[Federal Register Volume 70, Number 20 (Tuesday, February 1, 2005)]
[Rules and Regulations]
[Pages 5272-5347]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 05-1629]



[[Page 5271]]

-----------------------------------------------------------------------

Part II





Department of Homeland Security

Office of Personnel Management





-----------------------------------------------------------------------



5 CFR Chapter XCVII and Part 9701



Department of Homeland Security Human Resources Management System; 
Final Rule

  Federal Register / Vol. 70, No. 20 / Tuesday, February 1, 2005 / 
Rules and Regulations  

[[Page 5272]]


-----------------------------------------------------------------------

DEPARTMENT OF HOMELAND SECURITY

OFFICE OF PERSONNEL MANAGEMENT

5 CFR Chapter XCVII and Part 9701

RIN 3206-AK31 and 1601-AA-19


Department of Homeland Security Human Resources Management System

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

ACTION: Final rule.

-----------------------------------------------------------------------

SUMMARY: The Department of Homeland Security (DHS or the Department) 
and the Office of Personnel Management (OPM) are issuing final 
regulations to establish a new human resources management system within 
DHS, as authorized by the Homeland Security Act of 2002. The affected 
subsystems include those governing basic pay, classification, 
performance management, labor relations, adverse actions, and employee 
appeals. These changes are designed to ensure that the Department's 
human resources management system aligns with its critical mission 
requirements without compromising the statutorily protected civil 
service rights of its employees.

DATES: Effective Date:
    March 3, 2005.

FOR FURTHER INFORMATION CONTACT: At OPM: Ronald P. Sanders, 202-606-
9150; at DHS: Kay Frances Dolan, 202-357-8200.

SUPPLEMENTARY INFORMATION:

Table of Abbreviations

AFGE--American Federation of Government Employees
ALJ--Administrative Law Judge
Compensation Committee--Homeland Security Compensation Committee
DHS--Department of Homeland Security
FLRA--Federal Labor Relations Authority
FMCS--Federal Mediation and Conciliation Service
FSIP--Federal Service Impasses Panel
GAO--Government Accountability Office (former General Accounting 
Office)
GS--General Schedule
HR--Human Resources
HSLRB--Homeland Security Labor Relations Board
MRO--Mandatory Removal Offense
MRP--Mandatory Removal Panel
MSPB--Merit Systems Protection Board
NAAE--National Association of Agriculture Employees
NFFE--National Federation of Federal Employees
NTEU--National Treasury Employees Union
OPM--Office of Personnel Management
SES--Senior Executive Service
SL--Senior Level
SRC--DHS Human Resource Management Senior Review Committee
ST--Scientific or Professional Positions
TSA--Transportation Security Administration

Table of Contents

    This supplementary information section is organized as follows:
 Introduction
 The Case for Action
    Pay and Classification
    Performance Management
    Labor-Management Relations
    Adverse Actions and Appeals
 Summary of the Design Process
 The Meet and Confer Process
 Major Issues
    Specificity of the Regulations
    Pay for Performance
    Management Rights/Scope and Duty to Bargain
    Adverse Actions and Appeals
    Mandatory Removal Offenses
 Response to Specific Comments and Detailed Explanation of 
Regulations
    Subpart A--General Provisions
    Section 9701.101--Purpose
    Section 9701.102--Eligibility and Coverage
    Summary of Coverage Eligibility Chart
    Section 9701.103--Definitions
    Section 9701.105--Continuing Collaboration
    Section 9701.106--Relationship to Other Provisions
    Section 9701.107--Program Evaluation
    Subpart B--Classification
    General Comments
    Section 9701.201--Purpose
    Section 9701.203--Waivers
    Section 9701.204--Definitions
    Section 9701.211--Occupational Clusters
    Section 9701.212--Bands
    Section 9701.222--Reconsideration of Classification Decisions
    Section 9701.232--Special Transition Rules for Federal Air 
Marshal Service
    Subpart C--Pay and Pay Administration
    General Comments
    Section 9701.301--Purpose
    Section 9701.303--Waivers
    Section 9701.304--Definitions
    Section 9701.311--Major Features
    Section 9701.312--Maximum Rates
    Section 9701.314--Department of Homeland Security 
Responsibilities
    Section 9701.321--Structure of Bands
    Section 9701.322--Setting and Adjusting Rate Ranges
    Section 9701.323--Eligibility for Pay Increase Associated with a 
Rate Range Adjustment
    Section 9701.331--General
    Section 9701.332--Locality Rate Supplements
    Section 9701.333--Special Rate Supplements
    Section 9701.334--Setting and Adjusting Locality and Special 
Rate Supplements
    Section 9701.335--Eligibility for Pay Increase Associated with a 
Supplement Adjustment
    Section 9701.342--Performance Pay Increases
    Section 9701.343--Within Band Reductions
    Section 9701.344--Special Within Band Increases for Certain 
Employees
    Section 9701.345--Developmental Pay Adjustments
    Section 9701.346--Pay Progression for New Supervisors
    Section 9701.353--Setting Pay Upon Promotion
    Section 9701.356--Pay Retention
    Section 9701.361--Special Skills Payment
    Section 9701.362--Special Assignment Payments; and 9701.363 
Special Staffing Payments
    Summary of Special Rate Supplements and Special Payments 
Provisions
    Section 9701.373--Conversion of Employees to the DHS Pay System
    Section 9701.374--Special Transition Rules for the Federal Air 
Marshal Service
    Subpart D--Performance Management
    General Comments
    Section 9701.401--Purpose
    Section 9701.403--Waivers
    Section 9701.404--Definitions
    Section 9701.405--Performance Management Systems
    Section 9701.406--Setting and Communicating Performance 
Expectations
    Section 9701.407--Monitoring Performance
    Section 9701.408--Developing Performance
    Section 9701.409--Rating Performance
    Section 9701.410--Rewarding Performance
    Section 9701.412--Performance Review Boards
    Subpart E--Labor-Management Relations
    General Comments
    Section 9701.501--Purpose
    Section 9701.502--Rules of Construction
    Section 9701.503--Waivers
    Section 9701.504--Definitions
    Section 9701.505--Coverage
    Section 9701.506--Impact on Existing Agreements
    Section 9701.508--Homeland Security Labor Relations Board
    Section 9701.509--Powers and Duties of the HSLRB and 9701.510--
Powers and Duties of the Federal Relations Authority
    Section 9701.511--Management Rights
    Section 9701.512--Obligation to Confer
    Section 9701.513--Exclusive Recognition of Labor Organizations
    Section 9701.515--Representation Rights and Duties
    Section 9701.516--Allotments to Representatives
    Section 9701.517--Unfair Labor Practices
    Section 9701.518--Duty to Bargain, Confer, and Consult in Good 
Faith
    Section 9701.519--Negotiation Impasses
    Section 9701.521--Grievance Procedures
    Section 9701.522--Exceptions to Arbitration Awards
    Section 9701.527--Savings Provision
    Subpart F--Adverse Actions
    General Comments
    Section 9701.601--Purpose
    Section 9701.602--Waivers
    Section 9701.603--Definitions
    Section 9701.604--Coverage
    Section 9701.605--Standard for Action
    Section 9701.606--Mandatory Removal Offenses

[[Page 5273]]

    Section 9701.608--Departmental Record
    Section 9701.609--Suspension and Removal
    Section 9701.614--Savings Provision
    Subpart G--Appeals
    Section 9701.701--Purpose
    Section 9701.702--Waivers
    Section 9701.704--Coverage
    Section 9701.705--Alternative Dispute Resolution
    Section 9701.706--MSPB Appellate Procedures
    Section 9701.707--Appeals of Mandatory Removal Action
    Section 9701.709--Savings Provision
 Next Steps
 Moving Forward
 Regulatory Requirements
    E.O. 12866--Regulatory Review
    Regulatory Flexibility Act
    E.O. 12988--Civil Justice Reform
    E.O. 13132--Federalism

Introduction

    The Secretary of Homeland Security, Tom Ridge, and the Director of 
the Office of Personnel Management, Kay Coles James, jointly prescribe 
this final regulation to establish a flexible and contemporary system 
for managing the Department's human resources (HR). This system has 
been developed pursuant to a process based on principles articulated by 
OPM and affirmed by DHS that called for extensive and continuing 
collaboration with employees and employee representatives. In addition, 
DHS and OPM have engaged in unprecedented outreach to the public as 
well as to the Congress and other key stakeholders. As provided by 
Public Law 107-296 (the Homeland Security Act, signed into law by 
President George W. Bush on November 25, 2002), the system preserves 
all core civil service protections, including merit system principles, 
veterans' preference, and due process. It also protects against 
discrimination, retaliation against whistleblowers, and other 
prohibited personnel practices, and ensures that employees may organize 
and bargain collectively (when not otherwise prohibited by law, 
including these regulations, applicable Executive orders, and any other 
legal authority).
    This Supplementary Information addresses the following areas:
     The Case for Action
     Summary of the Design Process
     The Meet-and-Confer Process
     Major Issues
     Response to Specific Comments and Detailed Explanation of 
Regulations
     Next Steps
     Moving Forward

The Case for Action

    Since September 11, 2001, this Nation has come together with a 
unity of purpose that has not been seen or felt since the attack at 
Pearl Harbor in 1941. Out of that national tragedy emerged a consensus 
for a comprehensive global war on terrorism. That consensus resulted in 
the enactment of legislation creating the Department of Homeland 
Security, and with it, the authority to create a system for managing 
its human resources that would be flexible and mission-focused without 
compromising the principles of merit and fitness. Indeed, the 
Department's mission is to ``lead the unified national effort to secure 
America'' (emphasis added), and its new HR system is aimed at that same 
result. In order for the Department to sustain that unity of effort, 
its HR system must also provide for the meaningful participation of 
employees in its creation, and they must be treated with dignity and 
respect in its implementation.
    These final regulations represent a major step in that historic 
transformation. They establish a new HR system for the Department of 
Homeland Security (DHS) that assures its ability to attract, retain, 
and reward a workforce that is able to meet the critical mission 
entrusted to it by the American people. As provided by the regulations 
published here, that system must and does provide for greater 
flexibility and accountability in the way employees are paid, 
developed, evaluated, afforded due process, and represented by labor 
organizations. These regulations respond to comments on a notice of 
proposed rulemaking published in the Federal Register of February 20, 
2004 (69 FR 8030). The next step, following the publication of these 
enabling regulations, is to implement this new system, in continuing 
collaboration with employee representatives.
    The mission of the Department demands that employees and 
supervisors work together as never before. Managers, supervisors, and 
employees of the Department must be unified in both purpose and effort 
if they are to accomplish that mission. And perhaps the most important 
way to bring about that unity is through an integrated HR system for 
the Department--a system that assures maximum flexibility and 
accountability. That system must value, reward, and reinforce high 
performance, teamwork, commitment to learning and excellence, and 
selfless service. It must also facilitate communication and 
collaboration at all levels of the Department. The Secretary and the 
Director are committed to ensuring that these goals are met.
    The mission statement of the Department goes on to state that 
``[w]e will prevent and deter terrorist attacks and protect against and 
respond to threats and hazards to the nation. We will ensure safe and 
secure borders, welcome lawful immigrants and visitors, and promote the 
free-flow of commerce.'' No Federal agency has ever had a mission that 
is so broad, complex, dynamic, and vital. That mission demands 
unprecedented organizational agility to stay ahead of determined, 
dangerous, and sophisticated adversaries. The importance of the 
Department's HR system to achieving that goal has been underscored by 
the President and the Congress. In signing the Homeland Security Act 
into law, President Bush emphasized the Department's critical need to 
``put the right people in the right place at the right time in the 
defense of our country'' while ensuring that the rights of the 
Department's employees ``[a]s federal workers * * * will be fully 
protected * * *.'' Senator Susan Collins, Chairman of the Senate 
Committee on Governmental Affairs, said, ``[w]e need to grant the new 
Secretary appropriate but not unlimited authority to create a flexible, 
unified new personnel system that meets the Department's unique 
demands.''
    This was the fundamental challenge faced by Secretary Ridge and 
Director James in designing this new system--to strike a balance 
between mission-essential flexibility and protection of core civil 
service principles. Summarized here and discussed at length in the 
pages that follow are the changes that we believe strike that balance. 
Many of those changes are significant, and we have highlighted them in 
the following pages. We believe they respond to the fundamental 
concerns of the American public, as well as our employees. Where there 
is a substantial departure from the status quo in this final plan, it 
is in furtherance of the Department's statutory mission, with the 
attendant need for a significant investment in communication and 
understanding on the part of all parties in order to successfully 
implement those changes.
    Pay and Classification. One of the most fundamental changes in the 
regulations is the creation of a pay-for-performance system for 
Department employees that will replace the General Schedule. Under this 
new system, pay increases will be based solely on performance--not time 
in grade. It also provides for the establishment of a series of 
occupational clusters and bands in place of the current General 
Schedule grades and authorizes DHS to

[[Page 5274]]

set and adjust the minimum and maximum rates of pay for each band 
associated with a cluster. In addition, the system establishes locality 
rate supplements to address local market conditions, as well as special 
rate supplements to address special recruitment or retention needs. 
Only those DHS employees whose performance meets or exceeds 
expectations will be eligible for a performance- and/or market-based 
pay increase.
    Performance Management. The new performance management system for 
DHS will complement and support the Department's new pay and 
classification system by ensuring greater accountability for individual 
performance expectations and organizational results. The regulations 
simplify performance management, removing many administrative burdens 
associated with the current system. For example, ``performance 
expectations'' need no longer be in writing and may take the form of 
individual, team, and/or work unit goals or objectives, as well as such 
things as standard operating procedures or manuals, internal rules and 
directives, and other generally available instructions applicable to an 
employee's job. However, performance expectations, including those that 
may affect the employee's retention, must still be communicated to the 
employee prior to holding the employee accountable for them.
    Labor-Management Relations. To ensure that the Department has the 
flexibility to carry out its vital mission, the regulations, among 
other things, revise management's rights and its duty to bargain to 
ensure that the Department can act as and when necessary. Such critical 
matters as work assignments and deployments are no longer subject to 
collective bargaining. However, exclusive representatives will still be 
able to negotiate over significant and substantial changes, as well as 
appropriate arrangements for employees adversely affected by those 
changes, under certain specified conditions. Additionally, the 
regulations create the Homeland Security Labor Relations Board (HSLRB) 
to address those issues that are most important to accomplishing the 
DHS mission, with other matters retained by the Federal Labor Relations 
Authority (FLRA). The revisions strike the right balance between the 
mission needs of DHS and the meaningful involvement of employees and 
their representatives.
    Adverse Actions and Appeals. Consistent with the Homeland Security 
Act, the regulations streamline and simplify adverse action and appeals 
procedures, but without compromising due process for DHS employees. 
Employees will still receive notice of a proposed adverse action, the 
right to reply, and the right to appeal to the Merit Systems Protection 
Board (MSPB). We have also revised the proposed regulations to raise 
the burden of proof in adverse actions from ``substantial'' to 
``preponderance,'' and to permit arbitration of adverse actions as an 
option for bargaining unit employees. In addition, the regulations now 
allow MSPB (and arbitrators) to mitigate penalties, but only under 
certain specified conditions. The final regulations also retain 
authority for the Secretary to establish a number of mandatory removal 
offenses (MROs) that have a direct and substantial effect on homeland 
security and an independent Panel (selected from a list that will 
include nominees from DHS exclusive representatives and other sources) 
to hear MRO appeals.

Summary of the Design Process

    As the Congress made clear, ``collaborative effort will help secure 
our homeland.'' DHS and OPM have been committed to a collaborative 
approach from the beginning. The General Accounting (now Government 
Accountability) Office (GAO) recognized this in a report last year, 
stating that ``DHS's and OPM's efforts to design a new human capital 
system are collaborative and facilitate participation of employees from 
all levels of the department.'' In a follow-up report issued in June 
2004, GAO observed that ``to date, DHS's actions in designing its human 
capital management system and its stated plans for future work on the 
system are positioning the department for successful implementation.'' 
Those actions included an extensive process of deliberation, 
discussion, and collaboration with employees, representatives of labor 
organizations, supervisors, managers, and other stakeholders in order 
to identify ideas and concerns.
    This collaborative process was rooted in conversations Director 
James held with employee representatives even prior to the passage of 
the Homeland Security Act to propose a fair and principled process for 
the design of the HR system. The process itself actually began in April 
2003, when the Secretary and the Director established a DHS/OPM Design 
Team composed of Department managers and employees, HR experts from DHS 
and OPM, and professional staff from the Department's three largest 
labor organizations: The American Federation of Government Employees, 
the National Treasury Employees Union, and the National Association of 
Agriculture Employees.
    The 48 members of the Design Team conducted significant research in 
the areas of pay, performance, classification, labor relations, adverse 
actions, and appeals reform. The team gathered data from public and 
private sector organizations; examined and evaluated successful and 
promising human capital practices; interviewed leading human resources 
experts, DHS employees and managers; and consulted a Field Team of 
employees and managers who provided a front-line perspective. Together, 
as a team, DHS and OPM also held dozens of focus groups, including 
visits to Norfolk, Atlanta, Detroit, New York, Miami, El Paso, Los 
Angeles, Seattle, Baltimore, and Washington, DC. Thus, DHS and OPM 
heard the concerns of thousands of the Department's employees.
    The Design Team developed 52 options for the various elements of 
the Department's HR system. These were presented to a DHS Human 
Resource Management Senior Review Committee (SRC) on October 20-23, 
2003. The SRC, co-chaired by senior DHS and OPM officials, included the 
presidents of the Department's three largest labor organizations, as 
well as the heads of some of its largest and most critical line 
operations. In addition, five non-Federal experts in public 
administration were designated as technical advisors to the SRC. During 
the course of two public meetings, the SRC reviewed the various Design 
Team options, and thereafter its members reported their views to the 
Secretary and the Director for consideration. In reaching final 
decisions regarding the new HR system, the Secretary and the Director 
relied on the SRC's advice and counsel, as well as the public comments 
received during the SRC proceedings and the wealth of material 
developed through the Design Team's research.
    These extensive and collaborative design efforts all preceded the 
formal process for developing the new HR system, and went far beyond 
that required by the Congress in the Homeland Security Act. The Act 
established a formal process in this regard, officially beginning when 
the Secretary and the Director published proposed regulations to 
establish the new DHS HR system in the Federal Register on February 20, 
2004. That first formal step provided a 30-day period for the public, 
employees, and employee representatives to review and submit formal 
comments on the proposed system. More than 3,800 public comments were 
received and analyzed by DHS and OPM staff. At the specific

[[Page 5275]]

request of the Secretary and the Director, the formal comments of labor 
organizations were given particular attention and consideration. 
Commenting jointly, the three largest labor organizations rejected the 
proposed regulations in their entirety. Public, employee, and labor 
organization comments are summarized in detail in a subsequent section 
of this Supplementary Information.

The Meet-and-Confer Process

    The public comment period was followed by the second step in the 
formal development process--an additional 30-day period during which 
representatives of the Department and its major employee organizations 
were to ``meet and confer'' in order to resolve differences over the 
proposed regulations wherever possible. That meet-and-confer process 
began officially on June 14, 2004. On that date, the Secretary and the 
Director notified Congress in writing that they had not accepted the 
labor organizations' recommendation to reject the proposed regulations 
in their entirety. This notification was required by the Homeland 
Security Act of 2002 (5 U.S.C. 9701(e)(1)(B)(i)). Even before the meet-
and-confer process began, however--and in keeping with our 
determination to work collaboratively with DHS employee 
representatives--staff from DHS and OPM met informally for several days 
with representatives of the three largest labor organizations 
representing DHS employees to discuss the proposed regulations. Our 
discussions helped us better understand each other's positions and led 
to several clarifications regarding the proposed regulations.
    As authorized by 5 U.S.C. 9701(e)(1)(B)(iii), and in order to 
facilitate the meet-and-confer process, the Secretary and the Director 
issued procedures governing the conduct of this process. The procedures 
provided for five employee organizations to participate in the meet-
and-confer process, including one management association; however, the 
management association declined to participate. The Secretary, in 
consultation with the Director, also requested the services of the 
Federal Mediation and Conciliation Service. Under those procedures, 
officials of the Department and OPM met with employee representatives 
from June 14 through August 6, 2004, a period well in excess of the 
statutory requirement. (Including informal sessions that preceded the 
meet-and-confer process, DHS, OPM, and labor organization 
representatives met for a total of more than 36 days--this, of course, 
is in addition to the 6 months that DHS and OPM representatives spent 
with employee representatives, full-time, during the HR system design 
process.) The following principals participated in the actual meet-and-
confer process:
     One representative from each of the four largest DHS labor 
organizations: the American Federation of Government Employees (AFGE), 
the National Treasury Employees Union (NTEU), the National Association 
of Agriculture Employees (NAAE), and the National Federation of Federal 
Employees (NFFE);
     Four representatives from DHS, including the Chief Human 
Capital Officer, an executive from his staff, and two senior line 
managers from DHS operational components; and
     Two senior executives from the Office of Personnel 
Management (OPM).
    Finally, at the conclusion of the meet-and-confer process, the 
Secretary and the Director met with the national presidents of the 
Department's two largest labor organizations (AFGE and NTEU) on 
September 10, 2004, to provide them with an opportunity to present 
their issues and concerns directly to the principals. Their 
presentation led to further revisions to these regulations as described 
in this SUPPLEMENTARY INFORMATION.
    As discussed and described in great detail in subsequent sections 
of this Supplementary Information, we have made substantial revisions 
to the proposed regulations in response to the many recommendations 
made by employees, labor organizations, and others during the public 
comment period. In addition, we listened to the concerns of the 
employee representatives and adopted many of the proposals made by 
labor organization representatives during the extensive meet-and-confer 
process. A careful comparison of the final regulations to those 
proposed several months ago will show that we have kept our commitment 
to an open, inclusive, and participatory process that respected and 
accommodated employee and labor organization perspectives and concerns.
    These extensive revisions notwithstanding, substantial 
disagreements remain over such fundamental issues as performance vs. 
tenure as a basis for individual pay increases, and the scope and duty 
to bargain vs. operational flexibility in the assignment and deployment 
of front-line personnel. These disagreements were underscored during 
the meet-and-confer process, and despite the exhaustive, good faith 
efforts by labor organization and management representatives during 
that process, the parties were simply not able to resolve them. In 
point of fact, these issues reach to the core of a flexible, 
contemporary HR system for the Department, and they represent the sort 
of transformational change envisioned by the Congress and the President 
when the Homeland Security Act was enacted into law. And because they 
are so fundamental, no one should be alarmed by these disagreements, 
take them as a sign of bad faith on the part of any party, or view them 
as an indication that the meet-and-confer process failed. Reasonable 
and honorable people may disagree, especially over such issues as 
these, but we believe the extensive involvement of employees and 
employee representatives over the course of the last 18 months added 
tremendous value--and that the process worked.
    While the regulatory process precluded us from agreeing on final 
regulatory language during the meet-and-confer process, we believe we 
did reach agreement with the participating labor organizations on 
numerous substantive issues. Because we could not ``sign off'' on these 
agreements, as we would in a traditional collective bargaining process, 
we have tried to exercise caution in characterizing the results. We 
believe this understates the extent of the conceptual agreements and 
understandings reached during the process, which we have tried to 
reflect in the Supplementary Information section of this notice. Thus, 
where we make the statement ``we agreed'' in the text of this 
Supplementary Information, we are referring to agreements reached by 
OPM and DHS in the regulatory process, rather than to agreements 
reached between management and labor organization representatives 
during the meet-and-confer process.

