, as determined by the Board, who cast valid 
ballots in the election.


Sec.  9701.514  Determination of appropriate units for labor 
organization representation.

    (a) In determining the appropriateness of any unit, the Board must 
determine in each case whether the proposed unit is an appropriate unit 
consistent with the Department's organizational structure. The Board 
must determine in each case whether the unit will be established on a 
Department, component, installation, functional, or other basis and 
will determine any unit to be an appropriate unit only if the 
determination will promote effective dealings with and efficiency of 
the operations of the Department. The Board may also consider whether 
the unit will ensure a clear and identifiable community of interest 
among the employees in the unit.
    (b) A unit may not be determined to be an appropriate under this 
section solely on the basis of the extent to which employees in the 
proposed unit have organized, nor may a unit be determined to be an 
appropriate if it includes--
    (1) Except as provided under 5 U.S.C. 7135(a)(2), any management 
official or supervisor;
    (2) A confidential employee;
    (3) An employee engaged in personnel work in other than a purely 
clerical capacity;
    (4) An employee engaged in administering the provisions of this 
subpart;
    (5) An employee excluded from a unit under 6 U.S.C. 412(b)(2); or
    (6) Any employee primarily engaged in investigation or audit 
functions relating to the work of individuals employed by an agency 
whose duties directly affect the internal security of the agency, but 
only if the functions are undertaken to ensure that the duties are 
discharged honestly and with integrity.
    (c) Any employee who is engaged in administering any provision of 
law relating to labor-management relations may not be represented by a 
labor organization--
    (1) Which represents other individuals to whom such a provision 
applies; or
    (2) Which is affiliated directly or indirectly with an organization 
which represents other individuals to whom such provision applies.
    (d) Two or more units for which a labor organization is the 
exclusive representative may, upon petition by the Department or labor 
organization, be consolidated with or without an election into a single 
larger unit if the Board considers the larger unit to be an appropriate 
unit consistent with the Department's organizational structure. The 
Board must certify the labor

[[Page 8063]]

organization as the exclusive representative of the new larger unit.


Sec.  9701.515  Representation rights and duties.

    (a)(1) A labor organization which has been accorded exclusive 
recognition is the exclusive representative of the employees in the 
unit it represents and is entitled to act for, and negotiate collective 
bargaining agreements covering, all employees in the unit. An exclusive 
representative is responsible for representing the interests of all 
employees in the unit it represents without discrimination and without 
regard to labor organization membership.
    (2) An exclusive representative must be given the opportunity to be 
represented at--
    (i) Any examination of a bargaining unit employee by a 
representative of the Department other than its Office of Inspector 
General, Office of Security, or Office of Internal Affairs in 
connection with an investigation if--
    (A) The employee reasonably believes that the examination may 
result in disciplinary action against the employee, and
    (B) The employee requests such representation; and
    (ii) Any discussion between one or more agency representatives and 
one or more bargaining unit employees concerning any grievance filed 
under the negotiated grievance procedure.
    (3) Nothing in paragraph (a)(2) of this section provides a right 
for the exclusive representative to be represented at any discussion 
between one or more agency representatives and one or more bargaining 
unit employees involving an EEO complaint, unless the employee(s) 
specifically requests representation from the exclusive representative.
    (4) The Department must annually inform its employees of their 
rights under paragraph (a)(2)(i) of this section.
    (5) Employee representatives are subject to the same standards of 
conduct as any other employee, whether they are serving in their 
representative capacity or not.
    (6) The Department or appropriate component(s) of the Department 
and any exclusive representative in any appropriate unit in the 
Department, through appropriate representatives, must meet and 
negotiate in good faith for the purpose of arriving at a collective 
bargaining agreement. In addition, the Department or appropriate 
component(s) of the Department and the exclusive representative may 
determine appropriate techniques, consistent with the operational rules 
of the Board, to assist in any negotiation.
    (7) The rights of an exclusive representative under this section 
may not be construed to preclude an employee from--
    (i) Being represented by an attorney or other representative of the 
employee's own choosing, other than the exclusive representative, in 
any grievance or appeal action; or
    (ii) Exercising grievance or appellate rights established by law, 
rule, or regulation, except in the case of grievance or appeal 
procedures negotiated under this subpart.
    (b) The duty of the Department or appropriate component(s) of the 
Department and an exclusive representative to negotiate in good faith 
under paragraph (a) of this section includes the obligation--
    (1) To approach the negotiations with a sincere resolve to reach a 
collective bargaining agreement;
    (2) To be represented at the negotiations by duly authorized 
representatives prepared to discuss and negotiate on any condition of 
employment;
    (3) To meet at reasonable times and convenient places as frequently 
as may be necessary, and to avoid unnecessary delays;
    (4) In the case of the Department or appropriate component(s) of 
the Department, to furnish to the exclusive representative involved, or 
its authorized representative, upon request and to the extent not 
prohibited by law, existing reasonably available information, normally 
maintained by the Department or appropriate component(s) of the 
Department and demonstrated by the exclusive representative to be 
necessary in order to represent an employee in grievance or appeal 
proceedings, or the bargaining unit in negotiations. Disclosure of such 
information does not include the following:
    (i) Disclosure prohibited by law or regulations, including, but not 
limited to, the regulations in this part, Governmentwide and 
Departmental rules and regulations, and Executive orders;
    (ii) Disclosure of information if adequate alternative means exist 
for obtaining the requested information, or if proper discussion, 
understanding, or negotiation of a particular subject within the scope 
of collective bargaining is possible without recourse to the 
information;
    (iii) Internal agency guidance, counsel advice, or training for 
managers and supervisors relating to collective bargaining;
    (iv) Any disclosures where an authorized agency official has 
determined that disclosure would compromise the Department's mission, 
security, or employee safety; and
    (v) Home addresses, telephone numbers, email addresses, or any 
other information not related to an employee's work.
    (5) If agreement is reached, to execute on the request of any party 
to the negotiation, a written document embodying the agreed terms, and 
to take such steps as are necessary to implement such agreement.
    (c)(1) An agreement between Department or appropriate component(s) 
of the Department and the exclusive representative is subject to 
approval by an authorized agency official.
    (2) The authorized agency official must approve the agreement 
within 30 days after the date the agreement is executed if the 
agreement is in accordance with the provisions of these regulations and 
any other applicable law, rule, or regulation.
    (3) If the authorized agency official does not approve or 
disapprove the agreement within the 30-day period specified in 
paragraph (c)(2) of this section, the agreement must take effect and is 
binding on the Department or component(s), as appropriate, and the 
exclusive representative, but only if consistent with law and the 
regulations in this part, Governmentwide and Departmental rules and 
regulations, and Executive orders.
    (4) A local agreement subject to a national or other controlling 
agreement at a higher level may be approved under the procedures of the 
controlling agreement or, if none, under regulations prescribed by the 
Department.
    (5) Provisions in existing collective bargaining agreements are 
unenforceable if an authorized agency official determines that they are 
contrary to law and the regulations in this part, Governmentwide and 
Departmental rules and regulations, and Executive orders.