Major Issues

    Our analysis of the more than 3,800 comments received during the 
public comment period, as well as the many issues extensively discussed 
during the subsequent meet-and-confer process, revealed a set of major 
issues that elicited the most (or most substantive) comments, 
especially from key stakeholders. They are (1) specificity of the 
regulations, (2) pay for performance, (3) management rights/scope and 
duty to bargain, (4) adverse actions and appeals, and (5) mandatory 
removal offenses. Because these issues are critical to understanding 
the objectives of the Department's new HR system, we have given them 
particular attention in the following pages.

[[Page 5276]]

1. Specificity of the Regulations

    One of the most significant issues raised by employees, labor 
organizations, and some Members of Congress had to do with the basic 
structure of the regulations. As jointly prescribed by DHS and OPM, 
parts of the final regulations establish broad policy parameters for 
the Department's HR system but leave many of the details of that system 
to DHS implementing directives. Many of the commenters, especially 
labor organizations, expressed concern about this fact, arguing that 
the proposed regulations lacked sufficient detail, and they recommended 
that the regulations include far greater specificity.
    These comments and concerns focused almost exclusively on three of 
the subparts in the proposed regulations--those dealing with 
classification, pay, and performance management (subparts B, C, and D, 
respectively). Those subparts were (and remain) relatively general in 
nature, and they expressly provide for the Department to develop and 
issue directives implementing their precepts subsequent to the 
promulgation of these regulations. In contrast, the subparts dealing 
with labor relations, adverse actions, and appeals (subparts E, F, and 
G, respectively) are quite detailed, requiring little in the way of 
implementing directives.
    In response to these comments, and as a result of the meet-and-
confer process, we have added greater detail to the subparts at issue--
particularly subpart C. However, even with added detail, all three of 
the subparts at issue retain their original structure in the final 
regulations, establishing a general policy framework to be supplemented 
by detailed Departmental implementing directives. Comments 
notwithstanding, we believe that this is the appropriate approach. In 
these final regulations which have the full force and effect of law, we 
have intentionally adopted a structure that mirrors the very statutes 
that they replace. Moreover, this structure provides the Department the 
flexibility it requires in implementing an HR system of this scope and 
complexity.
    In this regard, the provisions of title 5, U.S. Code, governing 
classification, pay, and performance management establish general 
policies and authorities, with the details left to OPM to regulate. For 
example, 5 U.S.C. chapter 51 establishes the General Schedule (GS) 
classification system but leaves to OPM the definition of occupational 
series and families and the development and promulgation of detailed 
job grading standards and qualification requirements--presently 
encompassing hundreds of detailed classification standards and 
qualifications requirements (note that those standards and requirements 
are not subject to public notice and comment under the Administrative 
Procedure Act). Subpart B of these regulations, which now replaces 5 
U.S.C. chapter 51, follows suit, establishing the basic 
``architecture'' of the Department's job classification system--that 
is, its core elements and parameters--but it leaves the specific 
definition of occupational clusters and bands and the development of 
job grading standards to Departmental implementing directives (all 
subject to OPM review and coordination). Chapters 53 and 43 of title 5, 
U.S. Code, follow the same pattern and so too do the subparts that 
replace them--subparts C and D, respectively.
    While commenters did not express concern about the structure of 
subparts E, F, and G, dealing with labor relations, adverse actions, 
and appeals, respectively, they too reflect their statutory 
underpinnings. Like their ``legacy'' chapters in title 5 (chapters 71, 
75, and 77, respectively), they are extremely detailed and, except for 
procedures for the operation of the two adjudicating bodies that they 
establish, they require little in the way of implementing directives.
    While the final regulations retain their basic structure as 
originally proposed, we have added detail in subparts B, C, and D as a 
result of public comment and the meet-and-confer process. These 
additions are documented at length in our responses to the detailed 
comments that follow. However, some of them are worth highlighting. For 
example, in subpart C, we have included specific policies governing pay 
adjustments upon promotion from a lower pay band to a higher one; pay 
progression for employees in entry/developmental pay bands; limits on 
reductions in basic pay for performance or conduct reasons; pay 
adjustments for employees on pay retention; and the impact of an 
``unacceptable'' performance rating on an individual's pay. Similarly, 
subpart D now includes additional detail regarding requirements for 
setting and communicating performance expectations (especially those 
that may affect an employee's retention) and policies dealing with 
rating and rewarding performance.
    According to labor organization feedback during the final stages of 
the meet-and-confer process, these additions still fall short of the 
detail they recommend. Labor organization comments in this regard focus 
primarily on process, asserting that by including greater detail in the 
proposed regulations, they would have been given an opportunity to 
participate and provide input to the final regulations via the 
statutory meet-and-confer process set forth in 5 U.S.C. 9701(e). Among 
other things, that statutory process requires the Department and OPM to 
provide employee organizations with an opportunity to comment on 
proposed regulations and thereafter, meet with DHS and OPM officials 
(under the auspices of the Federal Mediation and Conciliation Service, 
if necessary) in an attempt to resolve any concerns and disagreements. 
As the labor organizations and other commenters have correctly pointed 
out, the proposed regulations did not provide for an analogous 
opportunity with respect to the issuance of implementing directives. 
This became a major topic of discussion during the meet-and-confer 
process, with labor organizations insisting that DHS and OPM either 
include all implementing details in these final regulations, or subject 
Department implementing directives to collective bargaining.
    We did not adopt either alternative. Including such detail in these 
regulations would be inconsistent with the ``legacy'' statutes that 
they replace and contrary to our best judgment--based on years of 
experience administering those statutes. Moreover, such detail would 
result in untenable rigidity in a Department whose mission requires 
just the opposite. In authorizing these regulations, Congress mandated 
that we develop a human resources system that is ``flexible'' (see 5 
U.S.C. 9701(b)(1)); indeed, of all of the various objectives set by 
Congress for this system in the Homeland Security Act, flexibility was 
the very first it enumerated, and unnecessary and excessive detail in 
subparts B, C, and D would undermine that objective.
    Collective bargaining is also inappropriate for the development of 
implementing directives. First, Congress could have provided for 
collective bargaining to develop directives, but did not. Instead, it 
expressly provided for a meet-and-confer process as a way of providing 
for labor organization involvement, and there is no evidence whatsoever 
that it intended that Departmental implementing directives be 
collectively bargained; rather, Congress clearly provided for 
``continuing collaboration'' (but implicitly, not collective bargaining 
or ``meet and confer'') in this regard. Moreover, we note that no labor 
organization enjoys exclusive

[[Page 5277]]

recognition at the Department level--indeed, labor organizations 
represent fewer than 40 percent of the Department's eligible civilian 
workforce; granting labor organizations the right to collectively 
bargain implementing directives that cover all of the Department's 
employees would be inappropriate.
    However, from the beginning DHS and OPM have recognized the value 
of involving employees and their representatives in the design of this 
system and included this as one of our guiding principles. Moreover, as 
noted previously, 5 U.S.C. 9701(e)(1)(D) requires the Department and 
OPM to provide a means for ensuring ``continuing collaboration'' with 
employee representatives in implementing these regulations. In keeping 
with those objectives, we have included a ``continuing collaboration'' 
process at Sec.  9701.105. This is consistent with the statutory 
provision which states that the Secretary and Director ``shall * * * 
develop a method for each employee representative to participate in any 
further planning or development (of the personnel system) which might 
become necessary.'' The new section now assures employee representative 
involvement in the development of the Department's implementing 
directives. Named after the section in the law that requires it, this 
section provides employee representatives with an opportunity to 
discuss their views and concerns on implementation and design concepts 
with DHS officials and/or to review and provide written comments on 
proposed final draft implementing directives in advance.
    In summary, three of the subparts in these final regulations remain 
relatively general in nature, providing broad policy parameters but 
leaving much of the details to implementing directives, while three 
others are specific. We believe that this structure, patterned after 
the chapters in title 5 that they replace, is appropriate. By providing 
for detailed implementing directives, the subparts dealing with 
classification, pay, and performance management provide the Department 
with the flexibility mandated by Congress, and they do so without 
compromising the Department's commitment to substantive employee 
representative involvement in the development of those directives.

2. Pay for Performance

    The pay system we described in the proposed regulations was 
designed to fundamentally change the way we pay employees in the 
Department of Homeland Security. Instead of a pay system based 
primarily on tenure and time-in-grade, we proposed a system that bases 
all individual pay increases on performance. This proposal honors major 
points that were debated by the Congress and agreed upon with the 
passage of the Homeland Security Act. In addition, the proposed pay 
system would be far more market-sensitive than the current pay system. 
The proposed changes relating to classification, pay, and performance 
management were designed to achieve these two primary goals.
    A number of commenters agreed with the proposal to create a more 
occupation-specific and market- and performance-based classification 
and pay system. However, most commenters strongly recommended that we 
maintain the status quo; that is, that DHS continue to rely on the 
General Schedule (GS) classification and pay system. Many commenters 
thought that the proposed pay-for-performance system would lower 
employee morale, increase competition among employees, and undermine 
teamwork and cooperation. Some also questioned the ability of the 
Department to successfully implement the proposed system, or of DHS 
managers to establish and apply performance standards fairly and 
consistently to pay decisions.
    We have retained the system described in the proposed regulations. 
We believe Congress and the American people expect their public 
employees to be paid according to how well they perform, rather than 
how long they have been on the job. They also expect the Department to 
do everything it can to recruit and retain the most talented 
individuals it can find to carry out its critical mission. These 
expectations are difficult, if not impossible, to achieve under the 
current system. The General Schedule does not provide the opportunity 
to appropriately reward top performers or to pay them according to 
their true value in the labor market. Under the General Schedule, 
performance is rewarded as an exception rather than the rule, and 
market is defined as ``one size fits all.''
    The GS pay system is primarily a longevity-based system--that is, 
pay increases are linked primarily to the passage of time. While time-
in-grade determines eligibility for a GS step increase, it is true that 
a finding that the employee is performing at an acceptable level of 
competence is also required. However, this minimal requirement is met 
by roughly 99 percent of all GS employees. Thus, at any given grade 
level, the vast majority of employees can expect to automatically 
receive base pay increases of up to 30 percent over time--in addition 
to the annual across-the-board pay increases--so long as their 
performance is ``acceptable.'' Even employees whose performance is 
unacceptable receive annual across-the-board pay increases that range 
from 3 to 5 percent, and special rates that are even higher. Over time, 
even minimally productive employees will progress steadily to the top 
of the GS pay range, and may end up being paid significantly more than 
higher performing employees with less time in grade. Such a system 
cannot be fairly characterized as providing performance-based pay.
    The DHS pay-for-performance system, by contrast, is designed to 
recognize and reward performance in two key ways. First, it establishes 
the fundamental principle that no employee may receive a base pay or 
locality rate increase if his or her performance does not at least meet 
expectations. Unlike the GS system, employees rated unacceptable will 
not get an annual adjustment. Second, the DHS system provides for 
individual base pay increases based on an employee's performance, 
whether by demonstrating requisite competencies at the entry/
developmental level or by meeting or exceeding stringent performance 
expectations at the full performance level. Unlike the GS system, 
tenure and time-in-grade have no bearing. An employee will progress 
through the pay range based solely on how well he or she performs.
    This concept may be simply summarized: The higher the performance, 
the higher the pay. This, too, is a fundamental principle of the new 
system, and we choose the order of these words deliberately. This 
system does not assume that individuals are motivated by pay, but 
rather that we have an obligation as an employer to reward the highest 
performers with additional compensation--however they may be motivated 
to achieve excellence. The Department has a special responsibility in 
this regard. Thus, the system we have designed is not a ``performance-
for-pay'' system, but a ``pay-for-performance'' system. Nevertheless, 
we believe it will inspire DHS employees to perform at their best. This 
is in contrast to the GS system, where it is possible for a high-
performing employee to be paid the same, or even less, than a lower 
performing co-worker.
    The 50-plus-year-old GS pay system also is not sufficiently market-
sensitive, potentially under-valuing the talents of the Department's 
most critical employees. Under the GS pay system, all employees in a 
given geographic location receive the same annual pay adjustment 
without regard to their

[[Page 5278]]

occupation or the level of duties and responsibilities they are 
expected to perform. This one-size-fits-all approach treats all 
occupations alike, across the board as well as in particular locations, 
regardless of market value and competition. Thus, we inevitably end up 
underpaying employees in some occupations and overpaying others. Even 
within an occupation, the rigidities of the General Schedule sometimes 
force us to underpay employees at the entry/developmental grades, with 
recruiting difficulties and high attrition the result.
    The new DHS pay system is designed to be much more market-
sensitive. First, it allows DHS, after coordination with OPM, to define 
occupational clusters and levels of work within each cluster that are 
tailored to the Department's missions and components. Second, it gives 
DHS considerable discretion, after coordination with OPM, to set and 
adjust the minimum and maximum rates of pay for each of those 
occupational clusters or bands, based on national and local labor 
market factors and other conditions. Instead of ``one size fits all'' 
pay rates and adjustments, the system allows DHS to customize those 
adjustments and optimize valuable but limited resources. This kind of 
flexibility, which is lacking under the GS pay system, will enable DHS 
to allocate payroll dollars to the occupations and locations where they 
are most needed to carry out the Department's mission of protecting the 
homeland.
    Thus, the goals and principles of the new system are sound, and we 
have confidence that the Department has the capability to effectively 
execute them. Pay-for-performance systems like that proposed for DHS 
are not new. Paybanding has been around in the Federal Government since 
1980, and the Federal Government has substantial experience in 
implementing performance-based pay systems (e.g., in demonstration 
projects). Research shows that employees' attitudes toward such systems 
change over time, as they gain experience with them. For example, 
employee support for the circa 1980 ``China Lake'' broadbanding/pay-
for-performance demonstration project was only 29 percent before the 
project began, reached 51 percent by 1985, and was 69 percent by 1988. 
Employee support was 70 percent when Congress made the project 
permanent in 1994. Today, thousands of Federal employees already are 
covered by successful performance-based pay systems.
    The system we have devised is also consistent with the findings and 
recommendations of the National Academy of Public Administration in its 
May 2004 Report, ``Recommending Performance-Based Federal Pay'': ``The 
basis for managing individual salary increases should be pay-for-
performance. This recommendation has been a constant theme in 
discussions for more than two decades and the principle in every 
demonstration project that tested new pay policies. The evidence from 
the projects confirms that pay-for-performance can be successful in 
federal agencies. The switch to a pay-for-performance policy should be 
managed as an organizational change because it will alter each agency's 
culture and contribute to improved performance.'' Thus, this is not a 
journey into uncharted waters.
    We respect the concerns of employees and agree that it is essential 
to communicate with employees regarding the changes that DHS is making. 
Experience has shown that one of the best ways to deal with the 
concerns associated with change is to involve employees and their 
representatives in the process. As stated in the Preamble to the 
proposed regulations, DHS is committed to a high degree of employee 
involvement in developing the details of the new classification, pay, 
and performance management system, and by its actions to date, it has 
lived up to that commitment.
    The need for employee involvement, however, will not cease with the 
publication of these regulations. That is why the final regulations 
provide for the continuing involvement of employee representatives in 
the development of the detailed directives that will implement this 
system and in the evaluation of the system. (See Sec. Sec.  9701.105 
and 9701.107.) That is also why the final regulations provide for the 
establishment of a new Homeland Security Compensation Committee 
(Compensation Committee) that will involve representatives from the 
major DHS labor organizations in addressing strategic compensation 
matters, such as Departmental compensation policies and principles. The 
Compensation Committee will consider factors such as turnover, 
recruitment, and local labor market conditions in providing options and 
recommendations for consideration by the Secretary. (See Sec.  
9701.313.) This involvement will enhance the credibility and acceptance 
of the system.
    The new pay system will require numerous decisions to be made on an 
annual basis, and the Compensation Committee will play a key role. For 
example, DHS must determine how available budgetary resources should be 
allocated between market-based adjustments--such as rate range 
adjustments and adjustments in locality and special rate supplements--
and performance pay increases. DHS must determine the overall amount 
that will be authorized for rate range adjustments in response to 
changes in the national labor market for specific occupational clusters 
and bands and the amounts that will be authorized for more targeted 
market-based adjustments in specific locality pay areas. The 
Compensation Committee will provide options and/or recommendations for 
consideration by the Secretary, who will make final decisions.
    The Compensation Committee will include a total of 14 members, with 
4 ``seats'' reserved for DHS labor organizations granted national 
consultation rights. OPM will also serve as an ex officio member. It 
will be chaired by DHS's Undersecretary for Management, who will select 
a facilitator from a list of nominees developed jointly by 
representatives of the Department and the labor organizations. In 
addition to making recommendations to the Secretary on strategic 
compensation matters, the Compensation Committee also will review 
summary data regarding annual performance payouts authorized under the 
new system (Sec.  9701.342). The Compensation Committee is modeled 
after the Federal Salary Council, which advises the President's Pay 
Agent (the Secretary of Labor and the Directors of the Office of 
Management and Budget and the Office of Personnel Management) on the 
ongoing administration of the locality pay program for GS employees. It 
is designed to give DHS employees, through the labor organizations that 
represent them, a real voice in the ongoing administration of the DHS 
pay-for-performance system.
    In summary, we believe the Department's pay-for-performance system 
is an imperative, essential to DHS's ability to attract, retain, and 
reward a workforce that is able to meet the high expectations set for 
it by the American people--the security of our homeland. Its successful 
implementation is well within the capability of the Department's 
leadership.

3. Management Rights/Scope and Duty To Bargain

    The ability to act quickly is central to the Department's mission--
not just in emergency situations but, more importantly, in order to 
prepare for or prevent emergencies. This principle was critical to 
President Bush and the Congress throughout the formation of

[[Page 5279]]

the legislation and the congressional debate that followed its 
introduction. This ability to act quickly is necessary even in meeting 
day-to-day operational demands. The Department must be able to assign 
and deploy employees, and to introduce the latest security technologies 
without delay. Congress clearly stated that the Department's HR system 
must provide the flexibility DHS needs to respond to a variety of vital 
operational challenges and to carry out its wide-ranging mission.
    To achieve this mandate, the proposed regulations revised the 
management rights and duty to bargain provisions found in 5 U.S.C. 
chapter 71. We expanded the list of management rights that are 
prohibited from negotiation to include 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--those rights that deal directly with the Department's 
homeland security operations. We also excluded from mandatory 
negotiations the procedures that the Department would follow in 
exercising these expanded management rights. And we proposed changes to 
allow the Department to take action in any of these areas without 
advance notice to labor organizations and without pre-implementation 
bargaining.
    Without exception, comments received from labor organizations 
objected to the proposed regulations, arguing that altering the scope 
of bargaining in any way was contrary to the Homeland Security Act. 
Further, labor organizations asserted that these changes were not 
necessary, and that current law already provided the Department with 
sufficient flexibility to deal with emergencies. Labor organizations 
did acknowledge the Department's need to take certain actions without 
pre-implementation bargaining, and during the meet-and-confer process, 
they proposed a process for accelerated post-implementation bargaining 
and third-party impasse resolution. Additionally, their proposal would 
have allowed the Department to temporarily suspend procedural 
provisions of collective bargaining agreements in situations where 
there is a direct or substantive connection to protecting homeland 
security. However, even under those stringent conditions, they insisted 
that employees automatically be ``made whole'' for any adverse 
consequences stemming from the suspension, as if management had 
violated the agreement.
    We recognize the good faith effort made by these labor 
organizations to meet the Department's operational needs. However, 
their proposals were fundamentally flawed in several respects. We have, 
therefore, retained the management rights/scope of bargaining 
provisions in the proposed regulations with some modifications.
    With respect to procedures, the proposals offered by the labor 
organizations do not go far enough. They would still require the 
Department to bargain, as a mandatory matter, over the procedures it 
would be required to follow in exercising management rights, especially 
those that deal directly with its operations. Those procedures can and 
do constrain such critical actions as the assignment of work, the 
deployment of personnel, and the staffing of tours of duty. These 
procedures are negotiable under 5 U.S.C. chapter 71. Labor 
organizations would have the Department continue that obligation, but 
with an ``escape clause'' that would allow the Department to suspend 
those procedures and act under exceptional circumstances.
    This is too high a bar. In today's operational environment, the 
exceptional has become the rule. During the meet-and-confer process, we 
provided numerous and frequently alarming examples where such 
negotiated procedures have hindered day-to-day operations--for example, 
in redeploying personnel from a seaport to an airport to meet an 
unexpected operational need, port directors today must draw from a pre-
established pool of volunteers even if in so doing they would under-
staff other critical line functions. Department managers, supervisors, 
and employees are on the frontlines of the war on terrorism and the 
efforts to preserve homeland security. The Department must be able to 
rely on the judgment and ability of these managers and supervisors to 
make day-to-day decisions--even if this means deviating from 
established or negotiated procedures. The reality in the Department 
today is that such deviations would be constant, thereby rendering any 
negotiated procedures meaningless. Moreover, the Department's managers 
and supervisors must be able to make split-second decisions to deal 
with operational realities free of arbitrarily imposed standards.
    With respect to post-implementation bargaining, the proposals 
offered by labor organizations are similarly flawed. While they would 
allow for management to implement without bargaining in advance over 
impact and appropriate arrangements for employees adversely affected by 
the exercise of a management right, they would still require immediate 
post-implementation negotiations and third-party impasse resolution 
over such matters. However, the reality of DHS's operational 
environment today is that change is constant, and as a consequence, so 
too would be post-implementation negotiations, with the prospect of 
continuous third-party involvement. These negotiations would be 
required even in cases where the change has come and gone and/or where 
its impact was insignificant or insubstantial. The demand on DHS's 
frontline managers and supervisors to engage in constant post-
implementation negotiations would divert them, and other critical 
resources, from accomplishing the mission. This is unacceptable and 
inconsistent with the vision for the Department.
    Further, under 5 U.S.C. chapter 71, negotiated agreements over 
appropriate arrangements are binding, under the assumption that those 
agreements have anticipated future changes. Once again, today's 
operational environment belies that assumption. Not only are changes 
necessitated by operational demands constant, but they are also of 
almost infinite variety. Our frontline managers and supervisors must 
not be bound by past agreements when they must face current and future 
exigencies.
    Nevertheless, in recognition of the concerns articulated by the 
participating labor organizations and other commenters, and as a result 
of the September 10 meeting with the national presidents of AFGE and 
NTEU, the Secretary and the Director directed that the proposed 
regulations be revised to ensure the involvement of labor organizations 
in such matters. First, the regulations provide for management, at the 
level of recognition, (1) to confer with an appropriate exclusive 
representative to consider its views and recommendations with regard to 
procedures that managers and supervisors will follow in the exercise of 
those management rights that deal directly with operational matters; 
(2) to meet for up to 30 days in an attempt to reach agreement on such 
procedures, with the possibility of extensions and third-party 
assistance; and (3) to deviate from those procedures as necessary. We 
believe this strikes the right balance between the Department's need 
for maximum flexibility and speed and the value of labor organization 
involvement.
    Second, as a result of the September 10 meeting with the national 
presidents of AFGE and NTEU, the Secretary and the Director also 
directed that the proposed regulations be revised to require post-
implementation negotiations over impact and

[[Page 5280]]

appropriate arrangements for employees adversely affected by the 
exercise of a management right. They have also been revised to allow 
for pre-implementation notice and bargaining on arrangements when 
operational circumstances permit.
    However, to ensure that those negotiations do not distract or 
divert managers and supervisors from their operational mission, those 
negotiations are required only when the action or event has a 
``significant and substantial'' impact on the bargaining unit as a 
whole, or on those employees in that part of the bargaining unit 
affected by the management action. For example, a management action 
that impacted employees from various locations could trigger 
negotiations at the level of recognition under this provision, as would 
a management action that impacted employees in a single district or 
port covered by a nationwide bargaining unit. Those negotiations must 
be consistent with the Department's general duty to bargain over 
conditions of employment, as established by these final regulations. In 
such instances, bargaining is not required unless the act or event is 
expected to exceed or has exceeded 60 days, in order to ensure that 
managers are not bargaining over short-term changes that may become 
moot before negotiations can even begin. While management is not 
required to negotiate when the impact is on a single employee, 
Department managers will be encouraged to address individual employee 
hardships that result from a management action, whether or not that 
management action triggers an obligation to bargain. In addition, the 
revised regulations provide for reimbursement for reasonable, actual, 
and non-routine expenses incurred as a result of such actions or 
events.
    We have also revised the proposed regulations to require mid-term 
bargaining over personnel policies, practices, and matters affecting 
working conditions only insofar that they are ``foreseeable, 
substantial, and significant in terms of impact and duration on the 
bargaining unit, or on those employees in that part of the bargaining 
unit affected by the change.'' For example, in addition to requiring 
negotiations over bargaining unit-wide changes in working conditions 
that are ``foreseeable, substantial, and significant,'' this provision 
would also require bargaining if the change in working conditions was 
limited to a location(s) or organizational unit(s) below the level of 
recognition (such as a port or district), insofar as the impact of such 
a change was otherwise ``foreseeable, substantial, and significant.'' 
In so doing, we note that this ``substantial and significant'' test is 
consistent with current FLRA and private sector case law.
    In addition, we have limited mid-term bargaining to 30 days. 
However, in response to the comments of labor organizations, the 
Secretary and the Director directed that the proposed regulations be 
amended to allow for binding resolution of mid-term impasses by the 
HSLRB. We have also reinstated an exclusive representative's right to 
be present at formal discussions between Department representatives and 
employees, except when the purpose is to discuss operational matters. 
These changes are also in keeping with our attempt to strike the right 
balance between operational demands and the rights of an exclusive 
representative.
    Taken together, the Secretary and the Director believe these 
revisions meet the Department's mission needs and are consistent with 
the Homeland Security Act's promise to preserve collective bargaining 
rights. While labor organizations have argued that any alteration of 
the scope of bargaining violates the Act, such an interpretation of the 
law would have the effect of nullifying the Act itself. The Act 
authorizes the Secretary and the Director to waive and/or modify 5 
U.S.C. chapter 71. Clearly, case law interpreting that chapter may be 
modified, as well, to carry out the language, intent, and purpose of 
these regulations. The Act also requires that the Department's HR 
system be flexible, and these regulations fulfill that statutory 
requirement.
4. Adverse Actions and Appeals
    In authorizing the creation of a new human resources system for the 
Department, Congress specifically required that employees continue to 
be afforded the protections of due process. It also prohibited any 
change in the application of existing statutory provisions involving 
merit principles, prohibited personnel practices, or protection against 
whistleblower reprisal or discrimination. Recognizing the critical 
nature of the Department's mission, Congress also stated in 5 U.S.C. 
9701(f)(2) that the new system should provide, ``to the maximum extent 
practicable, for the expeditious handling'' of appeals of disciplinary 
and performance-based actions.
    The proposed regulations included a number of changes to adverse 
actions and appeals procedures. Consistent with the Homeland Security 
Act, these changes were intended to simplify and streamline those 
procedures and provide for greater individual accountability, all 
without compromising guaranteed due process protections. Greater 
accountability is particularly critical to the Department. By its very 
nature, the Department's mission requires an exceptionally high level 
of workplace order and discipline. For example, the fact that many DHS 
employees have arrest authority and other enforcement powers means that 
they, and the Department, have a special responsibility to the public.
    With that in mind, the proposed regulations provided for shorter 
notice for adverse actions, an accelerated MSPB adjudication process, a 
lower burden of proof to sustain the Department's action, and a bar on 
any mitigation of penalty by MSPB (except in the case of a prohibited 
personnel practice), as well as a bar on the arbitration of adverse 
actions. The proposed regulations also gave the Secretary authority to 
establish a number of mandatory removal offenses (MRO)--that is, 
offenses that have such a direct and substantial impact on homeland 
security that they must carry a mandatory removal penalty. The proposed 
regulations also created a special, independent panel appointed by the 
Secretary to adjudicate MROs; if that panel found that an MRO had been 
committed, the proposed regulations provided that only the Secretary 
could mitigate the removal of an employee. While Congress gave DHS and 
OPM the authority to establish an adjudicatory body other than MSPB, 
the Secretary and the Director decided that with the changes outlined 
above, DHS could achieve the objectives of the legislation while 
retaining MSPB for employee adverse action appeals, except for MROs.
    Commenters, including the labor organizations participating in the 
meet-and-confer process, generally expressed concern that these 
changes, separately and together, would vitiate the due process rights 
of DHS employees. They argued that the changes would substantially 
diminish (or in the case of arbitrators eliminate) the authority of 
third parties such as MSPB to fully and fairly review and adjudicate 
adverse actions. Commenters, as well as some Members of Congress, 
expressed particular concern over the proposal to adopt a lower 
``substantial evidence'' standard of proof for adverse actions, as well 
as the proposal to bar MSPB from mitigating the Department's penalty 
determination in an adverse action, except in the case of a prohibited 
personnel practice. Labor organizations argued that the right to 
arbitrate an adverse action was fundamental to collective bargaining, 
and that by

[[Page 5281]]

removing adverse actions from arbitral review, the proposed regulations 
were inconsistent with statutory guarantees in this regard.
    OPM and DHS have carefully considered these comments, including 
those received from participating labor organizations during the meet-
and-confer process. Accordingly, major revisions have been made to the 
proposed regulations in four areas.
    First, while DHS and OPM continue to provide for a shorter, 15-day 
minimum notice to an employee of a proposed adverse action (compared to 
a 30-day notice under current law), we have given employees a minimum 
of 10 days to respond to the charges specified in the notice of 
proposed adverse action. This reply period runs concurrently with the 
notice period; it represents an increase over the 5-day reply period 
initially proposed, as well as the 7-day reply period provided in 
current law. Employees have a right to be heard before a proposed 
adverse action is taken against them. This is a fundamental element of 
due process in adverse actions. This change protects that right while 
still providing for a more streamlined process. Similarly, in the 
performance management section of the regulations, we have also ensured 
that employees are apprised in advance of performance expectations that 
may affect their retention.
    Second, we re-examined the issue of burden of proof and decided to 
adopt the ``preponderance of the evidence'' standard for all adverse 
actions, whether conduct-or performance-based, instead of the 
``substantial evidence'' standard set forth in the proposed 
regulations. ``Preponderance of the evidence'' is that 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. This is the standard that currently 
applies to conduct actions taken under chapter 75 of title 5. This is a 
higher standard of proof than ``substantial evidence,'' which currently 
applies to performance actions taken under chapter 43.
    Third, in response to comments from labor organizations and others, 
the Secretary and the Director decided to provide bargaining unit 
employees the option of grieving and, subject to the approval of their 
exclusive representative, arbitrating adverse actions. Thus, consistent 
with current law, bargaining unit employees may contest an adverse 
action either by filing an appeal with MSPB or by grieving and 
arbitrating the matter through any applicable negotiated grievance 
procedure. However, when adjudicating such adverse actions, arbitrators 
will be bound by the same rules and standards governing such things as 
burden of proof and mitigation that these regulations require of MSPB; 
this has been a matter of law, and the regulations reiterate this 
requirement to ensure consistent adjudication, regardless of forum. In 
order to ensure that consistency, the Department's two largest labor 
organizations at the September 10 meeting recommended the establishment 
of a mutually acceptable panel of arbitrators who have been trained and 
qualified to hear adverse action grievances. The Secretary and the 
Director concurred with this recommendation, and the regulations have 
been revised accordingly.
    Finally, the Secretary and the Director have authorized MSPB (as 
well as arbitrators) to mitigate penalties in adverse action cases, but 
only under very limited circumstances. We continue to believe that, 
because the Department bears full accountability for homeland security, 
it is in the best position to determine the most appropriate adverse 
action for poor performance or misconduct. Thus, its judgment in regard 
to penalty should be given deference.
    We are persuaded by the concern expressed by commenters, as well as 
the national presidents of AFGE and NTEU at the September 10 meeting, 
that the Department's authority over penalties should not be unlimited. 
Although there is a presumption that DHS officials will exercise that 
authority in good faith, the Secretary and the Director concluded that 
it is appropriate to provide an employee affected by an adverse action 
with an opportunity to rebut that presumption. In this regard, we are 
persuaded that providing MSPB (and arbitrators) limited authority to 
mitigate is an appropriate check regarding the exercise of the 
Department's imposition of penalties. Accordingly, the final 
regulations preclude mitigation of the penalty selected by DHS except 
where, after granting deference to the Department, a determination is 
made that the penalty is so disproportionate to the basis for the 
action as to be wholly without justification.
    This authority is significantly more limited than MSPB's current 
mitigation authority under the standard first enunciated in Douglas v. 
Veterans Administration (5 M.S.P.R. 280 (1981)). Under that 1981 
decision, MSPB stated that it would evaluate agency penalties to 
determine not only whether they were too harsh or otherwise arbitrary 
but also whether they were unreasonable under all the circumstances. In 
practice, this has meant that MSPB has exercised considerable latitude 
in modifying agency penalties. With this new, substantially more 
limited standard for MSPB mitigation of penalties selected by DHS, our 
intent is to explicitly restrict the authority of MSPB to modify those 
penalties to situations where there is simply no justification for the 
penalty. MSPB may not modify the penalty imposed by the Department 
unless such penalty is so disproportionate to the basis for the action 
as to be wholly without justification. In cases of multiple charges, 
MSPB or an arbitrator may mitigate a penalty where not all of the 
charges are sustained. The third party's judgment is based on the 
justification for the penalty as it relates to the sustained charge(s). 
The regulations are intended to ensure that when a penalty is 
mitigated, the maximum justifiable penalty must be applied.
    With the changes outlined above, we believe we have addressed and 
resolved the concerns raised by commenters regarding the preservation 
of due process for DHS employees. Due process is protected under the 
final regulations. Thus, the adverse actions and appeals procedures set 
forth in these regulations are ``fair, efficient, and expeditious,'' 
consistent with congressional direction.

5. Mandatory Removal Offenses

    The proposed regulations authorized the Secretary to identify 
offenses that, because they have a direct and substantial impact on the 
ability of the Department to protect homeland security, warrant a 
mandatory penalty of removal from the Federal service. Only the 
Secretary could mitigate the removal of an employee determined to have 
committed such a mandatory removal offense (MRO). Employees alleged to 
have committed these offenses would have the right to advance notice, 
an opportunity to respond, and a written decision. They would also be 
entitled to appeal that decision to an independent DHS panel, which 
could reverse the action but could not mitigate the removal penalty. 
This panel would be composed of three members, who would be appointed 
by the Secretary. Two examples of possible mandatory removal offenses 
were provided and comments were solicited on the best and most 
effective way to provide notice to all employees well in advance of 
their application.
    Commenters expressed a number of objections to the concept of MROs. 
Since only two examples of potential MROs were provided in the proposed 
regulations, they feared that removal could be too harsh a penalty for 
as-yet-

[[Page 5282]]

unspecified offenses and that local management might misuse MROs to 
target individual employees. They also were concerned that employees 
would not be given full and complete notice of such offenses prior to 
their application. Finally, they expressed an overriding concern about 
the independence and objectivity of the proposed internal DHS panel.
    As proposed, an MRO should have a direct and substantial impact on 
homeland security such that there is ``zero tolerance'' for the 
offense. Accordingly, we have decided to retain MROs and the Mandatory 
Removal Panel (MRP). However, in response to comments, the Secretary 
and the Director directed several modifications to the proposed 
regulations. First, we understand the concern over the lack of 
specificity with regard to MROs. During the meet-and-confer process, 
participating labor organizations expressed a similar concern, but we 
believe we were able to satisfactorily address most of their objections 
by providing them a preliminary list of potential mandatory removal 
offenses, as follows:
     Intentionally or willfully aiding or abetting an act, or 
potential act, of terrorism.
     Intentionally or willfully purchasing, using, selling, 
and/or transporting weapons of mass destruction or materials related 
thereto for the purpose of committing or contributing to a terrorist 
act.
     Intentionally or willfully allowing the improper 
transportation or importation of illegal weapons (including but not 
limited to weapons of mass destruction) or materials to be used for the 
purpose of committing or contributing to a terrorist act.
     Intentionally or willfully allowing the improper entry of 
an individual to the U.S. who could compromise, or potentially 
compromise, homeland security.
     Soliciting or intentionally accepting a bribe or other 
personal benefit that compromises, or could compromise, homeland 
security, when the employee knew or reasonably should have known of the 
compromise or potential compromise.
     Intentionally or willfully misusing and/or divulging law 
enforcement sensitive or confidential information (including, but not 
limited to, classified material) to unauthorized recipients that 
compromises, or could compromise, homeland security, when the employee 
knew or reasonably should have known of the compromise or potential 
compromise, subject to applicable whistleblower and free speech 
protections.
     Intentionally or willfully engaging in activities that 
compromise, or could compromise, the information, economic, or 
financial infrastructure of the Federal Government, when the employee 
knew or reasonably should have known of the compromise or potential 
compromise.
    There is no question that employees must be made aware of the final 
list of MROs when approved by the Secretary. Both the Secretary and the 
Director believe that this is a basic issue of fairness and a tenet of 
an organizational culture that establishes clear accountability. The 
labor organizations participating in the meet-and-confer process were 
especially concerned about this issue. Accordingly, we agreed to revise 
the proposed regulations to provide, at a minimum, that MROs will be 
(1) identified in advance as part of the Department's implementing 
directives, (2) publicized via notice in the Federal Register, and (3) 
made known to all employees on an annual basis. These offenses should 
not be a surprise to anyone. The Secretary also intends to consult with 
the Department of Justice in preparing the list of offenses for 
publication.
    Labor organizations participating in the meet-and-confer process 
were also apprehensive that managers could misuse MROs. At their 
specific suggestion, we agreed to add a requirement that every proposed 
notice of mandatory removal be approved by a Departmental level 
official before being issued to the employee. This requirement, 
combined with the Secretary's authority to mitigate the removal 
penalty, guards against the potential for such abuse and assures 
consistency of application.
    Finally, labor organizations participating in the meet-and-confer 
process indicated that assurance regarding the independence of the 
Panel would improve credibility and acceptance, and help resolve any 
concerns about due process protections. The Secretary and the Director 
agreed and directed that the proposed regulations be revised to provide 
that (1) members will be ``independent, distinguished citizens * * * 
who are well known for their integrity, impartiality, and expertise in 
labor or employee relations and law enforcement/homeland security''; 
(2) the Secretary will select members from a list that will include 
nominees submitted by labor organizations and other sources; and (3) 
decisions of the Panel will be subject to MSPB record review and 
appropriate judicial review under the same criteria applicable to other 
MSPB decisions. We believe these changes effectively resolve the major 
concerns regarding MROs and the Panel.
    With these changes, the final regulations provide for the 
independence demanded by commenters while assuring DHS's ability to 
remove employees who engage in conduct or performance that has a direct 
and substantial impact on homeland security. The Secretary is 
accountable to the President and the American people for safeguarding 
homeland security. No other agency or department bears this burden. 
These regulations ensure that the Secretary's authority aligns with 
that responsibility.

Response to Specific Comments and Detailed Explanation of Regulations

Subpart A--General Provisions

Section 9701.101--Purpose
    Section 9701.101 explains the overall purpose of the regulations in 
5 CFR part 9701 to implement the DHS human resources (HR) management 
system authorized by 5 U.S.C. 9701. In the proposed regulations, this 
section provided the design goals of the DHS HR system.
    During the meet-and-confer process, participating labor 
organizations recommended that the regulations be revised to clarify 
the DHS HR system design goals. We have amended Sec.  9701.101 by 
moving the system goals to a new paragraph (b) and by revising the 
goals to be consistent with the ``Guiding Principles'' adopted by the 
Senior Review Committee in 2003 when reviewing options for the DHS HR 
system.
Section 9701.102--Eligibility and Coverage
    Section 9701.102 of the proposed regulations provided the Secretary 
with the authority to approve the coverage of specific employee 
categories under one or more provisions in 5 CFR part 9701. During the 
meet-and-confer process, the participating labor organizations 
recommended that the regulations clarify the Secretary's authority to 
cover (and rescind the coverage of) various employee categories under 
part 9701 and the coverage eligibility of employee categories. Other 
commenters requested clarification regarding how employees who are not 
immediately covered by the new HR system (i.e., as the system is phased 
in) will be treated. In response to these comments, we have revised and 
reordered Sec.  9701.102 (and made conforming changes elsewhere in the 
final regulations) to clarify which categories of employees are 
eligible for coverage under these regulations, and

[[Page 5283]]

we have also clarified the Secretary's authority to make coverage 
determinations and the timing of such determinations, as follows:
     New Sec.  9701.102(a) (formerly Sec.  9701.102(d)) 
clarifies that all civilian DHS employees are eligible for coverage 
under one or more subparts of these regulations, except those covered 
by a provision of law outside the chapters of title 5, United States 
Code, that DHS may waive under 5 U.S.C. 9701.
     New Sec.  9701.102(b) replaces the proposed Sec.  
9701.102(a).
     New Sec.  9701.102(b)(1) provides that subpart A becomes 
applicable to all eligible employees when the regulations take effect--
i.e., 30 days after the date of publication of the final regulations in 
the Federal Register.
     New Sec.  9701.102(b)(2) provides that subparts E, F, and 
G are applicable to all eligible employees on the effective date 
established by the Secretary or designee, at his or her sole and 
exclusive discretion and after coordination with OPM; however, the 
effective date may not be later than 180 days after the date of 
publication of the final regulations in the Federal Register unless 
otherwise determined by the Secretary and the Director.
     New Sec.  9701.102(b)(3) provides that, with respect to 
subparts B, C, and D, the Secretary of DHS (or designee), at his or her 
sole and exclusive discretion and after coordination with OPM, may 
apply one or more of these subparts to a specific category or 
categories of eligible employees at any time. The regulations provide 
that the Secretary may apply some subparts, but not others, to a 
specific category or categories of eligible employees and that such 
coverage determinations may be made effective on different dates.
     New Sec.  9701.102(b)(4) contains the requirement (also 
included in the proposed regulations) that DHS will notify affected 
employees and labor organizations of all coverage determinations.
     New Sec.  9701.102(c) provides that until the Secretary 
makes a coverage determination, DHS employees will continue to be 
covered by the Federal laws and regulations that would apply to them in 
the absence of the authorities provided by these regulations. For 
example, GS employees in DHS will continue to be covered by the laws 
and regulations governing General Schedule classification and pay 
(i.e., 5 U.S.C. chapter 51 and 5 U.S.C. chapter 53, subchapter III) 
until the effective date of the Secretary's decision to cover such 
employees under the classification and pay provisions authorized by 5 
CFR part 9701, subparts B and C.
     New Sec.  9701.102(e) (formerly Sec.  9701.102(c)) 
clarifies that the Secretary or designee may prescribe implementing 
directives for converting employees to coverage under title 5 if, at 
his or her sole and exclusive discretion and after coordination with 
OPM, coverage under one or more subparts of these regulations is 
rescinded. (See Section 9701.103--Definitions and Section 9701.105--
Continuing collaboration for additional information on the process for 
developing implementing directives.) We have also clarified that DHS 
will notify affected employees and labor organizations in advance of a 
decision to rescind coverage under these regulations.
    In addition, a number of commenters requested clarification 
regarding the specific categories of employees that are eligible and 
ineligible for coverage under various subparts of these regulations. 
The following chart provides additional information on the categories 
of employees that are eligible (annotated with ``Yes'') and ineligible 
(annotated with ``No'') for coverage under each subpart of these 
regulations. The chart and its footnotes must be read together for full 
coverage information. Employee categories that are eligible for 
coverage under one or more subparts of these regulations will actually 
be covered by such subparts only upon approval of the Secretary or 
designee under Sec.  9701.102(b). DHS will provide advance notice to 
affected employees and labor organizations regarding coverage 
decisions.
BILLING CODE 6325-39-P; 4410-10-P

[[Page 5284]]

[GRAPHIC] [TIFF OMITTED] TR01FE05.000


[[Page 5285]]


[GRAPHIC] [TIFF OMITTED] TR01FE05.001


[[Page 5286]]


[GRAPHIC] [TIFF OMITTED] TR01FE05.002

BILLING CODE 6325-39-C; 4410-10-C

[[Page 5287]]