Sec.  9701.516  Allotments to representatives.

    (a) If the Department has received from an employee in an 
appropriate unit a written assignment which authorizes the Department 
to deduct from the pay of the employee amounts for the payment of 
regular and periodic dues of the exclusive representative of the unit, 
the Department must honor the assignment and make an appropriate 
allotment pursuant to the assignment. Any such allotment must be made 
at no cost to the exclusive representative or the employee. Except as 
provided under paragraph (b) of this section, any such

[[Page 8064]]

assignment may not be revoked for a period of 1 year.
    (b) An allotment under paragraph (a) of this section for the 
deduction of dues with respect to any employee terminates when--
    (1) The agreement between the Department or Department component 
and the exclusive representative involved ceases to be applicable to 
the employee; or
    (2) The employee is suspended or expelled from membership in the 
exclusive representative.
    (c)(1) Subject to paragraph (c)(2) of this section, if a petition 
has been filed with the Board by a labor organization alleging that 10 
percent of the employees in an appropriate unit in the Department have 
membership in the labor organization, the Board must investigate the 
petition to determine its validity. Upon certification by the Board of 
the validity of the petition, the Department has a duty to negotiate 
with the labor organization solely concerning the deduction of dues of 
the labor organization from the pay of the members of the labor 
organization who are employees in the unit and who make a voluntary 
allotment for such purpose.
    (2)(i) The provisions of paragraph (c)(1) of this section do not 
apply in the case of any appropriate unit for which there is an 
exclusive representative.
    (ii) Any agreement under paragraph (c)(1) of this section between a 
labor organization and the Department or Department component with 
respect to an appropriate unit becomes null and void upon the 
certification of an exclusive representative of the unit.


Sec.  9701.517  Unfair labor practices.

    (a) For the purpose of this subpart, it is an unfair labor practice 
for the Department--
    (1) To interfere with, restrain, or coerce any employee in the 
exercise by the employee of any right under this subpart;
    (2) To encourage or discourage membership in any labor organization 
by discrimination in connection with hiring, tenure, promotion, or 
other conditions of employment;
    (3) To sponsor, control, or otherwise assist any labor 
organization, other than to furnish, upon request, customary and 
routine services and facilities on an impartial basis to other labor 
organizations having equivalent status;
    (4) To discipline or otherwise discriminate against an employee 
because the employee has filed a complaint or petition, or has given 
any information or testimony under this subpart;
    (5) To refuse, as determined by the Board, to consult or negotiate 
in good faith with a labor organization, as required by this subpart;
    (6) To fail or refuse, as determined by the Board, to cooperate in 
impasse procedures and impasse decisions, as required by this subpart; 
or
    (7) To fail or refuse otherwise to comply with any provision of 
this subpart.
    (b) For the purpose of this subpart, it is an unfair labor practice 
for a labor organization--
    (1) To interfere with, restrain, or coerce any employee in the 
exercise by the employee of any right under this subpart;
    (2) To cause or attempt to cause an agency to discriminate against 
any employee in the exercise by the employee of any right under this 
subpart;
    (3) To coerce, discipline, fine, or attempt to coerce a member of 
the labor organization as punishment, reprisal, or for the purpose of 
hindering or impeding the member's work performance or productivity as 
an employee or the discharge of the member's duties as an employee;
    (4) To discriminate against an employee with regard to the terms 
and conditions of membership in the labor organization on the basis of 
race, color, creed, national origin, sex, age, preferential or 
nonpreferential civil service status, political affiliation, marital 
status, or handicapping condition;
    (5) To refuse, as determined by the Board, to consult or negotiate 
in good faith with the Department as required by this subpart;
    (6) To fail or refuse, as determined by the Board, to cooperate in 
impasse procedures and impasse decisions as required by this subpart;
    (7)(i) To call, or participate in, a strike, work stoppage, or 
slowdown, or picketing of an agency in a labor-management dispute if 
such picketing interferes with an agency's operations; or
    (ii) To condone any activity described in paragraph (b)(7)(i) of 
this section by failing to take action to prevent or stop such 
activity; or
    (8) To otherwise fail or refuse to comply with any provision of 
this subpart.
    (c) Notwithstanding paragraph (b)(7) of this section, informational 
picketing which does not interfere with the Department's operations 
will not be considered an unfair labor practice.
    (d) For the purpose of this subpart, it is an unfair labor practice 
for an exclusive representative to deny membership to any employee in 
the appropriate unit represented by the labor organization, except for 
failure to meet reasonable occupational standards uniformly required 
for admission or to tender dues uniformly required as a condition of 
acquiring and retaining membership. This does not preclude any labor 
organization from enforcing discipline in accordance with procedures 
under its constitution or bylaws to the extent consistent with the 
provisions of this subpart.
    (e) Issues which can properly be raised under an appeals procedure 
may not be raised as unfair labor practices prohibited under this 
section. Where an employee has an option of using the negotiated 
grievance procedure or an appeals procedure, issues which can be raised 
under a grievance procedure may, in the discretion of the aggrieved 
party, be raised under the grievance procedure or as an unfair labor 
practice under this section, but not under both procedures.
    (f) The expression of any personal view, argument, opinion, or the 
making of any statement which publicizes the fact of a representational 
election and encourages employees to exercise their right to vote in 
such an election, corrects the record with respect to any false or 
misleading statement made by any person, or informs employees of the 
Government's policy relating to labor-management relations and 
representation, may not, if the expression contains no threat of 
reprisal or force or promise of benefit or was not made under coercive 
conditions--
    (1) Constitute an unfair labor practice under any provision of this 
subpart; or
    (2) Constitute grounds for the setting aside of any election 
conducted under any provision of this subpart.


Sec.  9701.518  Duty to bargain in good faith.

    (a)(1) Subject to paragraph (a)(2) of this section, there is no 
duty to bargain over any matters that are inconsistent with law or the 
regulations in this part, Governmentwide and Departmental rules and 
regulations, and Executive orders.
    (2)(i) There is no duty to bargain when management exercises any of 
the authorities under Sec.  9701.511(a)(1) and (2). Management may 
elect, in its sole and exclusive discretion, to bargain over procedures 
that it will observe in exercising these authorities and over 
appropriate arrangements for employees adversely affected by the 
exercise of these authorities.
    (ii) At the request of an exclusive representative, management will 
bargain over--

[[Page 8065]]

    (A) Procedures it will observe in exercising any authority under 
Sec.  9701.511(a)(3); and
    (B) Appropriate arrangements for employees adversely affected by 
the exercise of any authority under Sec.  9701.511(a)(3).
    (3) There is no duty to bargain changes in conditions of employment 
due to the exercise of any authority under Sec.  9701.511 when such 
actions do not significantly affect a substantial portion of the 
bargaining unit.
    (4) There is no duty to bargain on proposals that--
    (i) Concern matters covered by an existing negotiated agreement; or
    (ii) Do not significantly affect a substantial portion of the 
bargaining unit.
    (5) If bargaining over an initial collective bargaining agreement 
or any successor agreement is not completed within 60 days after such 
bargaining begins, the parties can mutually agree to continue 
bargaining or either party can refer the matter to the Board for 
resolution.
    (6) If the parties bargain during the term of an existing 
collective bargaining agreement over a proposed change in conditions of 
employment and no agreement is reached within 30 days after such 
bargaining begins, management may implement the proposed change after 
notifying the union.
    (b) Except in any case to which paragraph (a)(2)(i) of this section 
applies, if an agency involved in collective bargaining with an 
exclusive representative alleges that the duty to bargain in good faith 
does not extend to any matter, the exclusive representative may appeal 
the allegation to the Board in accordance with provisions established 
by the Board.


Sec.  9701.519  Negotiation impasses.

    (a) If the Department and exclusive representative are unable to 
reach an agreement under Sec.  9701.515, either party may submit the 
disputed issues to the Board for resolution.
    (b) The Board will publish procedures that will govern the 
resolution of negotiation impasses under this subpart.
    (c) If the parties do not arrive at a settlement after assistance 
by the Board, the Board may take whatever action is necessary and not 
inconsistent with this subpart to resolve the impasse.
    (d) Notice of any final action of the Board under this section must 
be promptly served upon the parties. The action will be binding on such 
parties during the term of the agreement, unless the parties agree 
otherwise.


Sec.  9701.520  Standards of conduct for labor organizations.

    Standards of conduct for labor organizations are those prescribed 
under 5 U.S.C. 7120.


Sec.  9701.521  Grievance procedures.

    (a)(1) Except as provided in paragraph (a)(2) of this section, any 
collective bargaining agreement must provide procedures for the 
settlement of grievances, including questions of arbitrability. Except 
as provided in paragraphs (d), (f), and (g) of this section, the 
procedures must be the exclusive administrative procedures for 
grievances which fall within its coverage.
    (2) Any collective bargaining agreement may exclude any matter from 
the application of the grievance procedures which are provided for in 
the agreement.
    (b)(1) Any negotiated grievance procedure referred to in paragraph 
(a) of this section must be fair and simple, provide for expeditious 
processing, and include procedures that--
    (i) Assure an exclusive representative the right, in its own behalf 
or on behalf of any employee in the unit represented by the exclusive 
representative, to present and process grievances;
    (ii) Assure such an employee the right to present a grievance on 
the employee's own behalf, and assure the exclusive representative the 
right to be present during the grievance proceeding; and
    (iii) Provide that any grievance not satisfactorily settled under 
the negotiated grievance procedure is subject to binding arbitration, 
which may be invoked by either the exclusive representative or the 
Department.
    (2) The provisions of a negotiated grievance procedure providing 
for binding arbitration in accordance with paragraph (b)(1)(iii) of 
this section must allow the arbitrator to order the Department to take 
any disciplinary action identified under 5 U.S.C. 1215(a)(3) that is 
otherwise within the authority of the Department to take.
    (3) Any employee who is the subject of any disciplinary action 
ordered under paragraph (b)(2) of this section may appeal such action 
to the same extent and in the same manner as if the agency had taken 
the disciplinary action absent arbitration.
    (c) The preceding paragraphs of this section do not apply with 
respect to any grievance concerning--
    (1) Any claimed violation of 5 U.S.C. chapter 73, subchapter III 
(relating to prohibited political activities);
    (2) Retirement, life insurance, or health insurance;
    (3) A suspension or removal under Sec.  9701.609;
    (4) Any examination, certification, or appointment; and
    (5) The classification of any position which does not result in the 
reduction in grade or pay of an employee.
    (d) To the extent not already excluded by existing collective 
bargaining agreements, the exclusions contained in paragraph (c) of 
this section apply upon the effective date of this subpart, as 
determined under Sec.  9701.102(a)(2).
    (e)(1) An aggrieved employee affected by a prohibited personnel 
practice under 5 U.S.C. 2302(b)(1) which also falls under the coverage 
of the negotiated grievance procedure may raise the matter under the 
applicable statutory procedures, or the negotiated procedure, but not 
both.
    (2) An employee is deemed to have exercised his or her option under 
paragraph (e)(1) of this section to raise the matter under the 
applicable statutory procedures, or the negotiated procedure, at such 
time as the employee timely initiates an action under the applicable 
statutory or regulatory procedure or timely files a grievance in 
writing, in accordance with the provisions of the parties' negotiated 
grievance procedure, whichever event occurs first.
    (f) Matters covered under subpart G of this part may be raised only 
under the appellate procedures in subpart G of this part.
    (g) An employee may grieve a performance rating of record that has 
not been raised in connection with an action appealable under subpart G 
of this part. Once an employee raises a performance rating issue in an 
appeal under subpart G of this part, any pending grievance or 
arbitration will be dismissed with prejudice. The arbitrator shall 
sustain the rating of record unless the grievant proves that it was 
arbitrary or capricious.
    (h)(1) This paragraph applies with respect to a prohibited 
personnel practice other than a prohibited personnel practice to which 
paragraph (e) of this section applies.
    (2) An aggrieved employee affected by a prohibited personnel 
practice described in paragraph (h)(1) of this section may elect not 
more than one of the procedures described in paragraph (h)(3) of this 
section with respect thereto. A determination as to whether a 
particular procedure for seeking a remedy has been elected must be made 
as set forth under paragraph (h)(4) of this section.
    (3) The procedures for seeking remedies described in this paragraph 
are as follows:
    (i) An appeal under subpart G of this part;

[[Page 8066]]

    (ii) A negotiated grievance under this section; and
    (iii) Corrective action under 5 U.S.C. chapter 12, subchapters II 
and III.
    (4) For the purpose of this paragraph, an employee is considered to 
have elected--
    (i) The procedure described in paragraph (h)(3)(i) of this section 
if such employee has timely filed a notice of appeal under the 
applicable appellate procedures;
    (ii) The procedure described in paragraph (h)(3)(ii) of this 
section if such employee has timely filed a grievance in writing, in 
accordance with the provisions of the parties' negotiated procedure; or
    (iii) The procedure described in paragraph (h)(3)(iii) of this 
section if such employee has sought corrective action from the Office 
of Special Counsel by making an allegation under 5 U.S.C. 1214(a)(1).