    Section 9701.102(e) of the proposed regulations provided that 
nothing in 5 CFR part 9701 prevents DHS from using an independent 
discretionary authority to establish a parallel system that follows 
some or all of the requirements in these regulations for a category of 
employees ineligible for coverage under 5 U.S.C. 9701, as described in 
this chart. Commenters recommended that DHS cover all employees by the 
same HR system provisions. For example, commenters urged DHS to treat 
employees appointed under the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act consistently with other employees who are 
eligible for coverage under these regulations and to recognize the 
value of the contributions of intermittent employees in emergency 
disaster assignments by creating an equivalent parallel system for them 
and closing the gap in compensation between this cadre and regular DHS 
employees. Conversely, another commenter recommended that such 
employees not be subject to the new DHS HR system. Other commenters 
recommended that DHS cover U.S. Coast Guard academy faculty in a 
parallel system, while keeping its existing HR system intact. Finally, 
a commenter felt that the Secretary should not be allowed to use 
independent discretionary authority to establish a parallel system for 
categories of employees who are ineligible for coverage and that such 
authority should be subject to congressional approval.
    We have redesignated Sec.  9701.102(e) as Sec.  9701.102(f) and 
revised it to clarify that the Secretary or other authorized DHS 
official may exercise an independent legal authority to establish a 
parallel system that follows some or all of the requirements in these 
regulations for a category of employees who are not eligible for 
coverage. DHS may decide to treat each employee category that is 
ineligible for coverage differently. In all cases, DHS may invoke its 
independent authority to establish a new or parallel pay system for 
categories of employees ineligible for coverage under these regulations 
only to the extent provided under such independent legislation and 
subject to any procedural protections that such legislation provides. 
For example, DHS may establish a parallel classification and pay system 
for Stafford Act employees.
    Other commenters requested clarification regarding the coverage of 
members of the Senior Executive Service (SES) and employees in senior-
level (SL) and scientific or professional (ST) positions under the 
classification, pay, and performance management system in subparts B, 
C, and D of these regulations in light of the new performance 
management certification requirements under 5 U.S.C. 5307 and the new 
pay-for-performance system for SES members under 5 U.S.C. 5383.
    Section 1322 of the Homeland Security Act of 2002 amended 5 U.S.C. 
5307 to provide a higher limit on the aggregate compensation that SES 
members and employees in SL/ST positions may receive in a calendar 
year. In addition, section 1125 of the National Defense Authorization 
Act of 2003 amended 5 U.S.C. chapter 53, subchapter VIII, to establish 
a performance-based pay system for SES members.
    These final regulations provide DHS with discretionary authority to 
cover SES members and SL/ST employees under the classification, pay, 
and performance management provisions of 5 U.S.C. part 9701, subparts 
B, C, and D. (See Sec. Sec.  9701.202(b)(3) and (4), 9701.302(b)(3) and 
(4), and 9701.402(a).) The aggregate pay limitation law and regulations 
under 5 U.S.C. 5307 and 5 CFR part 530, subpart B, cannot be waived and 
must continue to apply to SES members and SL/ST employees covered by 
the DHS pay system under 5 CFR part 9701, subpart C. DHS must obtain 
certification of its performance appraisal system, as required by 5 CFR 
part 430, subpart D, in order to apply the higher aggregate cap. (See 
Sec.  9701.303(f).)
    In addition, Sec.  9701.102(d) of these final regulations (Sec.  
9701.102(b) in the proposed regulations) allows DHS to cover its SES 
members under a classification, pay, and performance management system 
under these regulations. However, the provisions of such a system must 
be consistent with the performance-based features and pay caps that 
apply to employees covered by the new Governmentwide SES pay-for-
performance system under 5 U.S.C. chapter 53, subchapter VIII, and OPM 
implementing regulations. If DHS wishes to establish a system for SES 
members that differs from the Governmentwide SES pay-for-performance 
system, DHS and OPM must issue joint regulations consistent with the 
requirements of 5 U.S.C. 9701. DHS and OPM will involve SES members and 
other interested parties in the design and implementation of any new 
pay system for SES members.
    Other commenters requested clarification regarding why 
Transportation Security Administration (TSA) screeners are not covered 
by the new system. Commenters stated that the applicability of the 
regulations to TSA is addressed ambiguously and the regulations do not 
appear to recognize certain statutory impediments to coverage (whether 
implemented administratively as a ``parallel system'' or under the 
coverage of regulation) that differ with respect to screeners and 
nonscreeners.
    Under section 111(d) of the Aviation and Transportation Security 
Act, TSA screeners are employed outside the provisions of title 5, 
United States Code. Thus, they cannot be covered by the DHS HR system 
established under 5 U.S.C. 9701. Similarly, other TSA employees 
(nonscreeners) are covered by an independent personnel management 
system established under the authority of 49 U.S.C. 114(n). Under that 
authority, TSA nonscreeners are covered by the personnel management 
system established by the Federal Aviation Administration under 49 
U.S.C. 40122, subject to any modifications TSA may make. Under 49 
U.S.C. 40122(g), TSA employees are not covered by most provisions in 
title 5, U.S. Code, including the DHS HR system authority in 5 U.S.C. 
9701. While TSA employees are excluded from coverage under the HR 
system established by these regulations, DHS can direct that the TSA 
personnel systems align administratively with the new DHS HR system 
except to the extent that aspects of those systems conflict with the 
statutory authorities applicable to TSA employees.
    Commenters also recommended that the regulations be modified to 
allow DHS to cover administrative law judges (ALJs) and to develop a 
parallel job evaluation, pay, and performance management system 
tailored to ALJs consistent with the treatment of DHS SES members and 
employees in SL/ST positions, including the higher basic pay cap that 
applies to SES members under Sec.  9701.312(b). The commenters 
recommended that DHS develop a performance management system that is 
consistent with the requirements of the Administrative Procedure Act 
and in line with the guiding principles of the proposed regulations. 
DHS believes it is desirable to cover its ALJs under the system that 
applies to other ALJs throughout the Government.
Section 9701.103--Definitions
    During the meet-and-confer process, the participating labor 
organizations requested clarification regarding the exception to the 
definition of ``employee'' under Sec.  9701.103 of the proposed 
regulations. We agree that this exception is confusing and have revised 
5 CFR part 9701, subpart E, to eliminate the need for the exception 
language in

[[Page 5288]]

Sec.  9701.103. (See Section 9701.505--Coverage.)
    During the meet-and-confer process, the participating labor 
organizations requested that the definition of ``coordination'' be 
revised so that the OPM coordination process involve employees and 
employee representatives. Alternatively, the labor organizations 
recommended that the definition of ``coordination'' be deleted and that 
all requirements for DHS to coordinate with OPM be replaced with more 
detailed regulations.
    While we understand the desire for the regulations to provide more 
specificity and assurances on how the HR system will operate, we have 
not removed the definition of ``coordination'' from these regulations. 
The regulations must provide DHS with sufficient flexibility to design 
a classification, pay, and performance management system that can be 
tailored to DHS's varied mission requirements, performance priorities, 
and strategic human capital needs.
    However, we agree that the DHS HR system must be designed in a 
transparent and credible manner that involves employees and employee 
representatives. For this reason, we have added a definition of 
``implementing directives'' to Sec.  9701.103. The term ``implementing 
directives'' is defined as the directives issued by the Secretary or 
designee at the Department level to carry out any system established 
under 5 CFR part 9701. Such implementing directives will be developed 
with the involvement of employee representatives using the continuing 
collaboration provisions in revised Sec.  9701.105. (See Section 
9701.105--Continuing collaboration.) In addition, we have made a number 
of revisions in other sections of these regulations to require DHS to 
establish implementing directives to carry out the HR authority 
provided by these regulations.
Section 9701.105--Continuing Collaboration
    Section 9701.105 of the proposed regulations provided DHS with the 
authority to establish internal Departmental directives to further 
define the design characteristics of any system established under these 
regulations. During the meet-and-confer process, the participating 
labor organizations expressed concerns that such directives would be 
developed without the involvement of employees and employee 
representatives. The labor organizations recommended that DHS consult 
with employees and employee representatives before issuing any internal 
directives.
    We agree that the DHS HR system must be designed in a transparent 
and credible manner and that the development of any internal directives 
implementing the HR system authorities provided by these regulations 
involve employees and employee representatives. Although not expressly 
stated in the proposed regulations, DHS, in the spirit of collaboration 
used throughout the design process, intends to involve employees and 
their representatives in the development of the implementing 
directives. In addition, we have revised and retitled Sec.  9701.105 as 
``Continuing collaboration.'' This section requires DHS to issue 
implementing directives, as newly defined in Sec.  9701.103, to 
implement these regulations. As required by 5 U.S.C. 9701, employee 
representatives will be provided with an opportunity to collaborate in 
developing and issuing these implementing directives. DHS will 
determine the number of employee representatives that may engage in 
continuing collaboration and will establish timeframes to provide 
information and comments. National labor organizations with multiple 
local labor organizations accorded exclusive recognition will determine 
how their units will be represented within this framework.
    As the Department determines necessary, employee representatives 
will be provided with an opportunity to discuss their views with DHS 
officials and/or to submit written comments at initial identification 
of implementation issues and conceptual design and/or at review of 
draft recommendations or alternatives. Employee representatives also 
will be given a copy of the proposed final draft and will be provided 
with an opportunity for written and/or oral comment. These comments 
will become part of the record and will be forwarded with the final 
directive to the Secretary or designee for a final decision. However, 
nothing in the continuing collaboration process affects the right of 
the Secretary to determine the content of implementing directives and 
to make them effective at any time.
    As required by the Homeland Security Act, Sec.  9701.105(f) 
provides that the Secretary and the Director will jointly establish any 
procedures necessary to carry out the continuing collaboration process 
as internal rules of Departmental procedure which are not subject to 
review.
Section 9701.106--Relationship to Other Provisions
    Section 9701.106 describes the relationship of the authority 
provided DHS under 5 U.S.C. 9701 and these regulations to the 
authorities in other sections of law and regulations. During the meet-
and-confer process, the participating labor organizations requested 
clarification regarding when waived laws and regulations will and will 
not apply to categories of employees approved for coverage under one or 
more subparts of these regulations.
    We agree and have revised Sec.  9701.106 to clarify that, for the 
purpose of applying other provisions of law or Governmentwide 
regulations that reference provisions under the waivable chapters 
(i.e., chapters 43, 51, 53, 71, 75, and 77 of title 5, U.S. Code), the 
referenced provisions are not waived but are modified consistent with 
the corresponding regulations in part 9701, except as otherwise 
provided in that part or in DHS implementing directives. For example, 
hazardous duty differentials under 5 U.S.C. 5545(d) are payable only to 
General Schedule employees covered by 5 U.S.C. chapter 51 and 
subchapter III of chapter 53. To ensure that DHS employees continue to 
be eligible for hazardous duty differentials when they convert from the 
General Schedule to the DHS pay system, they will be deemed to be 
covered by the referenced General Schedule provisions of law for the 
purpose of applying section 5545(d). In addition, in applying the back 
pay law in 5 U.S.C. 5596 to DHS employees covered by subpart G of these 
proposed regulations (dealing with appeals), the reference in section 
5596(b)(1)(A)(ii) to 5 U.S.C. 7701(g) (dealing with attorney fees) is 
considered to be a reference to a modified section 7701(g) that is 
consistent with Sec.  9701.706(h).
    We also revised paragraph (c) to clarify that the listed provisions 
in paragraph (c) do not apply to categories of employees upon 
conversion to a new classification and pay system established under 5 
CFR part 9701, subparts B and C.
    We also added a new paragraph (a) to clarify that provisions of 
title 5 are waived or modified to the extent authorized by 5 U.S.C. 
9701 to conform with these regulations--i.e., these regulations 
supersede the corresponding laws they replace. In addition, for 
clarification purposes, we have restated the rule of construction, 
which was located in Sec.  9701.502 of subpart E of the proposed 
regulations, as a general rule of construction applicable to the entire 
part. However, in so doing, we do not intend to imply that the rule of 
construction is limited only to that subpart; rather, the express 
language of

[[Page 5289]]

Sec.  9701.106(a) extends that rule of construction to the entire part.
Section 9701.107--Program Evaluation
    During the meet-and-confer process, the labor organizations 
recommended that the regulations require DHS to conduct ongoing 
evaluations of these regulations and that employees and employee 
representatives be involved in such evaluations. Other commenters also 
recommended that regulations include a formal evaluation of the HR 
system with implementation goals, including predetermined benchmarks 
for success.
    Consistent with the commitment made in the Preamble to the proposed 
regulations, DHS intends to conduct evaluations of its HR system. We 
added a new Sec.  9701.107 to carry out this intent by requiring DHS to 
establish procedures for evaluating the regulations and their 
implementation. DHS will provide employee representatives with an 
opportunity to be briefed and comment on the design and results of the 
program evaluation. This opportunity includes participation in 
identifying the scope, objectives, and methodology to be used in the 
program evaluation and reviewing draft findings and recommendations, 
subject to any time limits prescribed in DHS's procedures. Involvement 
in this process does not waive the rights of DHS or the employee 
representatives under the applicable laws and these regulations.

Subpart B--Classification

General Comments
    As a result of concerns expressed during the meet-and-confer 
process, we have replaced the term ``job evaluation'' with the term 
``classification'' throughout these regulations.
    Commenters were concerned about the lack of specificity in subpart 
B of the proposed regulations regarding the structure and rules for the 
DHS classification system. Commenters found it difficult to ascertain 
where their positions would fit within the classification framework of 
occupational clusters and bands. Although some found the classification 
concepts simple and clear, most commenters felt the proposed 
regulations were too vague and difficult to understand because of the 
lack of detailed information on such features as how occupational 
clusters and bands will be established, which occupations will be 
assigned to each cluster, how GS grades will ``cross-walk'' to bands, 
and which positions will be assigned to each band. Because of the lack 
of details in the proposed regulations, commenters questioned whether 
the proposed classification system would be fair and credible. 
Commenters expressed a strong desire that the regulations be more 
transparent and that DHS closely involve employees and employee 
representatives in the design of the DHS classification system.
    Because of the lack of specificity, commenters recommended a number 
of amendments to subpart B of the regulations to provide more detailed 
criteria and conditions for the DHS classification system or to clarify 
how positions will be converted into the system. The comments included 
recommendations on and clarifications regarding the criteria for 
grouping occupations into clusters and the specific occupational 
clusters DHS will create, how competencies will be identified and used 
in the system, the definitions of the bands and the criteria DHS will 
use to assign positions to bands, the purpose of the Senior Expert band 
and the criteria that DHS will use to promote employees to that band, 
how manager and team leader positions will be assigned to clusters and 
bands, how law enforcement officer positions will be treated, the 
standards DHS will use to qualify and promote employees to higher bands 
(e.g., time-in-service, formal education requirements), and the process 
for converting positions to the DHS classification system. In reaction 
to the lack of detail in the regulations, the labor organizations 
recommended that the bar on collective bargaining of the DHS 
classification system under Sec.  9701.205(b) of the proposed 
regulations be removed.
    We understand the desire for the regulations to provide more 
specificity and assurances regarding how the DHS classification system 
will operate. However, the regulations must provide DHS with sufficient 
flexibility to design a classification system with occupational 
clusters and bands that support the market-based features of the DHS 
pay system and that can be tailored to DHS's mission requirements and 
strategic human capital needs. Except as otherwise explained in this 
section of the SUPPLEMENTARY INFORMATION, we have not modified subpart 
B of the regulations in response to these comments. DHS will consider 
the suggestions and recommendations made by commenters as it develops 
implementing directives for the DHS classification system.
    We agree that the DHS classification system must be designed in a 
transparent and credible manner that involves employees and employee 
representatives. While we have not removed the bar on collective 
bargaining in Sec.  9701.205, we have made a number of revisions 
throughout subpart B that require DHS to carry out the new 
classification system through detailed implementing directives, as 
defined in Sec.  9701.103. As previously discussed, these implementing 
directives will be established using the ``continuing collaboration'' 
provisions in revised Sec.  9701.105. (See Section 9701.103--
Definitions and Section 9701.105--Continuing collaboration.)
Other Comments on Specific Sections of Subpart B
Section 9701.201--Purpose
    Section 9701.201 explains the purpose of subpart B, which contains 
regulations establishing a classification structure and rules for 
covered DHS employees and positions. During the meet-and-confer 
process, the participating labor organizations recommended that the 
definition of ``classification'' under Sec.  9701.204 include a 
reference to the principle of equal pay for equal work. We agree, but 
rather than revising this definition, we have added the merit principle 
of ``equal pay for work of equal value'' to the end of the purpose 
description in new Sec.  9701.201(a).
    For clarification purposes, we also moved Sec.  9701.205(a) in the 
proposed regulations to a new Sec.  9701.201(b) in the final 
regulations. We have retitled Sec.  9701.205 as Bar on collective 
bargaining, consistent with the title of Sec.  9701.305.
Section 9701.203--Waivers
    Section 9701.203 of the regulations specifies the provisions of 
title 5, United States Code, that are waived for employees covered by 
the DHS classification system established under subpart B. During the 
meet-and-confer process, the participating labor organizations 
requested that the regulations clarify when such waivers will be 
applied. We have amended Sec.  9701.203(a) to clarify that the waivers 
apply when a category of DHS employees is covered by a classification 
system established under subpart B.
    We also have amended Sec.  9701.203(a) by adding Sec.  9701.222(d) 
to the list of exceptions to the waiver of 5 U.S.C. chapter 51. See 
Section 9701.222--Reconsideration of classification decisions for 
additional information on this exception.
Section 9701.204--Definitions
    A commenter suggested adding a definition of ``competency'' to 
Sec.  9701.204 to clarify its meaning in the definition of ``position'' 
or ``job.'' We agree and have added a definition of ``competencies'' 
that is identical to the

[[Page 5290]]

definition of that term in Sec.  9701.404 concerning the DHS 
performance management system.
    To help respond to commenters' general confusion with the 
classification provisions, we also have--
     Added a definition of ``basic pay'' that is identical to 
the definition of that term in Sec.  9701.304 to clarify its use under 
Sec.  9701.231, regarding conversion into the DHS classification 
system.
     Revised the definition of ``classification'' to clarify 
that this term, also referred to as job evaluation, means the process 
of analyzing and assigning a job or position to an occupational series, 
cluster, and band for pay and other related purposes.
     Amended the definition of ``occupational cluster'' to 
clarify that an occupational cluster may include one or more 
occupational series.
Section 9701.211--Occupational Clusters
    Section 9701.211 provides DHS with the authority to establish 
occupational clusters after coordination with OPM. In response to 
commenters' concerns about the lack of specificity in the regulations 
regarding how DHS will define occupational clusters, we have revised 
Sec.  9701.211 to clarify that DHS must document in writing the 
rationale, as well as the criteria, for grouping occupations or 
positions into occupational clusters.
Section 9701.212--Bands
    Section 9701.212 provides DHS with the authority to establish one 
or more bands within each occupational cluster after coordination with 
OPM. Section 9701.212(a)(1)(iv) of the proposed regulations provided 
that each occupational cluster may include a Supervisory band reserved 
primarily for first-level supervisors. Commenters observed that 
limiting Supervisory bands to first-level supervisors does not 
adequately accommodate the range of supervisory and managerial 
positions at DHS that are below the executive level. Some commenters 
questioned whether the Senior Expert band should be used for other 
supervisory/managerial levels or team leader positions. Others 
questioned whether the number of Supervisory bands should be limited 
above the first-level in an effort to ``flatten-out'' organizational 
structures. We agree that the description of Supervisory band in the 
proposed regulations was too narrow. To clarify, we have reordered 
Sec.  9701.212 and revised Sec.  9701.212(b)(4) (formerly Sec.  
9701.212(a)(1)(iv)) to provide that a Supervisory band includes work 
that may involve hiring or selecting employees, assigning work, 
managing performance, recognizing and rewarding employees, and other 
associated duties. DHS will address the number and use of Supervisory 
bands and the assignment of team leaders to bands in its implementing 
directives.
    Section 9701.212(b) of the proposed regulations provided DHS with 
the discretionary authority to establish qualification standards and 
requirements for occupational series, occupational clusters, and/or 
bands after coordination with OPM. During the meet-and-confer process, 
the participating labor organizations were concerned that DHS may 
choose not to establish qualifications standards. To clarify our 
intent, we have redesignated Sec.  9701.212(b) as Sec.  9701.212(d) and 
revised this paragraph to require DHS to establish qualifications 
standards and requirements. Under this provision, DHS has the 
flexibility to (1) adopt the qualifications standards and requirements 
issued by OPM and/or (2) establish different qualifications standards 
and requirements after coordination with OPM. In addition, we have 
clarified this section to reflect the fact that DHS retains its 
authority to establish qualification standards under 5 U.S.C. chapters 
31 and 33 and implementing regulations.
Section 9701.222--Reconsideration of Classification Decisions
    Section 9701.222 of the proposed regulations required DHS to 
establish policies and procedures for handling an employee's request 
for reconsideration of classification decisions. The proposed 
regulations limited reconsideration requests to occupational series or 
pay system assignment and provided employees no right to appeal 
classification decisions outside DHS.
    Because the proposed regulations provided no authority for 
independent review of DHS classification decisions, the labor 
organizations recommended that the regulations be revised to provide 
bargaining unit employees with the authority to challenge 
classification determinations through negotiated grievance procedures. 
They also recommended that employees be provided the right to challenge 
classification decisions beyond occupational series and pay system 
assignment. Other commenters advised that DHS's authority to reconsider 
classification decisions should be appealable to an independent 
arbitrator.
    We agree that the DHS classification system should provide covered 
employees with the right to a broader scope of review of the 
classification of their position by an independent third party. We have 
therefore revised Sec.  9701.222 to provide employees with the right to 
request that DHS or OPM reconsider the occupational cluster and band 
assignment as well as the pay system and occupational series of their 
official position of record at any time. This right is parallel to the 
classification appeal right of current General Schedule employees under 
5 U.S.C. 5112(b). In addition, the regulations require both DHS and OPM 
to establish implementing directives for reviewing these requests, 
including, but not limited to, policies on nonreviewable issues, rights 
of representation, and effective dates of any corrective actions.
    Section 9701.222(c) of the regulations allows an employee to 
request that OPM reconsider a DHS classification reconsideration 
decision. However, an employee may not request that DHS review an OPM 
reconsideration decision. If an employee does not request an OPM 
reconsideration decision, Sec.  9701.222(c) provides that a DHS 
classification determination is final and not subject to further review 
or appeal. Section 9701.222(d) provides that OPM's final determination 
on an employee's request is not subject to further review or appeal. 
This provision, in conjunction with the waiver exception in Sec.  
9701.203(a), is intended to preserve OPM's authority under 5 U.S.C. 
5112(b) and 5 U.S.C. 5346(c) to review and issue final classification 
decisions without judicial review.
    During the meet-and-confer process, the participating labor 
organizations suggested that the regulations authorize retroactive 
effective dates for promotions if an employee's position is found by 
OPM to be misclassified. Under the current classification law and 
regulations (5 U.S.C. chapter 51 and 5 CFR part 511) classification 
decisions generally may not be made effective retroactively. (See 5 CFR 
511.701(a)(4).) In addition, the Supreme Court has held that neither 
the Classification Act under 5 U.S.C. chapter 51 nor the Back Pay Act 
under 5 U.S.C. 5596 creates a substantive right to back pay for periods 
of wrongful classifications. (See United States v. Testan, 424 U.S. 372 
(1976).)
    OPM regulations at 5 CFR 511.703 provide an exception to this 
general rule and allow a retroactive effective date if upon 
classification appeal an employee is found to be wrongfully demoted. 
Any similar retroactive effective date provisions regarding 
classification reconsideration decisions will be addressed in DHS's and 
OPM's policies and procedures for reviewing these requests.

[[Page 5291]]

Section 9701.232--Special Transition Rules for Federal Air Marshal 
Service
    Section 9701.232 provides that if DHS transfers Federal Air Marshal 
Service positions from the Transportation Security Administration (TSA) 
to another organization within DHS, DHS may cover such positions under 
a classification system that is parallel to the classification system 
that was applicable to the Federal Air Marshal Service within TSA. 
These revised regulations provide that DHS will issue implementing 
directives on converting Federal Air Marshal Service employees to any 
new classification system under subpart B, consistent with the 
conversion rules in Sec.  9701.231.
    Labor organization commenters recommended that the regulations 
provide DHS with the authority to transfer Federal Air Marshal Service 
positions only if Federal Air Marshals are granted full collective 
bargaining rights and the ability to join a labor organization of their 
choice. We disagree. Federal Air Marshals are excluded from collective 
bargaining by section 1-123 of E.O. 12666, January 12, 1989.