Sec.  9701.522  Exceptions to arbitration awards.

    (a) Either party to arbitration under this subpart may file with 
the Board an exception to any arbitrator's award. The Board may take 
such action and make such recommendations concerning the award as is 
consistent with this subpart.
    (b) If no exception to an arbitrator's award is filed under 
paragraph (a) of this section during the 30-day period beginning on the 
date of such award, the award is final and binding. Either party must 
take the actions required by an arbitrator's final award. The award may 
include the payment of back pay (as provided under 5 U.S.C. 5596 and 5 
CFR part 550, subpart H).


Sec.  9701.523  Official time.

    (a) Any employee representing an exclusive representative in the 
negotiation of a collective bargaining agreement under this subpart 
must be authorized official time for such purposes, including 
attendance at impasse proceedings, during the time the employee 
otherwise would be in a duty status. The number of employees for whom 
official time is authorized under this section may not exceed the 
number of individuals designated as representing the agency for such 
purposes.
    (b) Any activities performed by any employee relating to the 
internal business of the labor organization, including the solicitation 
of membership, elections of labor organization officials, and 
collection of dues, must be performed during the time the employee is 
in a nonduty status.
    (c) Except as provided in paragraph (a) of this section, the 
Authority or the Board, as appropriate, will determine whether an 
employee participating for, or on behalf of, a labor organization in 
any phase of proceedings before the Authority or the Board will be 
authorized official time for such purpose during the time the employee 
would otherwise be in a duty status.
    (d) Except as provided in the preceding paragraphs of this section, 
any employee representing an exclusive representative or, in connection 
with any other matter covered by this subpart, any employee in an 
appropriate unit represented by an exclusive representative, must be 
granted official time in any amount the agency and the exclusive 
representative involved agree to be reasonable, necessary, and in the 
public interest.


Sec.  9701.524  Compilation and publication of data.

    (a) The Board must maintain a file of its proceedings and copies of 
all available agreements and arbitration decisions and publish the 
texts of its impasse resolution decisions and the actions taken under 
Sec.  9701.918.
    (b) All files maintained under paragraph (a) of this section must 
be open to inspection and reproduction in accordance with 5 U.S.C. 552 
and 552a. The Board will establish rules in consultation with the 
Department for maintaining and making available for inspection 
sensitive information.


Sec.  9701.525  Regulations of the Board.

    The Board may prescribe procedural rules and regulations to carry 
out the provisions of this subpart.


Sec.  9701.526  Continuation of existing laws, recognitions, 
agreements, and procedures.

    (a) Nothing contained in this subpart precludes the renewal or 
continuation of an exclusive recognition, certification of an exclusive 
representative, or an agreement that is otherwise consistent with law 
and the regulations in this part between an agency and an exclusive 
representative of its employees, which is entered into before the 
effective date of this subpart, as determined under Sec.  
9701.102(a)(2).
    (b) Policies, regulations, and procedures established under, and 
decisions issued under Executive Orders 11491, 11616, 11636, 11787, and 
11838 or any other Executive order, as in effect on the effective date 
of this subpart (as determined under Sec.  9701.102(a)(2)), will remain 
in full force and effect until revised or revoked by the President, or 
unless superseded by specific provisions of this subpart or by 
regulations or decisions issued pursuant to this subpart.


Sec.  9701.527  Savings provision.

    This subpart does not apply to grievances or other administrative 
proceedings already pending on the effective date of this subpart, as 
determined under Sec.  9701.102(a)(2).

Subpart F--Adverse Actions

General


Sec.  9701.601  Purpose.

    This subpart contains regulations prescribing the requirements for 
employees who are suspended, demoted, reduced in pay, removed, or 
furloughed for 90 days or less.


Sec.  9701.602  Waivers.

    This subpart waives 5 U.S.C. 7501 through 7514 and 7531 through 
7533. This subpart retains 5 U.S.C. 7521 and 7541 through 7543.


Sec.  9701.603  Definitions.

    In this subpart:
    Band has the meaning given that term in Sec.  9701.204.
    Day means a calendar day.
    Demotion means a reduction in grade, a reduction to a lower band 
within the same occupational cluster, or a reduction to a lower band in 
a different occupational cluster under rules prescribed by DHS pursuant 
to Sec.  9701.355.
    Furlough means the placement of an employee in a temporary status 
without duties and pay because of lack of work or funds or other non-
disciplinary reasons.
    Grade means a level of work under a position classification or job 
grading system.
    Indefinite suspension means the placement of an employee in a 
temporary status without duties and pay pending investigation, inquiry, 
or further Department action. An indefinite suspension continues for an 
indeterminate period of time and ends with either the employee 
returning to duty or the completion of any subsequent administrative 
action.
    Initial service period means the 1 to 2 years employees must serve 
upon appointment to DHS (on or after the effective date of this 
subpart, as determined under Sec.  9701.102(a)(2)) before obtaining 
coverage under the adverse action protections of this subpart. Prior 
Federal service counts toward this requirement.
    Pay means the rate of basic pay fixed by law or administrative 
action for the position held by an employee before any deductions and 
exclusive of additional pay of any kind. For the purpose of this 
subpart, pay does not include locality-based comparability payments 
under 5

[[Page 8067]]

U.S.C. 5304, locality or special pay supplements under subpart C of 
this part, or other similar payments.
    Removal means the involuntary separation of an employee from the 
Department.
    Suspension means the placement of an employee, for disciplinary 
reasons, in a temporary status without duties and pay.


Sec.  9701.604  Coverage.