Subpart C--Pay and Pay Administration

General Comments
    Commenters expressed concerns about the lack of specificity in 
subpart C of the proposed regulations on the pay structure and the pay 
administration rules governing the proposed DHS pay system. Commenters 
felt the proposed regulations were too vague and difficult to 
understand because of the lack of detailed information on such issues 
as how band rate ranges will be established and adjusted, how locality 
and special pay supplements (hereafter called locality and special rate 
supplements) will be established and adjusted, and how performance pay 
pools will be funded and operated. Commenters had difficulty 
ascertaining how their pay and pay adjustments would be determined 
under the new system and how individual and team performance would 
affect pay. They also were concerned that their pay would not keep up 
with their counterparts in other Federal agencies. Commenters expressed 
a strong desire that the regulations be more transparent and that DHS 
closely involve employees and employee representatives in the design of 
the pay system. Because of the lack of details in the proposed 
regulations, commenters questioned whether the proposed pay system 
would be fair and equitable.
    Because of the lack of specificity, commenters recommended a number 
of different amendments to subpart C of the regulations to provide 
detailed criteria and conditions for setting and adjusting basic rate 
ranges and granting rate range increases to employees; setting and 
adjusting locality and special rate supplements and providing for 
increases in those supplements; addressing staffing issues that may 
result from geographic pay differences; funding pay pools; determining 
and granting performance pay increases; setting pay upon promotion, 
demotion, initial appointment, and other actions; granting within-band 
pay increases; granting special skills, assignment, and staffing 
payments; and transitioning and converting employees into the new pay 
system. In reaction to the lack of specificity, the labor organizations 
recommended that the regulations be revised to remove the bar on 
collective bargaining of the DHS pay structure and system in Sec.  
9701.305; require the new pay system to be faithful to merit system 
principles and protect against prohibited personnel practices; require 
DHS to assess the impact of the system on employees prior to 
implementation to maximize fairness, uniformity, and objectivity; 
implement the current locality pay program, modified to be occupation 
specific; and establish a Department-level compensation board to 
address and make recommendations on continuing issues regarding the 
administration of the new pay system. Labor organization commenters 
felt that such a compensation board would make pay decisions more 
credible and transparent. Other commenters felt that employees should 
receive pay increases equivalent to the increases they would have 
received under the General Schedule.
    We understand the desire for the regulations to provide more 
specificity and assurances regarding how the pay system will operate. 
However, the regulations also must provide DHS with sufficient 
flexibility to design a nimble pay system that is performance-
sensitive, market-based, and tailored to DHS's performance goals, 
mission requirements, and strategic human capital needs. Except as 
otherwise explained in this section of the Supplementary Information, 
we have not modified subpart C of the regulations in response to these 
comments.
    However, we agree that the DHS pay system must be designed in a 
transparent and credible manner that involves employees and employee 
representatives. While we have not removed the bar on collective 
bargaining in Sec.  9701.305, we made a number of revisions throughout 
subpart C that require DHS to establish more detailed policies to carry 
out the new pay system through implementing directives, as defined in 
Sec.  9701.103. As previously discussed, these implementing directives 
will be developed using the ``continuing collaboration'' provisions in 
revised Sec.  9701.105. (See Section 9701.103--Definitions and Section 
9701.105--Continuing collaboration.) DHS will consider the suggestions 
and recommendations made by commenters as it develops implementing 
directives for the DHS pay system.
    In addition, we agree that labor organization involvement in both 
the design and administration of the pay system can contribute to its 
credibility and acceptance with bargaining unit employees. Therefore, 
we have provided for such involvement by giving the Department's 
national labor organizations four seats on the newly established 
Homeland Security Compensation Committee (Compensation Committee). As 
part of the Compensation Committee, the labor organization 
representatives and some of the Department's most senior leaders will 
be able to participate in the development of recommendations and 
options for the Secretary's consideration on strategic compensation 
matters such as Departmental compensation policies and principles, the 
annual allocation of funds between market and performance pay 
adjustments, and the annual adjustment of rate ranges and locality and 
special rate supplements. While the Secretary retains the final 
decisionmaking authority in all of these matters, we believe this 
degree of labor organization involvement is consistent with our guiding 
principles. The Department will prescribe procedures governing the 
membership and operation of the Compensation Committee, including 
setting schedules for discussions and submission of recommendations. In 
addition, the establishment of the Compensation Committee will not 
affect the right of the Secretary to make determinations regarding the 
annual allocation of funds between market and performance pay 
adjustments and the annual adjustment of rate ranges and locality and 
special rate supplements, and to make such determinations effective at 
any time. See new Sec.  9701.313 of these regulations for additional 
information.
    Finally, as previously discussed, we have added a new paragraph (b) 
to Sec.  9701.101, which provides the overall criteria for the design 
of the DHS human resources system, to include a requirement that the 
system be designed to generate respect and trust and be

[[Page 5292]]

based on the principles of merit and fairness embodied in the merit 
system principles contained in 5 U.S.C. 2301. We also have added a new 
paragraph (c) to Sec.  9701.301 to require that the DHS pay system, 
working in conjunction with the performance management system 
established under subpart D, be designed to incorporate a number of 
elements, including adherence to the merit system principles, and that 
it must be implemented and managed in a fair, transparent, and 
inclusive manner. These criteria are based on similar criteria that 
Congress recently enacted with respect to chapters 47, 54, and 99 of 
title 5, United States Code.
Other Comments on Specific Sections of Subpart C
Section 9701.301--Purpose
    In addition to the new Sec.  9701.301(c) discussed in the General 
Comments section, we also have added a new paragraph (b) to Sec.  
9701.301 to clarify that any pay system under subpart C must be 
established in conjunction with the classification system described in 
subpart B. This addition is consistent with a similar provision in 
Sec.  9701.201(b).
Section 9701.303--Waivers
    Section 9701.303(a) specifies the provisions of title 5, United 
States Code, that are waived for employees covered by the DHS pay 
system established under subpart C. During the meet-and-confer process, 
the participating labor organizations requested that the regulations 
clarify when such waivers will be applied. We have amended Sec.  
9701.303(a) to clarify that the waivers apply when a category of DHS 
employees is covered by a pay system established under subpart C. We 
have also reordered some of the paragraphs in this section for 
clarification.
    Section 9701.303(c)(2) of the proposed regulations raised the 
limitation on rates of basic pay payable under 5 U.S.C. 5373--for 
categories of DHS employees whose pay is fixed by administrative 
action--to the rate for level III of the Executive Schedule, consistent 
with the level III basic pay cap that applies to employees paid under 
the DHS pay system established under subpart C of these regulations. 
(See Sec.  9701.312 of these regulations.) Currently, 5 U.S.C. 5373 
provides a basic pay limitation equal to the rate for Executive Level 
IV. During the meet-and-confer process, the participating labor 
organizations requested clarification regarding which categories of 
employees were covered by the pay limitation under 5 U.S.C. 5373. In 
reordering this section, we have redesignated paragraph (c)(2) as 
paragraph (c) and revised it to clarify that the pay limitation under 5 
U.S.C. 5373 applies to DHS employees whose pay is set by administrative 
action, such as Coast Guard Academy faculty. We note that 5 U.S.C. 5373 
does not apply to employees covered by a pay system established under 
subpart C. The basic pay limitation for employees covered by subpart C 
is provided in Sec.  9701.312.
    Section 9701.303(c)(3) of the proposed regulations revised 5 U.S.C. 
5379 to provide DHS with the authority to establish a student loan 
repayment program for DHS employees. During the meet-and-confer 
process, the participating labor organizations requested clarification 
regarding the process for establishing a new student loan repayment 
authority. In reordering this section, we have redesignated paragraph 
(c)(3) as paragraph (d) and revised it to provide that a DHS student 
loan repayment program under this authority will be established by 
implementing directives (as defined in Sec.  9701.103). In addition, we 
have revised Sec.  9701.303(d) to clarify that DHS will coordinate 
those implementing directives with OPM.
Section 9701.304--Definitions
    The definition of ``control point'' has been removed consistent 
with the removal of the control point provisions in Sec.  9701.321 and 
other sections of the regulations. (See Section 9701.321--Structure of 
bands.) We have added a definition of ``competencies'' that is 
identical to the definition of that term in Sec.  9701.404 concerning 
the DHS performance management system. This is consistent with the 
addition of that term to the definitions section in subpart B. (See 
Section 9701.204--Definitions.) We have added a reference to the 
description of ``performance expectations'' in Sec.  9701.406(c) to 
clarify the use of that term in the definitions of ``rating of record'' 
and ``unacceptable performance'' in Sec.  9701.304. As a result of 
comments made during the meet-and-confer process, we have added a 
definition of ``modal rating'' to explain the use of this term in 
revised Sec.  9701.342(a)(2). Finally, we have deleted the definition 
of ``unacceptable rating of record'' as unnecessary.
Section 9701.311--Major Features
    Section 9701.311 requires that a DHS pay system established under 
subpart C include a number of specific features. Commenters noted that 
the term ``rate'' appeared to be missing after ``basic pay'' in 
paragraph (b). We agree and have inserted the term in Sec.  
9701.311(b).
Section 9701.312--Maximum Rates
    Section 9701.312 provides that DHS may not pay an employee covered 
by a pay system established under subpart C a rate of basic pay in 
excess of the rate for level III of the Executive Schedule. This 
section further provides that DHS may establish the maximum annual rate 
of basic pay at the rate for level II of the Executive Schedule for 
members of the SES if DHS obtains the certification required under 5 
U.S.C. 5307(d). Commenters observed that this proposed basic pay 
limitation and other features of the pay system proposal will not 
resolve the pay compression and limitation issues for senior law 
enforcement officers.
    The rate of pay received by senior law enforcement officers and 
other employees who earn premium pay under 5 U.S.C. chapter 55 is 
subject to a special limitation in 5 U.S.C. 5547. This limitation is 
not affected by these regulations. Under 5 U.S.C. 9701(c)(2), DHS is 
prohibited from waiving the premium pay limitation or any other premium 
pay provision authorized under 5 U.S.C. chapter 55. See also the 
discussion of changes made in Sec.  9701.332(c) to clarify that 
locality and special rate supplements are considered basic pay for the 
purpose of applying the limitation in Sec.  9701.312 in Section 
9701.332--Locality rate supplements.
Section 9701.314--DHS Responsibilities
    Section 9701.313 of the proposed regulations provided a list of 
DHS's overall responsibilities in implementing the pay system 
established under subpart C. This section has been redesignated as 
Sec.  9701.314 due to the insertion of a new Sec.  9701.313, Homeland 
Security Compensation Committee. (See the discussion of new Sec.  
9701.313 under General Comments.)
Section 9701.321--Structure of Bands
    Section 9701.321 provides DHS with the authority to establish basic 
pay rate ranges for bands after coordination with OPM. In the proposed 
regulations, this section also provided DHS with the authority to 
establish control points within bands to limit the initial pay-setting 
or pay progression of employees. The labor organizations expressed 
concerns about the control point provisions. They felt that control 
points could prevent employees who are meeting or exceeding performance 
expectations from achieving the same level of pay they could receive 
under the current system. They recommended that the regulations be 
modified to require that control point policies be collectively 
bargained.

[[Page 5293]]

    We have removed the provisions concerning control points in 
Sec. Sec.  9701.321(a) and (d) and 9701.342(d)(3), as well as the 
definition of ``control point'' in Sec.  9701.304 of the proposed 
regulations, as it is not our intention to unduly limit pay 
progression.
    Section 9701.321(c) of the proposed regulations provided DHS with 
the authority to establish different basic pay rate ranges for 
employees in a band who are stationed in locations outside the 48 
contiguous States. Commenters requested clarification regarding how 
basic pay rate ranges for employees stationed outside the 48 contiguous 
States will be determined. Other commenters were concerned that 
employees working in Hawaii, Puerto Rico, Alaska, and other nonforeign 
areas and foreign areas would never see another annual pay increase 
because funding will be used for performance pay increases and that 
employees in such areas will not receive any locality rate supplement. 
During the meet-and-confer process, the participating labor 
organizations asked whether locality rate supplements under Sec.  
9701.332 would apply to employees stationed outside the 48 contiguous 
States and what protections would be offered to replicate the current 
pay-setting criteria for employees in these locations.
    We have removed paragraph (c) from Sec.  9701.321. We have also 
removed paragraph (d) from Sec.  9701.322, which provided DHS with the 
authority to provide basic pay rate range adjustments in locations 
outside the 48 contiguous States that differ from the adjustments 
within the 48 States. Under the revised regulations, employees in a 
band who are stationed in locations outside the 48 contiguous States 
will be covered by the same basic pay ranges as other employees in that 
band who are stationed within the 48 States. In addition, under 
Sec. Sec.  9701.332 and 9701.333, and after coordination with OPM, DHS 
may establish locality or special rate supplements for employees 
stationed outside the 48 contiguous States. Employees stationed in 
locations outside the 48 contiguous States also will continue to be 
entitled to foreign and nonforeign area cost-of-living allowances and 
other differentials and allowances under 5 U.S.C. chapter 59, as 
applicable.
Section 9701.322--Setting and Adjusting Rate Ranges
    Section 9701.322 provides DHS with the authority to set and adjust 
the basic pay rate ranges of bands after coordination with OPM. Section 
9701.322(b) of the proposed regulations provided DHS with the 
authority, after coordination with OPM, to determine the effective date 
of newly set or adjusted band rate ranges and stated that, generally, 
ranges will be adjusted annually. The labor organizations recommended 
that the regulations be amended to guarantee that basic rate ranges 
will be adjusted annually and normally become effective in January.
    We have revised Sec.  9701.322(a) to clarify that DHS may set and 
adjust rate ranges on an annual basis. In addition, we have revised 
Sec.  9701.322(b) to provide that, unless DHS determines that a 
different date is needed for operational reasons, annual adjustments to 
basic rate ranges will become effective on or about the same date as 
the annual General Schedule pay adjustment authorized by 5 U.S.C. 5303.
    Section 9701.322(c) provides that DHS may provide different rate 
range adjustments for different occupational clusters. A commenter 
requested clarification regarding whether the pay ranges will vary 
between occupational clusters. We have clarified paragraph (c) to 
provide that DHS may establish different rate ranges and rate range 
adjustments for different bands.
    As previously discussed, we also have removed paragraph (d) from 
Sec.  9701.322, which provided DHS with the authority to provide basic 
pay rate range adjustments in locations outside the 48 contiguous 
States that differ from the adjustments within the 48 States. (See 
Section 9701.321--Structure of bands.) Paragraph (e) in the proposed 
regulations has been redesignated paragraph (d) in these final 
regulations.
Section 9701.323--Eligibility for Pay Increase Associated With a Rate 
Range Adjustment
    Section 9701.323(a) of the proposed regulations provided that an 
employee who meets or exceeds performance expectations 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 basic rate 
range adjustment under Sec.  9701.322. Section 9701.323(b) provides 
that an employee who has an unacceptable rating of record may not 
receive a pay increase as a result of a rate range adjustment. During 
the meet-and-confer process, the participating labor organizations 
requested that the regulations clarify which type of pay increase 
paragraph (a) covers and when eligible employees would be entitled to 
such a pay increase.
    We agree and have revised Sec.  9701.323(a) to clarify that when a 
band rate range is adjusted under Sec.  9701.322, employees covered by 
that band are eligible for an individual pay increase if they meet or 
exceed performance expectations. We also clarified that for an employee 
receiving a retained rate, the amount of the pay increase is determined 
under Sec.  9701.356. (See Section 9701.356--Pay retention.) We have 
also redesignated paragraph (b) as paragraph (c) for clarification 
purposes.
    The labor organizations also recommended that Sec.  9701.323(a) be 
revised to provide that an employee who meets or exceeds expectations 
must receive an increase in pay equal to either (1) the percentage 
value of any increase in the minimum rate of the employee's band 
resulting from a rate range adjustment (as stated in the proposed 
regulations) or (2) the percentage value equal to the average of the 
increase in the minimum rate and the increase in the maximum rate of 
the employee's band, whichever is greater.
    We have not revised Sec.  9701.323(a) in response to this 
recommendation. Under Sec.  9701.322(d), DHS has the authority to 
adjust the minimum and maximum rates of band ranges by different 
percentages. This will allow DHS, for example, to increase the maximum 
rate by a greater percentage than the minimum rate in response to labor 
market factors that warrant a broader rate range for a particular 
occupational category. However, Sec.  9701.323 requires DHS to increase 
the pay of eligible employees by only the percentage value of any 
increase in the minimum rate of the band. As a result, DHS has greater 
opportunities to enhance employee pay through the use of performance 
pay increases under Sec.  9701.342. Providing greater opportunities for 
high performers to earn pay increases will help DHS be more competitive 
in the labor market, since in the private sector high performers are 
generally provided with larger pay increases.
    We also note that increases in the maximum rate may be unrelated to 
changes in the labor market and, thus, should not be used to determine 
the general increase for DHS employees. For example, DHS may decide 
that a rate range is too narrow to appropriately recognize high 
performers and extend the range by 10 percent. That does not mean that 
all eligible employees in the band should receive a 10 percent 
increase.
    Commenters also requested that Sec.  9701.323(a) be revised to make 
the payment of the annual adjustment nondiscretionary. We have not 
adopted this recommendation. These regulations authorize DHS to 
establish a contemporary pay system that is more performance-sensitive 
to help achieve

[[Page 5294]]

and sustain a high performance culture. Providing annual basic pay 
increases only to employees whose performance meets or exceeds 
expectations will help support this goal. This policy is consistent 
with the findings of the National Academy of Public Administration 
(NAPA) in its May 2004 report, ``Recommending Performance-Based Federal 
Pay.'' The NAPA report states that most private sector companies base 
all pay adjustments on performance.
    Section 9701.323(b) of the proposed regulations provided that the 
``denial'' of a pay increase associated with a rate range adjustment is 
not considered an adverse action under subpart F. To clarify our 
intent, we have revised this paragraph (now redesignated as paragraph 
(c)) to state that if an employee's pay remains unchanged because he or 
she has received an unacceptable rating of record, the ``failure to 
receive a pay increase'' is not an adverse action.
    Section 9701.323(c) of the proposed regulations provided that if an 
employee does not have a rating of record for the purpose of granting a 
pay increase under Sec.  9701.323(a), the employee is deemed to meet or 
exceed performance expectations. During the meet-and-confer process, 
the participating labor organizations asked that the regulations be 
revised to provide that such determinations be based on the employee's 
most recent rating of record.
    We agree that this provision must be clarified. Therefore, we have 
redesignated paragraph (c) as paragraph (b) and revised it to provide 
that an employee without a rating of record for the most recently 
completed appraisal period must be treated in the same manner as an 
employee who meets or exceeds performance expectations and is entitled 
to receive an increase based on the rate range adjustment under Sec.  
9701.323(a).
    Section 9701.323(d) of the proposed regulations provided DHS with 
the authority to 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 a delayed increase after 
demonstrating improved performance. The regulations provided that any 
such delayed increase would be made effective prospectively.
    During the meet-and-confer process, the participating labor 
organizations expressed a concern that certain employees would fall 
below the minimum pay rate for their bands if they were at or near the 
low end of the band and were denied a rate range increase as a result 
of an unacceptable rating of record. They also expressed a concern that 
the proposed regulations allow managers to continuously rate employees 
unacceptable and indefinitely deny them pay increases. The labor 
organizations believe that DHS, and not its employees, should bear the 
burden of proof in any action that denies employees a rate range 
increase. The labor organizations also argued that any pay system that 
allows certain employees to be paid below the minimum rate set for a 
band is not truly a market-based system.
    Other commenters suggested that if an employee loses a pay increase 
due to poor performance, the increase should be restored automatically 
when performance becomes satisfactory as an incentive to become 
successful. Commenters expressed a need for less manager discretion and 
more policy governing the granting of previously denied pay increases 
based on performance improvement. The commenters were concerned that 
the lack of clear policy may result in disparate use of this authority 
and increased grievances and equal employment opportunity (EEO) 
complaints.
    We agree with some of these concerns and have revised the 
regulations as follows:
     We have added a new Sec.  9701.324, Treatment of employees 
whose rate of basic pay does not fall below the minimum rate of their 
band. This section provides that an employee who initially does not 
receive a pay increase under Sec.  9701.323 based on an unacceptable 
rating of record, and whose rate does not fall below the minimum rate 
of the band, must receive a delayed increase after demonstrating 
performance that meets or exceeds performance expectations, as 
reflected in a new rating of record. Any such delayed increase will be 
made effective on the first day of the first pay period beginning on or 
after the date the new rating of record is issued.
     We have added new Sec.  9701.325, Treatment of employees 
whose rate of basic pay falls below the minimum rate of their band. 
Paragraph (a) of this section requires that in the case of an employee 
who does not receive a pay increase under Sec.  9701.323 DHS must (1) 
initiate action within 90 days after the date of the rate range 
adjustment to demote or remove the employee in accordance with the 
adverse action procedures under subpart F, or (2) if the employee 
demonstrates performance that meets or exceeds performance expectations 
within 90 days after the date of the rate range adjustment, issue a new 
rating of record and adjust the employee's pay prospectively.
     Paragraph (b) of new Sec.  9701.325 provides that if DHS 
fails to initiate a removal or demotion action under paragraph (a) 
within 90 calendar days after the date of a rate range adjustment, the 
employee becomes entitled to the minimum rate of his or her band rate 
range on the first day of the first pay period beginning on or after 
the 90th day following the date of the rate range adjustment.
    We do not agree that managers should be required to initiate an 
adverse action whenever employees are rated unacceptable. Unless such a 
rating results in an employee being paid below the minimum band rate, 
an employee's ability to grieve his or her performance rating is 
sufficient protection against unfair or inaccurate ratings.
    The labor organizations also recommended that Sec.  9701.323(d) be 
revised to require that delayed increases must be retroactively 
effective if there is a management error in assessing an unacceptable 
rating or when a rating is overturned on appeal. We did not make a 
change in the regulations in response to this comment. If an employee 
does not receive a pay adjustment because of an error in assessing an 
unacceptable rating, when the rating error is corrected, the employee 
is entitled to receive any pay increase associated with the correct 
rating. This pay increase must be made effective retroactive to the 
effective date of the incorrectly denied increase and is subject to 
back pay under 5 U.S.C. 5596.
Section 9701.331--General
    Section 9701.331 of the proposed regulations provided that basic 
pay ranges under the new DHS pay system may be supplemented by locality 
or special rate supplements. During the meet-and-confer process, the 
participating labor organizations asked that the regulations provide 
that payment of such supplements to employees be mandatory.
    We agree that locality and special rate supplements should be paid 
in appropriate circumstances and have revised Sec.  9701.331 to clarify 
this point. We do not agree that such payments should be mandatory, but 
have revised Sec.  9701.331 to clarify that DHS may pay locality or 
special rate supplements in appropriate circumstances. For example, DHS 
may decide that a locality rate supplement is unnecessary for 
nonforeign or foreign areas or that a different pay flexibility (e.g., 
recruitment bonuses, retention allowances, or special staffing payments 
under Sec.  9701.363) will better address a