    (a) Actions covered. This subpart covers suspensions, demotions, 
reductions in pay (including reductions in pay within a band), 
removals, and furloughs of 90 days or less.
    (b) Actions excluded. This subpart does not cover--
    (1) Any adverse action taken against an employee during an initial 
service period, except as provided under paragraph (d)(2) of this 
section. The removal of employees in the competitive service who are in 
an initial service period must be in accordance with 5 CFR 315.804 and 
315.805;
    (2) The demotion of a supervisor or manager under 5 U.S.C. 3321;
    (3) An action that terminates a temporary or term promotion and 
returns the employee to the position from which temporarily promoted, 
or to a different position of equivalent band and pay, if the agency 
informed the employee that it was to be of limited duration;
    (4) A reduction-in-force action under 5 U.S.C. 3502;
    (5) An action imposed by the Merit Systems Protection Board under 5 
U.S.C. 1204;
    (6) An action against an administrative law judge under 5 U.S.C. 
7521;
    (7) A voluntary action by an employee;
    (8) An action taken or directed by the OPM based on suitability 
under 5 CFR part 731.
    (9) Termination of appointment on or before the expiration date 
specified as a basic condition of employment at the time the 
appointment was made;
    (10) Cancellation of a promotion to a position not classified prior 
to the promotion;
    (11) Placement of an employee serving on an intermittent or 
seasonal basis in a temporary non-duty, non-pay status in accordance 
with conditions established at the time of appointment;
    (12) Reduction of an employee's rate of basic pay from a rate that 
is contrary to law or regulation;
    (13) An action taken under a provision of statute, other than one 
codified in title 5, United States Code, which excludes the action from 
5 U.S.C. chapter 75 or this subpart; and
    (14) An action which has been effected before the date on which the 
employee is covered under this subpart.
    (c) Employees covered. Subject to approval by the Secretary or 
designee under Sec.  9701.102(a)(2), this subpart covers DHS employees, 
except as excluded by paragraph (d) of this section.
    (d) Employees excluded. This subpart does not cover--
    (1) Employees who are serving a term, temporary, or otherwise time 
limited appointment;
    (2) Non-preference employees who are serving in an initial service 
period and preference eligible employees who are serving the first year 
of an initial service period. Preference eligible employees who have 
completed the first year of an initial service period are covered by 
subpart F. Employees in the competitive service who are removed during 
an initial service period shall be removed in accordance with 5 CFR 
315.804 and 315.805;
    (3) Employees who are in the Senior Executive Service;
    (4) Administrative law judges;
    (5) Employees who are terminated in accordance with terms specified 
as conditions of employment at the time the appointment was made;
    (6) Employees whose appointments are made by and with the advice 
and consent of the Senate;
    (7) Employees whose positions have been determined to be of a 
confidential, policy-determining, policy-making, or policy-advocating 
character by--
    (i) The President for a position that the President has excepted 
from the competitive service;
    (ii) OPM for a position that OPM has excepted from the competitive 
service; or
    (iii) An authorized agency official for a position excepted from 
the competitive service by statute;
    (8) An employee whose appointment is made by the President;
    (9) An employee who is receiving an annuity from the Civil Service 
Retirement and Disability Fund or the Foreign Service Retirement and 
Disability Fund based on the service of such employee;
    (10) An employee who is described in 5 U.S.C. 5102(c)(11) as an 
alien or non-citizen occupying a position outside the United States; 
and
    (11) Employees affected by actions taken or imposed under any 
statute or regulation other than this subpart.

Requirements for Suspension, Demotion, Reduction in Pay, Removal, or 
Furlough of 90 Days or Less


Sec.  9701.605  Standard for action.

    The Department may take an adverse action under this subpart only 
when it establishes a factual basis for the action and a connection 
between the action and a legitimate Departmental interest.


Sec.  9701.606  Mandatory removal offenses.

    (a) The Secretary in his or her unreviewable discretion will 
identify offenses that have a direct and substantial impact on the 
ability of the Department to protect homeland security. Such offenses 
will be identified in advance as part of the Department's internal 
implementing regulations and made known to all employees.
    (b) An employee who commits a mandatory removal offense must be 
removed from Federal service. The Secretary, however, has the sole and 
exclusive discretion to mitigate that penalty. Employees alleged to 
have committed these offenses will have the right to advance notice, an 
opportunity to respond, a written decision, a review by an adjudicating 
official, and a further appeal to an independent DHS panel, as set 
forth in subpart G of this part.
    (c) Nothing in this section limits the discretion of the Department 
or any component thereof to remove employees for offenses other than 
those identified by the Secretary as a mandatory removal offense.


Sec.  9701.607  Procedures.

    An employee against whom an action is proposed is entitled to the 
following:
    (a) Proposal notice. (1) Notice period. The Department must provide 
at least 15 days advance written notice of the proposed adverse action 
unless a mandatory removal offense is involved, or when there is 
reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed. In such cases the 
Department must provide at least 5 days advance written notice.
    (2) Duty status during notice period. An employee will remain in a 
duty status in his or her regular position during the notice period. 
However, when the Department determines that the employee's continued 
presence in the workplace during the notice period may pose a threat to 
the employee or others, result in loss of or damage to Government 
property, or otherwise jeopardize legitimate Government interests, the 
Department may elect one or a combination of the following 
alternatives:

[[Page 8068]]

    (i) Assign the employee to duties where the Department determines 
the employee is no longer a threat to safety, the Department's mission, 
or to Government property;
    (ii) Allow the employee to take leave, or carry him or her in an 
appropriate leave status (annual, sick, leave without pay, or absence 
without leave) if the employee has absented himself or herself from the 
worksite without requesting leave; and/or
    (iii) Place the employee in a paid, non-duty status for such time 
as is necessary to effect the action.
    (3) Contents of notice. (i) The proposal notice must inform the 
employee of the factual basis for the proposed action in sufficient 
detail to permit the employee to reply to the notice, and inform the 
employee of his or her right to review the Department's evidence 
supporting the proposed action. The Department may not use evidence 
that cannot be disclosed to the employee, his or her representative, or 
designated physician pursuant to 5 CFR 297.204.
    (ii) When some but not all employees in a given competitive level 
are being furloughed, the proposal notice must state the basis for 
selecting a particular employee for furlough, as well as the reasons 
for the furlough. The notice is not necessary for furlough without pay 
due to unforeseeable circumstances, such as sudden breakdowns in 
equipment, acts of God, or sudden emergencies requiring immediate 
curtailment of activities.
    (b) Opportunity to reply. (1) The Department must give employees no 
less than 5 days, which must run concurrently with the notice period, 
to reply orally and/or in writing.
    (2) During the opportunity to reply, the Department must give the 
employee a reasonable amount of official time to review the 
Department's supporting evidence, and to furnish affidavits and other 
documentary evidence, if the employee is otherwise in an active duty 
status.
    (3) The Department must designate an official to receive the 
employee's written and/or oral response who has authority to make or 
recommend a final decision on the proposed adverse action. The 
opportunity to reply orally in person does not include the right to a 
formal hearing with examination of witnesses.
    (4) The employee may be represented by an attorney or other 
representative of the employee's choice and at the employee's expense. 
The Department may disallow an employee's choice of representative 
when--
    (i) An individual serving as a representative would cause a 
conflict of interest or position or compromise security; or
    (ii) An employee whose release from his or her official position 
would result in unreasonable costs to the Government, or whose priority 
work assignment prevents a release from official duties.
    (5) An employee who wishes the Department to consider any medical 
condition that may be relevant to the proposed adverse action must 
provide medical documentation, as that term is defined at 5 CFR 
339.104, during the opportunity to reply.
    (i) Department responsibilities. When considering an employee's 
medical condition, the Department is not required to withdraw or delay 
a proposed adverse action. However, the Department must--
    (A) Allow the employee to provide medical documentation during the 
opportunity to reply;
    (B) Comply with 29 CFR 1614.203(b) and relevant Equal Employment 
Opportunity Commission rules; and
    (C) Comply with 5 CFR 831.1205 when issuing a decision to remove.
    (ii) Medical examinations. When considering an employee's medical 
documentation, the Department may require or offer a medical 
examination pursuant to 5 CFR part 339, subpart C.
    (c) Decision notice. (1) In arriving at its decision, the 
Department may not consider any reasons for the action other than those 
specified in the proposal notice. The Department must consider any 
response from the employee and employee's representative, if the 
employee provides the response during the opportunity to reply.
    (2) The decision notice must specify in writing the reasons for the 
decision and advise the employee of any appeal or grievance rights, 
under subpart G of this part. The Department must deliver the notice to 
the employee on or before the effective date of the action.