[[Page 5295]]

particular staffing problem instead of establishing a special rate 
supplement. DHS must retain the flexibility under Sec. Sec.  9701.332 
and 9701.333 to establish locality rate supplements for geographic 
areas and occupational clusters when warranted by mission requirements, 
labor market conditions, and other factors and special rate supplements 
when warranted by current or anticipated recruitment and/or retention 
needs.
Section 9701.332--Locality Rate Supplements
    Section 9701.332(a) and (b) provides DHS with the authority to 
establish locality rate supplements and set the boundaries of locality 
pay areas after coordination with OPM. The regulations provide DHS with 
the authority to establish different locality rate supplements for 
different occupational clusters or for different bands within an 
occupational cluster.
    Commenters recommended that Sec.  9701.332 be revised so that 
locality rate supplements are based on cost-of-living factors instead 
of the cost of labor, such as through the use of Chamber of Commerce 
analyses and data on median housing costs in each geographic area. We 
do not agree. Generally, employers set pay based on the labor market to 
be sufficiently competitive to avoid staffing problems. Paying above 
what is necessary to be competitive in the labor market does not make 
economic sense. If you have a market-based pay system, but grant 
additional pay for high living costs, you no longer have market-based 
rates. Also, living costs are very difficult to measure.
    If DHS experiences recruitment or retention problems due to living 
costs in a particular geographic area, other pay flexibilities are 
available to address such problems. For example, DHS could establish a 
special rate supplement under Sec.  9701.333 of these regulations or a 
special staffing payment under Sec.  9701.363 to address staffing 
problems for a particular category of employees in a given geographic 
area. DHS also may use recruitment and relocation bonuses under 5 
U.S.C. 5753, retention allowances under 5 U.S.C. 5754, and other 
flexibilities to address staffing problems that may be caused by cost-
of-living factors.
    Section 9701.332(b) of the proposed regulations provided that 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. We have revised this paragraph to clarify 
that DHS may, after coordination with OPM, establish and adjust 
different locality pay areas within the 48 contiguous States or new 
locality pay areas outside the 48 contiguous States by regulation. We 
note that while the final regulations provide DHS with the discretion 
to establish new or different locality pay areas within and outside the 
48 States, DHS will likely adopt the locality pay areas established 
under 5 U.S.C. 5304 for the purpose of establishing locality rate 
supplements under Sec.  9701.332.
    Section 9701.332(c) lists the purposes for which locality rate 
supplements are considered basic pay. During the meet-and-confer 
process, the participating labor organizations requested clarification 
regarding whether the purposes for which locality rate supplements are 
treated as basic pay will be different from the purposes for which 
locality payments under 5 U.S.C. 5304 are treated as basic pay. Another 
commenter encouraged the consistent treatment of locality supplements 
as basic pay across the Department.
    Under Sec.  9701.332(c), the purposes for which locality rate 
supplements are considered basic pay include all of the purposes that 
apply to locality payments under 5 U.S.C. 5304 and 5 CFR part 531, 
subpart F. We agree that the treatment of locality rate supplements as 
basic pay should be consistent throughout the Department and only as 
provided in these regulations, DHS implementing directives, or other 
laws or regulations, consistent with the requirements in Sec.  
9701.332(c). We have revised Sec.  9701.332(c)(6) (as redesignated from 
Sec.  9701.332(c)(5) in the proposed regulations) to clarify that 
locality rate supplements may be considered basic pay for the purpose 
of other payments and adjustments under subpart C only if specified by 
DHS in implementing directives, consistent with the new definition of 
``implementing directives'' in Sec.  9701.103 and the requirement for 
continuing collaboration with employee representatives in developing 
implementing directives under Sec.  9701.105. (See Section 9701.103--
Definitions and Section 9701.105--Continuing collaboration.)
    In addition, we inserted a new Sec.  9701.332(c)(5) to clarify that 
locality rate supplements (and special rate supplements, by reference 
under Sec.  9701.333) are considered basic pay for the purpose of 
applying the maximum rate limitation under Sec.  9701.312. The 
remaining paragraphs (c)(5) through (c)(7) of the proposed regulations 
are redesignated as paragraphs (c)(6) through (c)(8).
Section 9701.333--Special Rate Supplements
    Section 9701.333 provides DHS with the authority to establish 
special rate supplements after coordination with OPM that provide 
higher levels of pay for subcategories of employees in an occupational 
cluster if warranted by current or anticipated recruitment or retention 
needs. The proposed regulations provided DHS with the authority to 
establish rules for implementing such supplements. This section also 
provides that special rate supplements are considered basic pay for the 
same purposes as locality rate supplements under 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.
    A commenter encouraged consistent treatment of special rate 
supplements as basic pay across the Department. We agree that the 
treatment of special rate supplements as basic pay should be consistent 
throughout the Department and only as provided in these regulations, 
DHS implementing directives, or other laws or regulations, consistent 
with the requirements for locality rate supplements under Sec.  
9701.332(c), as revised in these regulations.
Section 9701.334--Setting and Adjusting Locality and Special Rate 
Supplements
    Section 9701.334 of the proposed regulations provided that locality 
and special rate supplements would ``generally'' be reviewed on an 
annual basis in conjunction with a rate range adjustment under Sec.  
9701.322. Consistent with the changes in revised Sec.  9701.322(a), we 
have revised Sec.  9701.334(b) to require DHS to review established 
supplements for possible adjustment on an annual basis in conjunction 
with a rate range adjustment.
Section 9701.335--Eligibility for Pay Increase Associated With a 
Supplement Adjustment
    We have revised Sec.  9701.335(a) to clarify that when a locality 
or special rate supplement is adjusted under Sec.  9701.334, an 
employee is entitled to the pay increase resulting from that adjustment 
if the employee meets or exceeds performance expectations. This is 
consistent with part of the revision of Sec.  9701.323(a), which 
clarifies when an employee is entitled to receive a basic rate range 
adjustment. (See Section 9701.323--Eligibility for pay increase 
associated with a rate range adjustment.)

[[Page 5296]]

    Commenters felt that the payment of locality rate supplements 
should not be discretionary. They argued that locality pay was not 
designed to reward performance, but to close a salary gap between 
Federal and non-Federal employees.
    The locality rate supplement authority in the DHS regulations is 
specifically designed to respond to occupation-specific labor market 
conditions among geographic areas and to support DHS's and OPM's desire 
to establish a contemporary pay system that is more performance-
sensitive to help achieve a high performance culture. Providing 
locality rate supplement increases only to employees whose performance 
meets or exceeds expectations will help support this goal and will help 
DHS become more competitive in recruiting and retaining high performing 
employees.
    Section 9701.335(b) of the proposed regulations provided that an 
employee who has an unacceptable rating of record may not receive a pay 
increase as a result of an increase in a locality or special rate 
supplement. Paragraph (b) of the proposed regulations also provided DHS 
with the authority to determine the method of preventing a pay increase 
in this circumstance, including by reducing the employee's rate of 
basic pay by the amount necessary to prevent an increase.
    During the meet-and-confer process, the participating labor 
organizations expressed concerns about the regulations providing DHS 
with the authority to reduce the rate of basic pay for an employee with 
an unacceptable rating of record without adverse action protections in 
order to offset an increase in a locality or special rate supplement. 
They expressed the belief that reducing basic pay for unacceptable 
performance should be considered an adverse action under subpart F even 
if the employee's total locality or special rate supplement-adjusted 
pay rate does not change as a result of the basic pay reduction.
    We redesignated paragraph (b) as paragraph (c). We revised the 
language to provide that if an employee has an unacceptable rating of 
record at the time of an increase in a locality or special rate 
supplement, the employee will not receive an increase in the applicable 
supplement. Basic pay will not be reduced under this authority. We have 
also revised this paragraph to clarify our intent that if an employee's 
pay remains unchanged because he or she has received an unacceptable 
rating of record, the failure to receive a pay increase associated with 
a supplement adjustment is not an adverse action.
    Section 9701.335(c) of the proposed regulations provided that if an 
employee does not have a rating of record for the purpose of granting a 
pay increase associated with a supplement adjustment, the employee is 
deemed to meet or exceed performance expectations. We have redesignated 
paragraph (c) as paragraph (b). We revised this paragraph, consistent 
with the revision of Sec.  9701.323(b), to provide that an employee 
without a rating of record must be treated in the same manner as an 
employee who meets or exceeds performance expectations. (See Section 
9701.323--Eligibility for pay increase associated with a rate range 
adjustment.)
    Section 9701.335(d) of the proposed regulations provided DHS with 
the authority to 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 a delayed increase after 
demonstrating improved performance. During the meet-and-confer process, 
the participating labor organizations questioned whether a denial of a 
pay increase as a result of an increase in a locality or special rate 
supplement could cause an employee's pay to fall below the minimum rate 
of the band. The labor organizations questioned how long an employee's 
pay rate could be below the minimum band rate without requiring 
management to take some action (e.g., demotion or removal).
    It is possible for an employee's locality or special rate 
supplement-adjusted pay rate to fall below the locality or special rate 
supplement-adjusted minimum band rate as a result of a denial of a 
supplement increase under Sec.  9701.335(c). We agree with the labor 
organizations' concern about requiring DHS to take action in this 
situation. Therefore, we revised and moved paragraph (d) to a new Sec.  
9701.336, Treatment of employees whose pay does not fall below the 
minimum adjusted rate of their band. This new section provides the 
requirements for paying a delayed supplement increase after the 
employee demonstrates performance that meets or exceeds performance 
expectations, consistent with the changes made in new Sec.  9701.324. 
We also have added a new Sec.  9701.337, Treatment of employees whose 
rate of pay falls below the minimum adjusted rate of their band. 
Paragraph (a) of this new section requires DHS to take specific actions 
within 90 days after the employee's pay rate falls below the adjusted 
band minimum rate. Paragraph (b) provides that if DHS does not take 
action within 90 days, the employee's pay rate must be set at the 
adjusted band minimum rate. This new section is consistent with new 
Sec.  9701.325 on pay increases associated with rate range adjustments. 
(See Section 9701.323--Eligibility for pay increase associated with a 
rate range adjustment.)
Section 9701.342--Performance Pay Increases
    Section 9701.342(a) provides an overview of the DHS performance-
based pay system for employees in a Full Performance or higher band 
based on ratings of record assigned under a performance management 
system established under subpart D. We have moved the sentence 
concerning the rating of record used as a basis for a performance pay 
increase to a separate paragraph (a)(2). In reaction to concerns about 
DHS's authority to issue a new rating of record for an employee if the 
employee's current performance is not consistent with his or her most 
recent rating of record, we have revised new paragraph (a)(2) to 
clarify that the employee's supervisor (or other rating official) may 
make such determinations and prepare any new rating of record. This new 
language is consistent with the language used in Sec.  9701.409(b) 
regarding rating employee performance. We note that the definition of 
``rating of record'' in Sec. Sec.  9701.304 and 9701.404 states that a 
rating of record is prepared at the end of an appraisal period or to 
support a pay determination under subpart C of these regulations (or 
other rules). Because DHS plans to make pay determinations shortly 
after issuing ratings of record at the end of the appraisal period, we 
anticipate that DHS will rarely need to issue supplemental ratings of 
record to support pay decisions.
    New paragraph (a)(2) also clarifies that if an employee does not 
have a rating of record, DHS will use the modal rating received by 
other employees covered by the same pay pool during the most recent 
rating cycle to determine the employee's performance pay increase. This 
change is consistent with other revisions of the regulations on 
determining the pay increases and adjustments for employees without a 
rating of record. (See Sec.  9701.342(f) and (g).)
    Section 9701.342(c) provides DHS with the authority to establish 
point values that correspond to the performance rating levels 
established by the performance management system under subpart D. These 
point values will be used to determine performance pay increases. This 
section also provides DHS with authority to establish a point value 
pattern for each

[[Page 5297]]

pay pool and requires DHS to assign zero points to any employee with an 
unacceptable rating of record.
    One commenter recommended that DHS not limit its pay-for-
performance options to only the point value system defined in the 
proposed regulations. The commenter was concerned about unintended 
consequences of the proposed system that would require regulatory 
changes to address those consequences. The commenter recommended that 
the regulations allow alternative pay-for-performance systems to be 
adopted within major components, subject to DHS objectives, criteria, 
and approval.
    We understand the commenter's desire that the regulations provide 
DHS with the flexibility to develop different types of pay-for-
performance systems tailored to the performance and mission 
requirements of individual DHS components and not be limited to the 
proposed point value system. However, in developing the regulations for 
the DHS pay system, we balanced the need for flexibility with the need 
for a system that generates respect and trust and is credible and 
transparent. Subpart C of the regulations provides the parameters and 
criteria for the point value system in sufficient specificity so that 
managers, employees, and employee representatives can better understand 
how performance pay increases will be determined and paid. At the same 
time, the regulations allow DHS to tailor the point value system to the 
mission and performance needs of individual components and the specific 
performance requirements and priorities of individual positions and 
occupations.
    Another commenter requested clarification regarding the logic of 
establishing different point value patterns by pay pool, as provided in 
Sec.  9701.342(c)(2). The regulations provide DHS with the flexibility 
to establish different point value patterns for each pay pool so that 
each pay pool can better reflect the performance goals, objectives, and 
priorities of the employees and organizations covered. This matter will 
be further clarified in implementing directives.
    Section 9701.342(d) provides DHS with the authority to determine 
the value of performance points (as a percentage of basic pay or as a 
fixed dollar amount), the amount of an employee's performance payout, 
and the effective dates of performance pay adjustments. This paragraph 
also specifies that a performance payout may not cause an employee's 
rate of basic pay to exceed the maximum basic rate of the band and 
provides DHS with the authority to pay excess amounts as lump-sum 
payments.
    Commenters were concerned that if more employees receive higher 
ratings, the value of the payout for each employee lessens. We 
acknowledge that this is a consequence of this type of pay-for-
performance system. A point value system requires managers to make 
distinctions in ratings if they want to grant the highest performers 
the greatest pay increases. In keeping with our guiding principles, 
this type of system is designed to place greater emphasis on making 
distinctions among employees' performance.
    Commenters also were concerned that lump-sum payments are taxed at 
a greater percentage than a basic pay increase and will not have the 
same lasting effect over time as a basic pay increase. We have removed 
the language from Sec.  9701.342(d)(3) that stated that the payment of 
performance payouts as basic pay increases is subject to any applicable 
control point within a band, consistent with the removal of control 
point provisions elsewhere in the regulations. (See Section 9701.321--
Structure of bands.) Lump-sum performance payouts may be paid in lieu 
of basic pay increases only when an employee's rate of basic pay would 
otherwise exceed the band maximum rate. While tax withholdings may be 
greater in the short term, lump-sum payments are not taxed at a higher 
rate than any other form of income. Also, consistent with other changes 
in the regulations that clarify how DHS will grant pay increases to 
retained rate employees, we have added a new paragraph (d)(5) to Sec.  
9701.342 to clarify that for an employee receiving a retained rate 
under Sec.  9701.356, DHS will issue implementing directives (as 
defined under Sec.  9701.103) to provide that a lump-sum performance 
payout may not exceed the amount that may be received by an employee in 
the same pay pool with the same rating of record who is at the maximum 
rate of the band.
    Another commenter suggested that the regulations allow all 
employees on certain ``teams'' (or offices) to receive a bonus based on 
a percentage of their pay when the team achieved its goals. Team 
awards, such as goalsharing awards, are generally paid under 5 U.S.C. 
chapter 45, which is not waived by these regulations. DHS continues to 
have the flexibility to grant group or team-based awards and bonuses 
under this authority.
    Section 9701.342(e) specifies the circumstances under which 
performance payouts may be prorated. Section 9701.342(f) of the 
proposed regulations provided for the payment of performance pay 
increases for employees upon reemployment after performing honorable 
service in the uniformed services.
    During the meet-and-confer process, the participating labor 
organizations requested that Sec.  9701.342(e)(2) clarify, as 
necessary, the circumstances in which it would be illegal to prorate 
performance payouts for employees in a leave-without-pay status. We 
have revised Sec.  9701.342(e)(2) to clarify that DHS may not prorate 
performance payouts for employees in a leave-without-pay status while 
performing honorable service in the uniformed services or while in a 
workers' compensation status, as provided in paragraphs (f) and (g) of 
this section. In addition, DHS may issue implementing directives 
regarding the proration of performance payouts for employees in other 
circumstances.
    During the meet-and-confer process, the participating labor 
organizations recommended that Sec.  9701.342(f) be revised to clarify 
how DHS will set the rate of basic pay for employees upon reemployment 
after performing honorable service in the uniformed services and how 
intervening performance pay adjustments for such employees would be 
determined upon reemployment. We have revised Sec.  9701.342(f) of the 
proposed regulations to require DHS to issue implementing directives 
(as defined in Sec.  9701.103) governing how it will set the rate of 
basic pay for employees upon reemployment and that DHS will credit the 
employee with intervening rate range adjustments under Sec.  
9701.323(a), developmental pay adjustments under Sec.  9701.345, and 
performance pay adjustments under Sec.  9701.342 based on the 
employee's last rating of record. The regulations clarify that, for an 
employee without a rating of record, DHS will use the modal rating 
received by other employees in the same pay pool. Paragraph (f) also 
clarifies that employees returning from qualifying service in the 
uniformed services and returning to duty after receiving injury 
compensation will receive the full value of their next performance pay 
increase associated with their rating of record.
    As a result of the labor organization's comments, we also have 
added a new paragraph (g) to Sec.  9701.342 to address pay setting and 
determining intervening performance pay adjustments for employees upon 
reemployment after being in a workers' compensation status. The 
provisions in new paragraph (g) are identical to the provisions in 
revised Sec.  9701.342(f) regarding setting pay for employees upon 
reemployment after

[[Page 5298]]

performing honorable service in the uniformed services.
Section 9701.343--Within Band Reductions
    Section 9701.343 provides DHS with the authority to reduce an 
employee's rate of basic pay within a band for unacceptable performance 
or conduct under the adverse action procedures in subpart F of these 
regulations. During the meet-and-confer process, the participating 
labor organizations were very concerned that the proposed regulations 
provided DHS with the authority to reduce an employee's pay within a 
band without limit. We have revised Sec.  9701.343 to provide that a 
within-band reduction in basic pay may not be greater than 10 percent, 
as discussed during the meet-and-confer process. The regulations 
continue to provide that a within-band reduction may not cause an 
employee's rate of basic pay to fall below the minimum rate of the 
employee's band. (See related discussion at Section 9701.354--Setting 
pay upon demotion.)
    Commenters observed that Sec. Sec.  9701.343 and 9701.357(a) 
appeared to be inconsistent regarding the ability of an employee with 
an unacceptable rating of record to be paid less than the minimum rate 
of his or her band. We have revised the regulations to clarify that 
Sec.  9701.357(a) does not apply in the case of an employee who does 
not receive a pay increase based on an unacceptable rating of record 
under Sec.  9701.343.
    Other commenters felt that pay reductions should not be permitted 
for any reason and that pay reductions do not improve performance and 
have greater impact on an employee's family than on the employee. We do 
not agree. We understand that pay reductions can adversely affect an 
employee's family. However, DHS feels it is necessary to retain 
flexibility to reduce the pay of an unacceptable performer in order to 
achieve and retain a high performing workforce.
Section 9701.344--Special Within-Band Increases for Certain Employees
    Section 9701.344 of the proposed regulations provided DHS with the 
authority to approve special basic pay increases for employees in a 
Senior Expert band who possess exceptional skills in critical areas or 
who make exceptional contributions to mission accomplishment. A 
commenter recommended that the within-band increase provision be 
available in all bands. The commenter felt that this would be a useful 
management tool in all pay bands, particularly with reference to 
recognizing and retaining top performers. We have revised this section 
to allow DHS to issue implementing directives (as defined in Sec.  
9701.103) to provide special within-band basic pay increases for 
employees in a Full Performance or higher band. We also have revised 
this section to clarify that such increases may not be based on length 
of service.
    The labor organizations asked that the regulations clarify what 
constitutes ``exceptional skills'' or ``exceptional contributions'' for 
any particular occupation, with labor organization involvement. We did 
not revise the regulations to define or clarify these terms. This 
specificity is better suited for DHS implementing directives regarding 
the use of special within-band pay increases. DHS implementing 
directives may provide that such increases may be used to help recruit 
or retain employees demonstrating extraordinary performance or as an 
incentive for employees with exceptional skills to accept increased 
responsibility.
    During the meet-and-confer process, the participating labor 
organizations requested clarification regarding the differences between 
special within-band increases for employees in a Senior Expert band, 
special rate supplements under Sec.  9701.333, special skills payments 
under Sec.  9701.361, special assignment payments under Sec.  9701.362, 
and special staffing payments under Sec.  9701.363. See the comparison 
chart under the section entitled Section 9701.361--Special skills 
payment; Section 9701.362--Special assignment payments; and Section 
9701.363--Special staffing payments for information on each of these 
special pay flexibilities.
Section 9701.345--Developmental Pay Adjustments
    Section 9701.345 of the proposed regulations provided DHS with the 
authority to establish policies and procedures for adjusting the pay of 
employees in an Entry/Developmental band. During the meet-and-confer 
process, the participating labor organizations requested that the 
regulations clarify how employees will progress through an Entry/
Developmental pay band. The labor organizations also recommended that 
the regulations require that increments of pay progression link to 
identified levels of knowledge, competencies, and skills. Another 
commenter noted that DHS must provide the necessary means to attain the 
requisite skills and competencies to advance within the Entry/
Developmental band, either through on-the-job opportunities or formal 
training. The same commenter expressed the view that without clearly 
defined and funded means to do this (i.e., career development and 
employee training and education), employees may not be able to gain 
skills and grow as necessary to move up within the band and be promoted 
out of the band. The commenter suggested that the regulations mandate 
the establishment of a policy for adjusting pay within the Entry/
Developmental pay band and that employees who more quickly attain 
requisite skills and competencies be accelerated in their advancement.
    We have revised Sec.  9701.345 to clarify that DHS will issue 
implementing directives (as defined in Sec.  9701.103) regarding pay 
adjustments for employees in the Entry/Developmental band. The 
regulations provide that such directives may require employees to meet 
certain standardized assessment points as part of a formal training/
developmental program. The regulations also clarify that in 
administering pay progression plans, DHS may use measures that link pay 
progression to the demonstration of knowledge, skills, and abilities 
(KSAs)/competencies.
    In addition, we have revised Sec.  9701.373 to provide DHS with the 
authority to issue implementing directives governing the conversion of 
employees currently in career ladder positions into Entry/Developmental 
bands. (See Section 9701.373--Conversion of employees to the DHS pay 
system.)
Section 9701.346--Pay Progression for New Supervisors
    A number of commenters were concerned about the ability of 
supervisors to apply the new DHS pay system provisions. Commenters felt 
that training for supervisors and employees will be critical to the 
equitable application of the new pay-for-performance system and in 
conducting performance reviews.
    We have added a new Sec.  9701.346 regarding pay progression for 
new supervisors that requires DHS to issue implementing directives 
requiring an employee newly appointed to or selected for a supervisory 
position to meet certain assessment or certification points as part of 
a formal training/developmental program. In administering performance 
pay increases under Sec.  9701.342 for new supervisors, the regulations 
provide DHS with the authority to take into account the employee's 
success in completing a formal training/developmental program in 
addition to his or her performance.

[[Page 5299]]

Section 9701.353--Setting Pay Upon Promotion
    Section 9701.353 of the proposed regulations provided that upon 
promotion DHS must provide an increase in an 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. During the meet-and-
confer process, the participating labor organizations were concerned 
that this section of the regulations provided a promotion pay increase 
that is less than the normal increase for a GS two-grade interval 
promotion. Other commenters also expressed this concern. The labor 
organizations also requested that the regulations clarify the policies 
DHS will issue regarding pay-setting upon promotion and how pay will be 
set upon promotion for an employee receiving a retained rate.
    We have revised this section of the regulations as follows:
     Under Sec.  9701.353(a), DHS must increase an employee's 
rate of basic pay upon promotion to a higher band by at least 8 
percent, but pay may not be set less than the minimum rate of the 
higher band.
     Under Sec.  9701.353(b), DHS will issue implementing 
directives providing for an increase other than that specified in 
paragraph (a) in certain situations. We also removed the pay-setting 
criteria under Sec.  9701.353(b)(3) for an employee who was demoted and 
is then repromoted back to the higher band because these kinds of rules 
are better suited for DHS implementing directives.
     Under Sec.  9701.353(c), we revised the promotion pay-
setting rule for retained rate employees, consistent with the change in 
Sec.  9701.353(a).
Section 9701.354--Setting Pay Upon Demotion
    Section 9701.354 of the proposed regulations provided DHS with the 
authority to prescribe rules governing how to set an employee's pay 
upon demotion. During the meet-and-confer process, the participating 
labor organizations were very concerned that the proposed regulations 
provided DHS with the authority to reduce an employee's pay upon 
demotion without limit. We have revised Sec.  9701.354 to provide that 
a reduction in basic pay upon demotion under adverse action procedures 
may not exceed 10 percent unless a larger reduction is needed to place 
the employee at the maximum rate of the lower band.
Section 9701.356--Pay Retention
    Section 9701.356(a) of the proposed regulations provided DHS with 
the authority to prescribe policies governing the application of pay 
retention. Section 9701.356(c) provided that a retained rate is a 
frozen rate that is not adjusted in conjunction with rate range 
adjustments. During the meet-and-confer process, the participating 
labor organizations recommended that the rules for providing a rate 
range adjustment for employees receiving a retained rate be consistent 
with the rules for GS retained rate employees. We have revised Sec.  
9701.356 to provide that in applying the basic rate range adjustment 
provisions under Sec.  9701.322, any increase in the rate of basic pay 
for an employee receiving a retained rate is equal to one-half of the 
percentage value of any increase in the minimum rate of the employee's 
band.
Section 9701.361--Special Skills Payments; Section 9701.362--Special 
Assignment Payments; and Section 9701.363--Special Staffing Payments
    Sections 9701.361, 9701.362, and 9701.363 provide DHS with the 
flexibility to authorize three different types of special payments to 
employees possessing certain skills (special skills payments) or 
serving on certain special assignments (special assignment payments) or 
to address significant recruitment or retention problems (special 
staffing payments). Such payments may be paid at the same time as basic 
pay or in periodic lump-sum payments, are not considered basic pay for 
any purpose, and may be terminated or reduced at any time.
    During the meet-and-confer process, the participating labor 
organizations requested clarification regarding the differences among 
these special payments and how these payments differ from special rate 
supplements under Sec.  9701.333 and special within-band increases 
under Sec.  9701.344. Other commenters also requested that the 
regulations clarify the purposes of these payments and how they will be 
used by DHS. The following chart provides additional information on the 
purpose and criteria for granting special rate supplements and special 
within-band increases. Other features of these special payments are 
also highlighted. In addition, the chart provides illustrative examples 
of these special payments. Nothing in this chart obligates DHS to 
authorize these payments for any particular category of employees.
BILLING CODE 6325-39-P; 4410-10-P

[[Page 5300]]

[GRAPHIC] [TIFF OMITTED] TR01FE05.003


[[Page 5301]]


[GRAPHIC] [TIFF OMITTED] TR01FE05.004

BILLING CODE 6325-39-C; 4410-10-C
    Commenters also requested that the regulations be revised to make 
special skills payments under Sec.  9701.361 and special assignment 
payments under

[[Page 5302]]

Sec.  9701.362 nondiscretionary. We do not agree. The special skills 
and special assignment payment authorities are designed to provide DHS 
with additional pay flexibility to address specific human capital 
needs. For example, DHS may wish to establish a special assignment 
payment for employees performing temporary emergency or mission 
critical duties in an identified geographic location or component where 
employees do not normally perform such duties. However, DHS may choose 
not to pay this special assignment payment to employees working in a 
different geographic location or organization who regularly perform 
these same duties. Requiring the nondiscretionary use of special skills 
or special assignment payments would reduce DHS's ability to use these 
pay flexibilities in strategic ways.
Section 9701.373--Conversion of Employees to the DHS Pay System
    Section 9701.373(e) of the proposed regulations provided the 
Secretary with the discretionary authority to make one-time pay 
adjustments for GS and prevailing rate employees when they are 
converted to the DHS pay system. The labor organizations recommended 
that the regulations be amended to require (1) within-grade increase 
buy-ins as basic pay adjustments and (2) career-ladder increase buy-ins 
as a basic pay adjustment upon conversion of employees into the new pay 
system. Other commenters were concerned that employees currently in GS 
career-ladder positions who are converted into the new pay system have 
no guarantee of receiving increases comparable to what they would have 
received under the GS system. We have not revised the regulations to 
require DHS to pay a within-grade increase or career-ladder increase 
buy-in payment to employees converted into the new DHS pay system. As 
we stated in the Preamble to the proposed regulations, DHS employees 
will be converted at their current rate, adjusted on a one-time, pro 
rata basis for the time spent toward their next within-grade increase. 
As provided in revised Sec.  9701.373(e), DHS will issue implementing 
directives for such pay adjustments, including the rules governing 
eligibility, pay computations, and timing of payments.
    We also agree that DHS employees in career-ladder positions prior 
to conversion into an Entry/Developmental band under the new pay system 
(1) will be converted at their current rate, adjusted on a one-time, 
pro rata basis for the time spent toward their next within-grade 
increase, and (2) will also receive pay increases equivalent to the 
promotion pay increases they would have received under their previous 
pay system when they otherwise would have been eligible. These 
increases will continue until DHS establishes a formal pay progression 
plan for such employees. As provided in revised Sec.  9701.373(f), DHS 
will issue implementing directives governing the conversion of 
employees into the Entry/Developmental band, including rules regarding 
employee eligibility, pay computations, and the timing of such 
payments.
Section 9701.374--Special Transition Rules for Federal Air Marshal 
Service
    Section 9701.374 of the proposed regulations provided DHS with the 
authority to cover Federal Air Marshal Service positions under a system 
that is parallel to the pay system that was applicable to the Federal 
Air Marshal Service within the TSA if DHS transfers such positions from 
TSA to another organization within DHS. DHS may modify that system 
after coordination with OPM. This section also provides DHS with the 
authority to establish rules for converting Federal Air Marshal Service 
positions to any new pay system consistent with the conversion rules 
under Sec.  9701.373.
    The labor organizations recommended that this section be deleted. 
They felt that Federal Air Marshal Service transition rules must be 
promulgated in regulations. We do not agree. However, we have revised 
Sec.  9701.374 to clarify that DHS will issue implementing directives 
on converting Federal Air Marshal Service employees to any new pay 
system, consistent with the new definition of ``implementing 
directive'' under Sec.  9701.103 and the requirement for ``continuing 
collaboration'' before issuing implementing directives under Sec.  
9701.105. (See Section 9701.103--Definitions and Section 9701.105--
Continuing collaboration.)

Subpart D--Performance Management

General Comments
    In response to commenters' general concerns regarding the clarity 
of the regulations, we have reorganized subpart D, Performance 
Management. We have also removed redundancies from and clarified the 
regulatory text.
    By far the greatest concern regarding the proposed performance 
management regulations expressed by commenters related to fairness. 
This concern was expressed in a variety of ways, including the 
following:
     Subjectivity of the rater, consistency of rater, rater 
favoritism, rater bias, and potential for cronyism;
     Managers will be buried in paperwork in evaluating 
employees;
     The fact that managers are no longer required to use 
written performance plans, performance elements, and standards is 
potentially problematic;
     This system does nothing to hold supervisors accountable;
     There needs to be monitoring of performance by leaders 
through all levels of the organization to ensure that decisions are 
made based on principle, equality and fair-mindedness; and
     To the greatest extent possible and in the quickest time 
practical, align the DHS HR governance structure so that all employees 
are covered by the same performance management and pay systems.
    The regulations make every attempt to ensure that the performance 
management system(s) will be fair. First, the regulations adopt guiding 
principles based on the performance management system criteria that 
Congress has recently enacted with respect to chapters 47, 54, and 99 
of title 5, United States Code. These principles require any 
performance management system(s) established by DHS to be fair, 
credible, and transparent, and to adhere to the merit system principles 
found in 5 U.S.C. 2301. Furthermore, DHS has always been committed to 
extensive training for managers, supervisors, and employees so that 
they understand the requirements of the performance management system. 
The training of managers and supervisors is of particular concern and 
will focus on how to establish and communicate performance expectations 
and how to assess employee performance. Finally, the Department is 
committed to creating a performance culture in DHS that creates and 
sustains a high performance organization.
    Another concern that is related to fairness deals with the ability 
to accurately measure employee performance. Commenters believe it will 
be difficult to evaluate employees whose performance is not measurable. 
Many commenters feel this will be particularly difficult when dealing 
with law enforcement employees. They expressed the following concerns:
     The proposed rule does not take into consideration the 
unique and distinctive work performed by the Department's law 
enforcement employees;
     Law enforcement jobs are not measurable or are difficult 
to measure by tangible means; and
     Focusing on measurable performance creates an incentive 
for law enforcement officers to focus on quantity rather than quality.

[[Page 5303]]

    The regulations specifically allow for a wide variety of ways to 
capture performance expectations. (See Sec.  9701.406(c) of the final 
regulations.) DHS, using the continuing collaboration process, will 
identify the most appropriate approach, or establish separate 
performance management systems, if needed, for different groups of 
employees.
    Commenters recommended that DHS include proper training programs 
for managers regarding performance reviews and funding for training 
programs. Some suggested that military supervisors will need to be 
trained on performance appraisal. Other commenters believe training 
managers to do performance management will not improve managers' 
ability to rate employees. Several changes have been made in the 
regulations to address these issues. As stated previously, DHS is 
committed to training managers, supervisors, and employees in the new 
performance management system(s).
    Commenters also suggested that there should be a formal evaluation 
of any performance management system. Both the proposed and final 
regulations include a requirement for the evaluation of any performance 
management system established by DHS. (See Sec.  9701.410(b) of the 
final regulations.) This evaluation requirement addresses the system's 
compliance with these regulations and DHS implementing directives and 
policies, as well as the system's effectiveness.
    Another commenter made several suggestions that deal with the 
broader aspects of performance management, as compared to the narrower 
aspects of performance appraisal/evaluation. Most of these suggestions, 
by their nature, relate to the operation of the performance management 
system that DHS will establish through implementing directives. As 
such, they are not specifically addressed by these enabling 
regulations. These comments will be taken into account by DHS as it 
develops its implementing directives.
Other Comments on Specific Sections of Subpart D
Section 9701.401--Purpose
    Section 9701.401 provides for the establishment of at least one DHS 
performance management system and sets out the guiding principles that 
govern it. These guiding principles are based on the criteria that 
Congress recently enacted with respect to chapters 47, 54, and 99 of 
title 5, U.S. Code.
Section 9701.403--Waivers
    Section 9701.403 specifies the provisions of title 5, U.S. Code, 
and title 5, Code of Federal Regulations, that are waived for employees 
covered by the DHS performance management system(s) established under 
subpart D. We have amended Sec.  9701.403 to clarify that these waivers 
become effective only after a decision is made to convert specific 
categories of DHS employees to a new performance management system(s) 
established under this subpart.
Section 9701.404--Definitions
    One commenter suggested that we define ``supervisor'' as a 
management official who oversees the daily work assignments of an 
employee within a well-defined management structure. We believe the 
term ``supervisor'' is well understood and does not require a specific 
definition for the purpose of this subpart of the regulations.
    During the meet-and-confer process, the participating labor 
organizations suggested that the definition of ``performance measures'' 
in the proposed regulations be deleted and replaced by a definition of 
``performance standards'' based on current law and regulations. In 
response, we have added a definition of ``performance expectations'' 
that encompasses the concept of performance standards. Also in response 
to discussions during the meet-and-confer process, we have revised the 
definition of ``competencies'' to substitute ``other characteristics'' 
for ``attributes'' required by a position.
Section 9701.405--Performance Management Systems
    Section 9701.405 has been renamed to clarify that it provides the 
requirements for performance management systems within the Department 
of Homeland Security. Several commenters had specific ideas and 
recommendations for the design and operation of performance management 
systems, including employee involvement, linkage to the Department's 
strategic plan, meaningful distinctions in performance, reasonable 
transparency, and appropriate accountability. Many of the requirements 
previously addressed in this section of the proposed regulations are 
now covered by the guiding principles found in the purpose section, 
Sec.  9701.401. The guiding principles address the concerns raised by 
the commenters. We have revised the regulations to remove redundancies 
and reorganized the remaining requirements for clarity.
    Other commenters made suggestions regarding specifying the length 
of time for appraisal periods and the minimum period before a rating 
can be given. The proposed regulations were silent on any specified 
time periods. No change has been made, and the regulations continue to 
provide DHS with the flexibility to determine whether its needs are 
best met by specifying the time periods in its implementing directives 
or by delegating that system feature to DHS components.
Section 9701.406--Setting and Communicating Performance Expectations
    Section 9701.406 provides the requirements and guidelines for 
communicating with employees regarding their performance. The proposed 
regulations addressed the form performance expectations could take. 
Commenters made very specific suggestions regarding how to amend 
various provisions regarding the nature and form of the performance 
expectations. Some of these are included in the performance management 
system requirements in Sec.  9701.405, and the rest are addressed in 
the following paragraphs. We have reorganized Sec.  9701.406 for 
clarity. To underscore one of the guiding principles of these 
regulations, we have given primacy to aligning performance expectations 
with DHS's operating mission and organizational goals and measures.
    During the meet-and-confer process, the participating labor 
organizations agreed that performance expectations need not be in 
writing. We have revised the regulations to clarify our intent that 
performance expectations must be communicated to the employee prior to 
holding the employee accountable for them. The regulations also have 
been revised to state that, notwithstanding this requirement, employees 
are always expected to demonstrate appropriate standards of conduct, 
behavior, and professionalism, such as civility and respect for others.
    Other commenters made suggestions regarding the purpose and content 
of performance expectations. These comments reflect concerns about 
management's ability to change work assignments swiftly and a concern 
that DHS's mission will make it difficult to set goals at the 
individual level. We believe the proposed regulations provided 
sufficient detail in this regard, and the final regulations preserve 
that detail. The remainder of the comments relate to the operation of 
the

[[Page 5304]]

performance management system and will best be addressed in DHS 
implementing directives or operating procedures.
Section 9701.407--Monitoring Performance
    Section 9701.407 establishes the basic responsibility for 
supervisors to monitor employee and organizational performance and 
inform employees of their progress in meeting their performance 
expectations. We have renamed the section to clarify that it includes 
providing feedback to employees. Commenters had concerns about the 
frequency and timeliness of the feedback provided to employees and the 
form it might take. During the meet-and-confer process the 
participating labor organizations made a number of proposals in this 
regard. We have revised the section to include the requirement that 
feedback must be timely and to provide for one or more interim reviews.
Section 9701.408--Developing Performance
    Section 9701.408 addresses two aspects of developing or improving 
performance; the first addresses the continual improvement that is part 
of a high performance culture, and the second addresses remedial 
improvement and dealing with poor performance. The section has been 
retitled,  Developing performance and addressing poor performance.
    For Sec.  9701.408(a), commenters had suggestions for specific 
language changes and also suggested the inclusion of a requirement for 
an individual development plan. We decided to leave individual 
development plans optional. DHS is committed to designing specific 
development programs for Entry/Developmental band employees (see Sec.  
9701.345) and could address individual development plans for other 
employees in its implementing directives or operating procedures.
    Regarding Sec.  9701.408(b), some commenters suggested requiring an 
improvement period before an adverse action based on unacceptable 
performance can be taken. The proposed regulations provided for an 
improvement period as one of several options available to address or 
correct unacceptable performance prior to taking an adverse action. We 
continue to believe that an improvement period should be an option, but 
not a requirement, of the new system.
Section 9701.409--Rating Performance
    Section 9701.409 establishes the requirements regarding rating and 
rewarding employee performance, including the rating levels that may be 
used by DHS performance management systems, the purposes for which 
ratings may be issued, and a prohibition of any forced distribution of 
ratings. Therefore, the section has been retitled, Rating and rewarding 
performance.
    A commenter suggested that the removal of a pass/fail performance 
rating system is a step in the right direction. However, during the 
meet-and-confer process, participating labor organizations supported 
the continued use of pass/fail ratings for employees in the Entry/
Developmental band and proposed that the final regulations provide for 
pass/fail ratings in other situations. While we continue to believe 
that, as a general matter, pass/fail ratings are incompatible with a 
pay-for-performance system, we have adopted that suggestion. The 
regulations now require the use of at least three summary rating levels 
for most employees, but permit DHS to use pass/fail appraisal systems 
for employees in the Entry/Developmental band or in other bands under 
extraordinary circumstances as determined by the Secretary or designee.
    Commenters expressed concerns and made suggestions regarding the 
rating process. These comments included proposals to use multi-rater 
approaches such as 360-degree appraisals, require higher-level review 
of ratings, establish documentation requirements, and tie supervisory 
ratings to their timely completion of appraisals. Commenters also 
expressed concerns about supervisors' ability to understand and 
interpret the regulations. These issues involve the actual operation of 
the performance management system and will be addressed in DHS 
implementing directives or operating procedures.
    Another commenter suggested that we require a detailed explanation 
of all formulas used to derive an overall summary rating. This, too, 
can best be handled by DHS in its implementing directives or operating 
procedures. We have not changed the regulations in response to this 
comment.
    Commenters expressed concern that ratings of record could be 
lowered without sufficient justification. During the meet-and-confer 
process, participating labor organizations requested that we provide 
additional detail regarding the circumstances in which a new rating of 
record may be issued. We have complied with their request and have 
clarified Sec.  9701.409(b) to provide that new ratings of record may 
be prepared only when there has been a substantial change in an 
employee's performance since the last rating of record was assigned. We 
also have revised Sec.  9701.409(f) to prohibit lowering an employee's 
rating for any approved absence.
    Other commenters raised concerns that allowing the grievance of 
ratings of record would allow arbitrators to change those ratings and/
or superimpose their judgment of the employee's performance. We have 
revised Sec.  9701.409(g) to specify that arbitrators are subject to 
the standards of review in Sec.  9701.521(g)(2).
Section 9701.410--Rewarding Performance
    Section 9701.410 of the proposed regulations has been incorporated 
into the revised Sec.  9701.409 for clarity and to remove redundancies. 
In addition, the revised section has been retitled, Rating and 
rewarding performance.
    Commenters questioned why the proposed regulations included 
references to within-grade and quality step increases under title 5, 
Code of Federal Regulations. This specific reference was included in 
the event a group of employees is covered by the provisions of the 
performance management system under subpart D of these regulations 
while they continue to be covered by the within-grade and quality step 
increase provisions of 5 CFR part 531. We have revised the regulation 
to clarify that references to provisions in 5 CFR part 531 are 
applicable only until an employee is covered by the pay system 
established under subpart C of these regulations.
Section 9701.411--Performance Review Boards
    Section 9701.411 of the proposed regulations authorized the 
establishment of Performance Review Boards (PRBs) and described their 
duties and composition. During the meet-and-confer process, the 
participating labor organizations expressed concern about the operation 
of PRBs; they felt that PRBs could delay pay decisions based on 
performance appraisals and give the appearance of unwarranted 
interference in the performance rating process. We continue to believe 
that an oversight mechanism is important to the credibility of the 
Department's pay-for-performance system. To that end, the Homeland 
Security Compensation Committee established under Sec.  9701.313 will 
conduct an annual review of performance payout summary data. Therefore, 
we have removed the

[[Page 5305]]

separate section in subpart D dealing with PRBs.
Section 9701.412--DHS Responsibilities
    Section 9701.412 of the proposed regulations specified the 
responsibilities DHS must carry out in order to ensure a fair, 
credible, and transparent performance management system. This section 
has been redesignated as Sec.  9701.410. Commenters expressed concern 
that only startup training would be funded. The purpose section of the 
regulations (Sec.  9701.401) has been revised to provide guiding 
principles for DHS performance management systems based on similar 
criteria that Congress recently enacted with respect to chapters 47, 
54, and 99 of title 5, U.S. Code. These principles require initial and 
ongoing training for managers, supervisors, and others involved in the 
performance management process. Finally, to comply with 29 CFR 
1614.102(a)(5), we have added a new requirement in Sec.  9701.410 to 
ensure that managers and supervisors fulfill their equal employment 
responsibilities.