Sec.  9701.608  Departmental record.

    (a) Document retention. The Department must keep a record of all 
relevant documentation concerning the action for a period of time 
pursuant to the General Records Schedule and the Guide to Processing 
Personnel Actions. The record must include the following:
    (1) A copy of the proposal notice;
    (2) The employee's written response, if any, to the proposal;
    (3) A summary of the employee's oral response;
    (4) A copy of the decision notice; and
    (5) Any supporting material that is directly relevant and on which 
the action was substantially based.
    (b) Access to the record. The Department must make the record 
available for review by the employee and furnish a copy of the record 
upon the employee's request or the request of the Merit Systems 
Protection Board or the DHS Panel.

National Security


Sec.  9701.609  Suspension and removal.

    (a) Notwithstanding other provisions of law or regulation, the 
Secretary may suspend an employee without pay when she or he considers 
suspension in the interests of national security. To the extent that 
the Secretary determines that the interests of national security 
permit, the suspended employee must be notified of the reasons for the 
suspension. Within 30 days after the notification, the suspended 
employee is entitled to submit to the official designated by the 
Secretary statements or affidavits to show why he or she should be 
restored to duty.
    (b) Subject to paragraph (c) of this section, the Secretary may 
remove an employee suspended under this section when, after 
investigation and review as the Secretary considers necessary, the 
Secretary determines that removal is necessary or advisable in the 
interests of national security. The determination of the Secretary is 
final.
    (c) An employee suspended under this section who has a permanent or 
indefinite appointment, has completed an initial service period, and is 
a citizen of the United States is entitled, after suspension and before 
removal, to--
    (1) A written notice that informs the employee of the factual basis 
for the proposed action in sufficient detail, as security 
considerations permit, to permit the employee to respond to the notice 
within 30 days after suspension, which may be amended within 30 days 
thereafter;
    (2) An opportunity within 30 days thereafter, plus an additional 30 
days if the charges are amended, to respond to the proposed adverse 
action and submit affidavits;
    (3) A hearing, at the request of the employee, by an agency 
authority duly constituted for this purpose;
    (4) A review of his or her case by the Secretary, before a decision 
adverse to the employee is made final; and
    (5) A written decision from the Secretary.

Subpart G--Appeals


Sec.  9701.701  Purpose.

    This subpart contains the regulations implementing the provisions 
of 5 U.S.C. 9701(a) through (c) and (f) concerning the Department's 
appeals system for

[[Page 8069]]

certain adverse actions covered under subpart F of this part. These 
provisions require that the new appeal regulations provide Department 
employees fair treatment, are consistent with the protections of due 
process and, to the maximum extent practicable, provide for the 
expeditious handling of appeals. The Homeland Security Act also 
specifies that modifications to 5 U.S.C. chapter 77 should further the 
fair, efficient, and expeditious resolution of appeals.


Sec.  9701.702  Waivers.

    The provisions of 5 U.S.C. 7701 are waived insofar as the 
appealable adverse actions covered under subpart F of this part are 
concerned. The provisions of 5 U.S.C. 7702 are modified as provided in 
Sec.  9701.708. The appellate procedures specified herein supersede 
those of MSPB to the extent they are inconsistent with MSPB's 
regulations. MSPB must follow these regulations until conforming 
regulations are issued by MSPB.


Sec.  9701.703  Definitions.

    In this subpart:
    Adjudicating official means an administrative law judge, 
administrative judge, or other employee designated by MSPB or the Panel 
to decide an appeal.
    Day means calendar day.
    Harmful error means error by the Department in the application of 
its procedures that is likely to have caused it to reach a conclusion 
different from the one it would have reached in the absence or cure of 
the error. The burden is on the appellant to show that the error was 
harmful, i.e., that it caused substantial harm or prejudice to his or 
her rights.
    Mandatory removal offense means an offense that the Secretary 
determines in his or her sole and unreviewable discretion has a direct 
and substantial impact on the ability of the Department to protect 
homeland security.
    MSPB means the Merit Systems Protection Board.
    Panel means the three-person panel composed of officials appointed 
by the Secretary to decide appeals of an adjudicating official's 
decision on an action taken based on a mandatory removal offense.
    Petition for review means a request for review of an initial 
decision of an adjudicating official.
    Preponderance of the evidence means the degree of relevant evidence 
that a reasonable person, considering the record as a whole, would 
accept as sufficient to find that a contested fact is more likely to be 
true than untrue.
    Substantial evidence means the degree of relevant evidence that a 
reasonable person, considering the record as a whole, might accept as 
adequate to support a conclusion, even though other reasonable persons 
might disagree.


Sec.  9701.704  Coverage.

    (a) Subject to approval by the Secretary or designee under Sec.  
9701.102(a)(2), this subpart applies to employees who appeal demotions, 
reductions in pay, suspensions of 15 days or more, removals, or 
furloughs of 90 days or less, provided such employees are--
    (1) Covered by Sec.  9701.604; or
    (2) Employed by the Transportation Security Administration and 
would be covered by Sec.  9701.604 but for the exclusion in Sec.  
9701.604(d)(11).
    (b) Appeals of suspensions shorter than 15 days and other lesser 
disciplinary measures are not covered under this subpart but may be 
grieved through a negotiated grievance procedure or agency 
administrative grievance procedure, whichever is applicable.
    (c) The removal of an employee while serving an initial service 
period is subject to the provisions of 5 CFR 315.806 to the extent the 
employee is in the competitive service. Such provisions are applicable 
for the first year of an initial service period.


Sec.  9701.705  Alternative dispute resolution.

    The Department and OPM recognize the value of using alternative 
dispute resolution methods such as mediation, an ombudsman, or 
interest-based negotiation to address employee-employer disputes 
arising in the workplace, including those which may involve 
disciplinary actions. Such methods can result in more efficient and 
more effective outcomes than traditional, adversarial methods of 
dispute resolution. The Department will use alternative dispute 
resolution methods where appropriate.


Sec.  9701.706  MSPB appellate procedures.

    (a) A covered Department employee may appeal an adverse action 
identified under Sec.  9701.704(a) to MSPB. Such an employee has a 
right to be represented by an attorney or other representative. 
However, separate procedures apply when the action is taken because of 
a mandatory removal offense or is in the interest of national security. 
(See Sec. Sec.  9701.707 and 9701.609 respectively.)
    (b) MSPB may decide any case appealed to it or may refer the case 
to an administrative law judge appointed under 5 U.S.C. 3105 or other 
employee of MSPB designated by MSPB to decide such cases. MSPB or an 
adjudicating official must make a decision at the close of the review 
and provide a copy of the decision to each party to the appeal and to 
OPM.
    (c)(1) If an employee is the prevailing party in an appeal under 
this section, the employee must be granted the relief provided in the 
decision upon issuance of the decision, and such relief remains in 
effect pending the outcome of any petition for review unless--
    (i) MSPB or an adjudicating official determines that the granting 
of such relief is not appropriate; or
    (ii) The relief granted in the decision provides that the employee 
will return or be present at the place of employment pending the 
outcome of any petition for review and the Department, subject to 
paragraph (c)(2) of this section, determines in its sole and 
unreviewable discretion, that the return or presence of the employee is 
unduly disruptive to the work environment.
    (2) If the Department makes a determination under paragraph 
(c)(1)(ii) of this section that prevents the return or presence of an 
employee at the place of employment, such employee must receive pay, 
compensation, and all other benefits as terms and conditions of 
employment pending the outcome of any petition for review.
    (3) Nothing in the provisions of this section may be construed to 
require any award of back pay or attorney fees be paid before MSPB's 
decision is final.
    (d)(1) The decision of the Department must be sustained under 
paragraph (b) of this section if it is supported by substantial 
evidence, unless the employee shows by a preponderance of the evidence-
-
    (i) Harmful error in the application of Department procedures in 
arriving at the decision;
    (ii) That the decision was based on any prohibited personnel 
practice described in 5 U.S.C. 2302(b); or
    (iii) That the decision was not in accordance with law.
    (2) The Board or adjudicating official may not reverse a Department 
action based on the way in which the charge is labeled or the conduct 
characterized, provided the employee is on notice of the facts 
sufficient to respond to the factual allegations of the charge.
    (e) The Director may, as a matter of right at any time in the 
proceeding, intervene or otherwise participate in any proceeding under 
this section in any case in which the Director believes that an 
erroneous decision will have a substantial impact on a civil service 
law, rule, regulation, or policy directive.
    (f) Except as provided in Sec.  9701.708, any decision under 
paragraph (b) of this

[[Page 8070]]

section is final unless a party to the appeal or the Director petitions 
MSPB for review within 30 days after receipt of the decision; or, MSPB 
reopens and reconsiders a case on its own motion. The Director may 
petition MSPB for review only if he or she believes the decision is 
erroneous and will have a substantial impact on a civil service law, 
rule, regulation, or policy directive. MSPB, for good cause shown, may 
extend the filing period.
    (g) If MSPB is of the opinion that the action could result in the 
appeals being processed more expeditiously and would not adversely 
affect any party, MSPB may--
    (1) Consolidate appeals filed by two or more appellants; or
    (2) Join two or more appeals filed by the same appellant and hear 
and decide them concurrently.
    (h) MSPB may require payment by the Department of reasonable 
attorney fees if the action is reversed in its entirety and only if 
MSPB determines the action constituted a prohibited personnel practice, 
was taken in bad faith, or is without any basis in fact and law. 
However, if the employee is the prevailing party and the decision is 
based on a finding of discrimination prohibited under 5 U.S.C. 
2302(b)(1), the payment of reasonable attorney fees must be in 
accordance with the standards prescribed in section 706(k) of the Civil 
Rights Act of 1964 (42 U.S.C. 2000e-5(k)).
    (i)(1) The Board shall not require settlement discussions in 
connection with any appealed action under this section. If either party 
decides that settlement is not desirable, the matter will proceed to 
adjudication.
    (2) Where the parties agree to engage in settlement discussions 
before MSPB, these discussions will be conducted by an official 
specifically designated for that sole purpose. Nothing prohibits the 
parties from engaging in settlement discussions on their own.
    (j) If an employee has been removed under subpart F of this part 
and subsequently elects to retire, such retirement will not affect the 
employee's appeal rights.
    (k) The following provisions modify MSPB's appellate procedures 
applicable to appeals under this subpart:
    (1) All appeals, including class appeals, will be filed no later 
than 20 days after the effective date of the action being appealed, or 
no later than 20 days after the date of service of the Department's 
decision, whichever is later.
    (2) Either party may file a motion for representative 
disqualification at any time during the proceedings.
    (3) The parties may seek discovery regarding any matter that is 
relevant to any of their claims or defenses. However, by motion, either 
party may seek to limit such discovery because the burden or expense of 
providing the material outweighs its benefit, or because the material 
sought is privileged, not relevant, unreasonably cumulative or 
duplicative, or can be secured from some other source that is more 
convenient, less burdensome, or less expensive.
    (i) Prior to filing a motion to limit discovery, the parties must 
confer and attempt to resolve any pending objection(s).
    (ii) Neither party may submit more than one set of interrogatories, 
one set of requests for production, and one set of requests for 
admissions. The number of interrogatories or requests for production or 
admissions may not exceed 25 per pleading, including subparts; in 
addition, each party may not conduct/ compel more than 2 depositions.
    (iii) Either party may file a motion requesting additional 
discovery. Such motion may be granted only if the party has shown 
``necessity and good cause'' to warrant such additional discovery.
    (4) Requests for case suspensions must be submitted jointly.
    (5) When there are no material facts in dispute, the adjudicating 
official must render summary judgment on the law without a hearing. 
However, when material facts are in dispute and a hearing is held, a 
transcript must be kept.
    (6) MSPB or an adjudicating official may not reduce or otherwise 
modify any penalty selected by the Department. If fewer than all the 
charges are sustained, MSPB or an adjudicating official must direct the 
Department to promptly determine whether the penalty is still 
appropriate based on the sustained charge(s). The Department will 
promptly notify the MSPB of its penalty decision, which is final 
without any further appeal to MSPB. Within 5 days after receiving the 
Department's penalty decision, the MSPB will issue a final order 
incorporating that decision. Judicial review of any final MSPB order or 
decision is prescribed under 5 U.S.C. 7703.
    (7) An initial decision must be made no later than 90 days after 
the date on which the appeal is filed. If that initial administrative 
decision is appealed to MSPB, MSPB must render its decision no later 
than 90 days after the close of the record before MSPB on petition for 
review. Any time spent by the Department making a penalty determination 
as provided for under Sec.  9701.706(k)(6) does not count against these 
time limits.
    (8) If the Director seeks reconsideration of a final MSPB order, 
MSPB must render its decision no later than 60 days after receipt of 
the opposition to OPM's petition in support of such reconsideration. 
MSPB is required to state the reasons for its decision so that the 
Director can determine whether to seek judicial review and to 
facilitate expeditious judicial review if the Director seeks it.
    (9) MSPB, in conjunction with the Department and OPM, will develop 
and issue voluntary expedited appeals procedures for Department cases.
    (l) Failure of MSPB to meet the deadlines imposed by paragraphs 
(k)(7) and (k)(8) of this section in a case will not prejudice any 
party to the case and will not form the basis for any legal action by 
any party.


Sec.  9701.707  Appeals of mandatory removal actions.

    (a) Appeals of mandatory removal actions are governed by procedures 
set forth in this section. An employee may appeal such actions to an 
adjudicating official, whose decision may be further appealed to an 
independent Panel. Only the Secretary may mitigate the penalty in these 
cases.
    (b) The initial appeal of a mandatory removal action must be to an 
adjudicating official designated by the Panel. Such official may 
conduct a hearing for which a transcript will be kept, to resolve any 
factual disputes and other relevant matters and will issue an initial 
decision. When there are no material facts in dispute the adjudicating 
official must render summary judgment on the law without a hearing. The 
adjudicating official must issue a written decision to each party and 
to OPM. Decisions of the adjudicating official are appealable by either 
party to the Panel.
    (c) The appellant has the right to be represented by an attorney or 
other representative.
    (d) An employee may appeal an initial decision to the Panel, which 
will issue a final decision in such matters.
    (1) The Panel is composed of three members, appointed by the 
Secretary for 3-year terms. Members may be removed by the Secretary 
only for inefficiency, neglect of duty, or malfeasance. The Secretary 
will designate one member to serve as Chair of the Panel.
    (2) A member of the Panel may be reappointed for additional terms. 
An individual chosen to fill a vacancy will be appointed for the 
unexpired term of the member replaced. The term of any member may not 
expire before the date

[[Page 8071]]

on which the member's successor takes office.
    (3) Two members of the Panel constitute a quorum. A vacancy on the 
Panel does not impair the right of the remaining members to exercise 
all of the powers of the Panel.
    (4) Panel members will be chosen for their expertise in 
adjudicating appeals, their knowledge of the Department's mission, and 
leadership experience in comparable organizations.
    (e) The Panel must issue a written decision after conducting a de 
novo review of the record and must provide a copy of the decision to 
each party to the appeal and to OPM.
    (f) The decision of the Department must be sustained if it is 
supported by substantial evidence, unless the employee shows by a 
preponderance of the evidence--
    (1) Harmful error in the application of Department procedures in 
arriving at the decision;
    (2) That the decision was based on any prohibited personnel 
practice described in 5 U.S.C. 2302(b); or
    (3) That the decision was not in accordance with law.
    (g) In no case does the adjudicating official or Panel have the 
authority to reverse a Department action based on the way in which the 
charge is labeled or the conduct is characterized. When an employee is 
on notice of the facts sufficient to respond to the factual allegations 
of a charge, the Department will be determined to have complied with 
the required notice provisions.
    (h) The Director may, as a matter of right at any time in the 
proceeding, intervene or otherwise participate in any proceeding under 
this section in any case in which the Director believes that an 
erroneous decision will have a substantial impact on a civil service 
law, rule, regulation, or policy directive.
    (i) Except as provided in Sec.  9701.708, any decision under 
paragraph (b) of this section is final unless a party to the appeal or 
the Director petitions the Panel for review within 30 days after 
receipt of the decision, or the Panel reopens and reconsiders a case on 
its own motion. The Director may petition the Panel for review only if 
he or she believes the decision is erroneous and will have a 
substantial impact on a civil service law, rule, regulation, or policy 
directive. The Panel, for good cause shown, may extend the filing 
period.
    (j) If the adjudicating official or Panel is of the opinion that 
the action could result in processing the appeal more expeditiously and 
that this would not adversely affect any party, the adjudicating 
official or Panel may--
    (1) Consolidate appeals filed by two or more appellants; or
    (2) Join two or more appeals filed by the same appellant and hear 
and decide them concurrently,
    (k) The Panel may require payment by the Department of reasonable 
attorney fees if the action is reversed in its entirety and only if the 
Panel determines the action constituted a prohibited personnel 
practice, or was taken in bad faith, or is without any basis in fact 
and law. However, if the employee is the prevailing party and the 
decision is based on a finding of discrimination prohibited under 5 
U.S.C. 2302(b)(1), the payment of reasonable attorney fees must be in 
accordance with the standards prescribed in section 706(k) of the Civil 
Rights Act of 1964 (42 U.S.C. 2000e-5(k)).
    (l) If an employee has been removed under subpart F of this part, 
and subsequently elects to retire, such retirement will not affect the 
employee's appeal rights.
    (m) The adjudicating official or Panel may not reduce or otherwise 
modify any penalty selected by the Department for a mandatory removal 
offense. If fewer than all the charges are sustained, the Panel or 
adjudicating official must direct the Department to promptly determine 
whether the penalty is still appropriate based on the sustained 
charge(s). This determination of whether the penalty is appropriate is 
final without any further appeal to the Panel.
    (n) The Panel will develop and promulgate regulations for 
processing appeals of mandatory removal actions which must conform to 
the requirements set forth in Sec.  9701.706(k)(1) through (8) and for 
such other matters as may be necessary to ensure the operation of the 
Panel.
    (o) Failure of the Panel to meet any deadlines imposed under 
paragraph (n) of this section in a case will not prejudice any party to 
the case and will not form the basis for any legal action by any party.


Sec.  9701.708  Actions involving discrimination.

    Section 7702 of title 5, U.S. Code, is modified to read ``MSPB or 
Panel'' wherever the terms ``Merit Systems Protection Board'' or 
``Board'' are used.

[FR Doc. 04-3670 Filed 2-17-04; 11:51 am]
BILLING CODE 6325-39-P; 4410-10-P