Subpart E--Labor-Management Relations

General Comments
    Commenters expressed concern that the proposed regulations 
curtailed employees' rights to collectively bargain, with a number 
suggesting that the limits on collective bargaining are contrary to the 
provisions of the Homeland Security Act. Commenters also recommended 
that the design and implementation of every aspect of the proposed DHS 
human resource system, including the pay, performance, classification 
and appeals systems, be subject to collective bargaining. As discussed 
in the Major Issues section, we do not believe that collective 
bargaining over these matters is appropriate, nor intended by Congress. 
However, we have provided a number of mechanisms to ensure the 
substantive involvement of labor organizations in such things as the 
development of implementing directives, the administration of the 
Department's new pay system, and the nomination of members to the 
Homeland Security Labor Relations Board (HSLRB) and the Mandatory 
Removal Panel (MRP). Other concerns related to the scope of bargaining 
are addressed in the discussion of the specific related sections of 
subpart E that follow.
Other Comments on Specific Sections of Subpart E
Section 9701.501--Purpose
    The proposed regulation restates the statute's purpose to provide 
DHS and OPM with flexibility to establish a modern DHS personnel 
system, permitting waiver of certain statutory provisions while 
retaining core civil service protections, including the merit system 
principles. In their comments and during the meet-and-confer process, 
participating labor organizations recommended that we include in this 
section a statement that labor organizations and collective bargaining 
are in the public interest, consistent with the Homeland Security Act's 
preservation of collective bargaining rights.
    We have decided to retain the originally proposed language with 
minor clarifications. This section of the regulations recognizes and 
stresses the fundamental purpose underlying the Homeland Security Act 
and the statutory mandate to build a flexible personnel system that 
supports the unique mission of DHS. Consistent with the Homeland 
Security Act, the regulations specifically recognize the right of 
employees to organize and bargain collectively subject to limitations 
established by law, including these regulations, applicable Executive 
orders, and any other legal authority.
Section 9701.502--Rule of Construction
    In accordance with the Homeland Security Act's core purpose, these 
regulations provide the Department with the flexibility necessary to 
accomplish its vital mission. In so doing, they also provide that 
interpretations of these regulations by the Secretary and the Director 
be accorded great deference.
    In their comments and during the meet-and-confer process, 
participating labor organizations suggested that we delete ``great'' 
and describe the particular circumstances in which DHS and OPM's 
interpretation of the regulations would not be given deference.
    We decided to retain this section as originally proposed. However, 
in so doing, we do not intend to imply that the rule of construction is 
limited only to this subpart. In this regard, we have added a new Sec.  
9701.106(a), as previously noted, and its express language extends the 
application of that rule of construction to the entire part. We believe 
Sec.  9701.106(a), as referenced in this subpart, accurately reflects 
the Supreme Court's rulings on deference. In this regard, the Court has 
held that courts and administrative bodies must defer to an agency 
head's interpretation of a regulation unless an ``alternate reading is 
compelled by the regulation's plain language or by other indications of 
[her] intent at the time of the regulation's promulgation.'' Thomas 
Jefferson University v. Shalala, 512 U.S. 504, 512 (1994). An agency's 
interpretation must be given ``controlling weight unless plainly 
erroneous or inconsistent with the regulation.'' Id. The regulation is 
entirely consistent with Supreme Court decisions. Moreover, the 
regulation reflects the exceptionally broad grant of regulatory 
authority that Congress conferred on DHS and OPM to establish and 
implement a human resources system for the Department.
Section 9701.503--Waivers
    The proposed regulations waived sections 7101 through 7135 of title 
5 except as otherwise specified in the regulations. During the meet-
and-confer process, participating labor organizations requested that 
the regulations clarify when such waivers will be applied. We have 
amended Sec.  9701.503 to clarify that the waivers apply to DHS 
employees when they are covered by the labor-management relations 
system established under subpart E.
Section 9701.504--Definitions
    In their comments and during the meet-and-confer process, 
participating labor organizations recommended that the current 
definition of ``conditions of employment'' be expanded to include the 
classification of any position. In addition, they and other commenters 
recommended that we include Department-wide regulations as ``conditions 
of employment.'' We have adopted the second recommendation, and we have 
adopted the recommendation of participating labor organizations to 
revert to the definition of ``confidential employee'' contained in 5 
U.S.C. 7103. To avoid confusion, we also deleted the definition of 
``employee'' and instead, revised Sec.  9701.505 to ensure appropriate 
coverage. We have also modified the definition of ``exclusive 
representative'' contained in the proposed regulations by deleting the 
second paragraph, which dealt with the requirement of the Homeland 
Security Act that recognition of exclusive representatives would 
continue as organizations transferred into the Department, because such 
transfers have already taken place and thus the language was 
unnecessary and confusing. Further, the provision

[[Page 5306]]

remains in force through the Homeland Security Act. In response to 
labor organization comments, we have revised the definition of 
``grievance'' to more closely align with the definition in 5 U.S.C. 
7103; however, the revised definition clarifies that grievances must 
relate to conditions of employment. Finally, we have added a definition 
of ``professional employee'' by referencing 5 U.S.C. 7103(a)(5) to 
reflect changes discussed in Sec.  9701.514.
Section 9701.505--Coverage
    As noted, we have clarified which employees are covered by this 
subpart by moving language from the definitions section in the proposed 
regulations to the coverage section; this parallels the structure of 
subpart F, Adverse Actions. Labor organizations commented that TSA 
screeners should be covered by this subpart. We did not accept that 
recommendation, given that the TSA administrator, exercising his 
statutory authority, specifically determined that screeners would not 
be subject to coverage under 5 U.S.C. chapter 71. Similarly, we did not 
accept the recommendation from other commenters that Customs and Border 
Patrol officers be excluded from coverage, given that their predecessor 
occupations have been covered by 5 U.S.C. chapter 71 for some time. We 
have also clarified two of the exclusions in paragraph (b) by adding a 
reference to 5 U.S.C. 2101(3) to better define what is meant by the 
term ``a member of the uniformed services'' and clarified the exclusion 
for the ``United States Secret Service'' by adding the ``United States 
Secret Service Uniformed Division,'' as these two exclusions are 
provided by separate statutory provisions.
Section 9701.506--Impact on Existing Agreements
    In their comments and during the meet-and-confer process, 
participating labor organizations stated that it was unreasonable to 
void any contract provisions that conflict with the regulations because 
continuing them would not adversely affect the Department's mission. 
Instead, they recommended that conflicting contract provisions remain 
in full force and effect until they expire unless the Department shows 
that they adversely affect homeland security. In those latter instances 
only, the parties would be required to engage in bargaining over 
modifications to existing agreements. There was significant discussion 
with the participating labor organizations regarding what level of 
detail would be provided in these regulations and what would be 
provided in the implementing directives, what the effect of each would 
be on existing agreements, and what involvement the union would have in 
the development of the implementing directives. The participating labor 
organizations recommended that the implementing directives should be 
subject to the full scope of collective bargaining provided in 5 U.S.C. 
chapter 71 or, if that were not possible, that they should be afforded 
the opportunity to participate in the development of the implementing 
directives.
    As a general matter, we have retained this section as originally 
proposed. We believe that the effect of the alternative posed by 
participating labor organizations would be to delay implementation of 
these regulations for years, a result Congress never intended. It would 
severely hamper the Department's mission by permitting piecemeal, 
haphazard implementation of these regulations, dictated solely by the 
happenstance of a local contract's expiration date. This would create a 
confusing, difficult-to-administer, and Balkanized personnel system. A 
primary purpose of the Homeland Security Act was to create one 
Department out of a patchwork quilt of agencies performing similar 
functions. Accepting the recommendation would impair accomplishment of 
that goal.
    We believe Congress intended the opposite result. Given that these 
regulations have the full force and effect of law, they have the same 
effect on collective bargaining agreements as any statutory change. 
However, in response to the concerns expressed by participating labor 
organizations, we have modified the regulation to provide for a 60-day 
period during which the parties to a collective bargaining agreement 
would bring conflicting and other impacted provisions into conformance. 
We have also provided that the Secretary may exercise his or her 
discretion to continue certain contract provisions as appropriate and 
to cancel such provisions at any time. Note that this process would not 
delay the effective date of these regulations or their implementing 
directives. However, in response to discussions with the participating 
labor organizations, we have adopted a provision for continuing 
collaboration in Sec.  9701.105 on the development of implementing 
directives and clarified that all contract provisions must be 
consistent with implementing directives which, by their very nature, 
flow directly from the regulations.
Section 9701.508--Homeland Security Labor Relations Board
    Commenters, including the labor organizations participating in the 
meet-and-confer process, objected to the creation of the HSLRB, and 
recommended that the regulations preserve the authority of FLRA, FMCS, 
and FSIP. They remarked that these agencies, which are independent and 
impartial, currently decide many of those matters for which the 
proposed regulations confer jurisdiction on the HSLRB to adjudicate. In 
this regard, they challenged the independence and impartiality of any 
HSLRB member appointed exclusively by the Secretary. Therefore, they 
objected to any change to the status quo. Other commenters approved of 
the proposal, indicating that the HSLRB would afford the Department 
greater regularity and consistency in the processing of cases than that 
currently provided by FLRA. A commenter noted that the ``one-stop 
shop'' concept of the HSLRB was preferable to the division of 
prosecutorial, adjudicatory, and mediation responsibilities provided 
for in the current system.
    We have decided to retain the HSLRB. As we indicated in the 
Preamble accompanying the proposed regulations, it ensures that those 
who adjudicate the most critical labor disputes in the Department do so 
quickly and with an understanding and appreciation of the unique 
challenges that the Department faces in carrying out its mission. 
During the meet-and-confer process, participating labor organizations 
proposed that the HSLRB be required to develop a single, integrated 
dispute resolution process for matters concerning the scope and duty to 
bargain. Second, they proposed a new process for nominating HSLRB 
members. Other commenters made similar recommendations. We have revised 
the proposed regulations to include a formal opportunity for labor 
organization participation in the nomination process.
    In this regard, the final regulations establish criteria for HSLRB 
members, requiring that they be known for their integrity and 
impartiality as well as their expertise in labor relations, law 
enforcement, or national/homeland or other related security issues (for 
example, former members of the judiciary). The regulations preserve the 
Secretary's sole and exclusive discretion to appoint one member who 
serves as the HSLRB's Chair, with powers and duties enumerated in Sec.  
9701.508. However, the regulations provide the Department's labor 
organizations with an opportunity to participate in the process of 
nominating the remaining two members of the HSLRB. While the Secretary, 
like other heads of departments and agencies, retains the

[[Page 5307]]

ability to make these senior appointments from any appropriate source 
(and to remove those appointees), the Secretary and the Director have 
determined that it is in the Department's interest to include a formal 
process through which labor organizations can recommend individuals for 
these positions.
    We also received several comments regarding the terms of the HSLRB 
members. One commenter suggested that the terms of the HSLRB members 
should be staggered to ensure continuity. We have adopted this 
suggestion. Another commenter suggested that an HSLRB member should be 
permitted to serve an additional term beyond his or her initial term 
because that HSLRB member might have gained valuable experience or 
expertise that could be of value to the HSLRB. We agree, and have 
adopted this suggestion as well.
    A review of the comments made us realize that estimating the number 
of cases that the HSLRB might be called upon to handle at any 
particular time is a difficult, if not impossible, task. To ensure the 
HSLRB has the resources to process all cases expeditiously, we have 
given the Secretary the sole and exclusive discretion to appoint 
additional HSLRB members, subject to the criteria and nomination 
procedures specified in the regulations. In addition, we have permitted 
individual HSLRB members to adjudicate disputes. Such changes will 
provide the HSLRB with more flexibility to manage its workload, but 
will not significantly prejudice the interests of either the Department 
or its employees.
    The proposed regulations also discussed judicial review of HSLRB 
decisions and posed two options for consideration by commenters. One 
option would have the regulations remain silent with regard to judicial 
review, thus allowing existing governing legal principles to determine 
the circumstances under which there would be judicial review. The 
second option would have required FLRA review, under the same 
procedures and standards for judicial review of FLRA decisions as a 
condition precedent to appellate court jurisdiction. The labor 
organizations made no recommendations with regard to the two options. 
We received other comments that specifically supported allowing 
judicial review following FLRA review of HSLRB decisions. On the other 
hand, a commenter argued that the Homeland Security Act gave neither 
DHS nor OPM the power to confer jurisdiction on FLRA to hear appeals 
from HSLRB decisions involving the duty to bargain or appropriate unit 
issues involving DHS employees. We disagree. The Homeland Security Act, 
within defined parameters, gave DHS and OPM sufficiently wide latitude 
for designing the Department's labor-management relations program.
    Accordingly, after further consultation with FLRA (as well as MSPB 
with regard to subpart G), we have adopted the second option in Sec.  
9701.508(g), which provides that either party may request review of the 
record of an HSLRB decision by FLRA. In conducting its review, FLRA 
will defer to findings of fact and interpretations of these regulations 
made by the HSLRB. The provision also establishes a 30-day time limit 
for FLRA to render its decision. This 30-day time limit is mandatory, 
except that FLRA may extend its time for review by a maximum of 15 
additional days if it determines that a case is unusually complex, or 
that an extension is necessary to prevent any prejudice to the parties; 
however, the regulations do not permit any further extension. In 
addition, Sec.  9701.508(g) was revised to provide for judicial review 
under 5 U.S.C. 7123 of any final FLRA order.
Section 9701.509--Powers and Duties of the HSLRB and Section 9701.510--
Powers and Duties of the Federal Labor Relations Authority
    Commenters, including the labor organizations participating in the 
meet-and-confer process, recommended that FLRA retain jurisdiction over 
all labor disputes in DHS. Specifically, they suggested that not all 
labor relations issues that arise in the Department will have a 
significant enough impact on homeland security to warrant removing them 
from the jurisdiction of FLRA. The labor organizations also expressed 
concern at the HSLRB's authority to assert jurisdiction over any matter 
submitted to FLRA if the HSLRB determined that homeland security was 
affected. Following discussion during the meet-and-confer process, we 
agreed to amend the proposed regulation. In addition to retaining the 
powers and duties of FLRA that we outlined in our proposed regulations, 
we also agreed to retain FLRA's current authority to determine the 
appropriateness of units pursuant to Sec.  9701.514, and to resolve 
exceptions to arbitration awards which do not involve the exercise of 
management rights and/or the duty to bargain.
    It is imperative that the HSLRB retain jurisdiction over each 
matter for which an understanding and appreciation of the Department's 
mission is necessary. As a result, the final regulations give the HSLRB 
jurisdiction over disputes concerning the duty to bargain, the scope of 
bargaining, negotiation impasses, and certain exceptions to arbitration 
awards involving these issues because these disputes typically involve 
the exercise of management rights under Sec.  9701.511. Similarly, the 
final regulations continue to give the HSLRB authority to assert 
jurisdiction over any dispute submitted to FLRA that affects homeland 
security. Finally, labor organizations suggested that, because the 
regulations accorded the HSLRB the authority to issue opinions, those 
opinions should have the force and effect of law and be subject to 
judicial review. We agree, and have amended the regulations 
accordingly. Finally, in response to comments from participating labor 
organizations, we have included procedures for resolving jurisdictional 
disputes between the HSLRB and the FLRA in Sec.  9701.509(d).
Section 9701.511--Management Rights
    In their comments and during the meet-and-confer process, 
participating labor organizations recommended that we retain the 
current language in 5 U.S.C. chapter 71 with regard to management 
rights, arguing that the proposed regulations unduly limited the scope 
of bargaining. However, they did propose modifications that would allow 
the Department to take immediate action without bargaining in advance, 
or without regard to existing collective bargaining agreements, in 
exceptional circumstances. This issue was discussed extensively during 
the meet-and-confer process, but no agreement was reached. Even with 
the modifications recommended by the labor organizations, the current 
statute does not give the Department the flexibility necessary to carry 
out its vital mission of protecting homeland security. Title 5, chapter 
71, requires bargaining over procedures that govern how employees are 
assigned or deployed to particular locations, often within the same 
facility. The resulting procedures often prevent management from 
quickly assigning the right employee to the right task at the right 
time. Similarly, the requirement to bargain in advance of the exercise 
of a management right, over its implementation and impact, also has the 
potential for impeding or delaying the execution of the Department's 
mission.
    The Department needs greater flexibility to act--for example, in 
the assignment or deployment of personnel or the introduction of new 
technology--not just in emergency or exceptional situations, but also 
on a day-to-day basis to meet operational demands.

[[Page 5308]]

Accordingly, we have retained the management right provisions in the 
proposed regulations. However, this section has been clarified to 
prohibit bargaining over the exercise of the management rights 
enumerated in paragraph (a), as well as the procedures associated with 
the exercise of the management rights enumerated in paragraphs (a)(1) 
and (2). As noted previously, the Department has found that procedures 
negotiated under current law have impeded its ability to accomplish its 
mission, and as a consequence, we have removed these procedures from 
the scope of bargaining. We have also eliminated the requirement to 
bargain in advance over implementation and impact of a management 
action as well as appropriate arrangements when employees are adversely 
affected by that action.
    However, as a result of concerns expressed by participating labor 
organizations in the meet-and-confer process, we have added a new 
paragraph (c) establishing a requirement that management ``confer'' 
with an exclusive representative over operational procedures such as 
for work assignments and deployments, which are no longer negotiable 
under Sec.  9701.511(a)(1) and (2) (see Sec.  9701.512). We have also 
substantially revised the proposed regulations to require that when 
management exercises a management right and the effect on conditions of 
employment is foreseeable, substantial, and significant in terms of 
both duration and impact on the bargaining unit as a whole, or on those 
employees in that part of the bargaining unit affected by the 
management action, notice will be provided to the exclusive 
representative at the time management exercises that right if an 
obligation to bargain, confer, or consult exists. Such notice also may 
be provided any time in advance at the discretion of management. 
Additionally, under certain circumstances and upon request of the 
exclusive representative, management is obligated to negotiate over 
impact and appropriate arrangements for employees adversely affected by 
the action. Each party may exercise sole and exclusive discretion to 
delegate authority to bargain such matter below the level of 
recognition. This provision allows either party to exercise 
unreviewable discretion to decline to bargain below the level of 
recognition. The regulations continue to provide that such bargaining 
may occur on a pre-implementation basis at management's discretion.
    However, as a result of the September 10 meeting, the regulations 
have been revised to require bargaining over impact and appropriate 
arrangements after implementation under certain circumstances specified 
in Sec.  9701.511 (see the discussion on Management Rights/Scope and 
Duty to Bargain in the Major Issues section of this Supplementary 
Information). The regulations continue to require bargaining over 
implementation, impact, procedures, and appropriate arrangements 
regarding the exercise of nonoperational management rights enumerated 
in Sec.  9701.511(a)(3), as provided under current law. The proposed 
regulations have also been modified to provide the exclusive 
representative with the opportunity to present its views and 
recommendations regarding the exercise of management rights. We added 
paragraph (f) to clarify that nothing prevents management from taking 
action, and that any agreements over impact or appropriate arrangements 
are neither retroactive nor precedential.
    In their comments and during the meet-and-confer process, 
participating labor organizations raised concerns about out-of-pocket 
expenses incurred by employees as a result of the exercise of a 
management right. They argued that employees should not be expected to 
shoulder unusual or unanticipated expenses incurred as a result of 
management action. Based on those comments, we have revised the 
proposed regulation to provide reimbursement of appropriate out-of-
pocket expenses incurred by an employee as a direct result of a 
management action, under certain conditions.
Section 9701.512--Obligation To Confer
    In their comments and during the meet-and-confer process, 
participating labor organizations strongly objected to Sec.  
9701.511(b) of the proposed regulations that eliminated mandatory 
bargaining over the procedures management will follow in the exercise 
of its rights. As previously discussed, we have clarified that section 
to prohibit negotiations over these procedures. However, in response to 
the concerns expressed by participating labor organizations, we have 
added a new section that requires management to confer with an 
appropriate exclusive representative to consider its views and 
recommendations with regard to such procedures. The process established 
by this section requires that the parties meet for no longer than 30 
calendar days to confer over operational procedures governing such 
matters as work assignments and deployments, unless the parties 
mutually agree to an extension. Upon mutual agreement, the parties may 
ask the HSLRB, FMCS, or any other third-party to assist them in 
reaching resolution. Because these procedures are so critical to 
accomplishing the Department's mission, the process established under 
this section is beyond the scope of the unfair labor practice 
provisions of these regulations, and the Department retains final 
authority to determine the content of these operational procedures as 
well as the authority to deviate from them.
Section 9701.513--Exclusive Recognition of Labor Organizations
    In their comments and during the meet-and-confer process, the 
participating labor organizations recommended that the regulations 
authorize the Secretary to voluntarily recognize a labor organization 
or two or more labor organizations jointly upon a demonstration that 
they represent a majority of employees in the unit. However, we believe 
it is essential that employees have the utmost confidence in the 
process by which their exclusive representatives are selected and that 
employees should continue to be afforded the opportunity to vote in 
representational elections. Therefore, we have not adopted the 
recommendation and have retained the language of the proposed 
regulations regarding elections.
Section 9701.514--Determination of Appropriate Units for Labor 
Organization Representation
    We have adopted the recommendation of commenters to retain the 
current statutory distinction between professional and non-professional 
bargaining units by incorporating the provision from 5 U.S.C. 
7112(b)(5) in Sec.  9701.513(b)(5).
Section 9701.515--Representation Rights and Duties
    In connection with this section of the proposed regulations, we 
received comments pertaining to (1) an employee's right to 
representation during an investigatory interview; (2) the right of an 
exclusive representative to attend formal discussions; (3) the standard 
of conduct applicable to employee representatives; and (4) the scope of 
the Department's obligation to disclose information to the exclusive 
representative(s) of its employees.
    Commenters strongly objected to the elimination of the right of an 
employee to request representation when examined by representatives of 
the Office of the Inspector General, Office of Security, and Office of 
Internal Affairs, arguing that such representation

[[Page 5309]]

protects employees against abusive or illegal interview techniques and 
provides reassurance and guidance to employees. Accordingly, we 
modified the regulation to restore the full scope of the ``Weingarten'' 
right as it currently exists.
    In their comments, labor organizations objected to the elimination 
of formal discussions in the proposed regulations, viewing it as 
undermining the ability of labor organizations to effectively represent 
bargaining unit employees. In response to these comments, we revised 
the proposed regulations to provide the exclusive representative with 
an opportunity to be present at meetings between Department 
representatives and bargaining unit employees when the purpose of the 
meeting is to discuss and/or announce new or substantially changed 
personnel policies, practices, or working conditions. However, this 
right was not extended to meetings between Department representatives 
and bargaining unit employees that involve operational matters when the 
discussion of working conditions is incidental or peripheral to the 
announced purpose of the meeting. Additionally, this right does not 
apply to discussions that merely reiterate or apply existing personnel 
policies, practices, or working conditions.
    We believe this modification provides clearer guidance to a 
Department representative as to when he or she is required to notify 
the exclusive representative of a meeting with bargaining unit 
employees. Moreover, this provision facilitates the Department's 
accomplishment of its critical mission by enabling managers and 
supervisors to have meetings with their employees regarding operational 
matters without any confusion regarding whether the exclusive 
representative must receive prior notice.
    In their comments and during the meet-and-confer process, 
participating labor organizations objected to precluding their right to 
be present during the discussion of an EEO complaint. The parties noted 
that an exclusive representative's presence during a discussion 
concerning an EEO complaint has been intensely litigated. Given this 
ongoing debate, we have modified the language in the proposed 
regulations to provide that an official of a labor organization may 
attend formal EEO complaint meetings as an employee's personal 
representative and only at the request of the bargaining unit employee 
who filed the complaint. The final regulation provides that if the 
United States Supreme Court determines whether an exclusive 
representative has a right to be present at such a meeting under 5 
U.S.C. 7114, the Department will interpret and apply that decision to 
this section. We have also clarified Sec.  9701.515(a)(5) regarding an 
employee's right to a personal representative in grievance or appeal 
procedures other than those negotiated grievance procedures established 
under subpart E.
    In their comments and during the meet-and-confer process, 
participating labor organizations objected to the requirement in the 
proposed regulations that employee representatives be subject to the 
same standards of conduct as any other employee, stating that this 
provision would ``chill'' the employee representatives' ability to 
exercise their protected rights. The participating labor organizations 
recommended retaining current case law standards that allow discipline 
of employee representatives only if they engage in ``outrageous 
conduct.'' We have deleted this provision but have left the development 
of any standards in this regard to the discretion of the HSLRB.
    In their comments and during the meet-and-confer process, 
participating labor organizations suggested that we maintain the duty 
to disclose information as it currently exists under 5 U.S.C. 7114(b). 
They particularly objected to the proposed exemption for disclosure of 
information if ``adequate alternative means exist'' for obtaining it. 
Another commenter stated that it was unclear whether the proposed 
regulation will utilize the existing ``particularized need'' standard, 
which requires a labor organization to specifically state why it needs 
the requested information.
    We do not believe the current standards for information disclosure 
in 5 U.S.C. chapter 71 adequately address the Department's need to 
withhold information that it determines would compromise its mission, 
security, or employee safety/privacy. Further, those standards have led 
to considerable confusion and much unnecessary litigation. Accordingly, 
we have added language to clarify the conditions for disclosure of 
information, including the requirement that the exclusive 
representative must demonstrate a particularized need. We expect the 
HSLRB to interpret and apply this language in a manner that is 
consistent with the Department's mission and the established 
particularized need of exclusive representatives in accordance with 
law.
    Finally, we have revised the language in the proposed regulations 
to make clear that Sec.  9701.515(b)(5)(ii) applies only to information 
requested in connection with matters covered by subpart E. However, if 
a labor organization serves as the personal representative of a 
bargaining unit employee in connection with the appeal of an adverse 
action to MSPB, the appeal of a mandatory removal offense to the 
Mandatory Removal Panel, or the pursuit of a complaint of 
discrimination before the Equal Employment Opportunity Commission, the 
applicable discovery rules and procedures of those respective bodies 
apply.
Section 9701.516--Allotments to Representatives
    Commenters suggested that the regulations should allow employees to 
discontinue their allotments at any time, rather than on an annual 
basis. In their comments, the labor organizations recommended that we 
revise the proposed regulation to allow the assignment and allotment of 
other financial assessments of the exclusive representative, and that 
we adopt language which provides that after one year has passed, an 
employee may revoke his or her dues allotment assignment on the 
anniversary date of his or her enrollment or on a date specified in a 
collective bargaining agreement. We believe the regulations, which 
track chapter 71, provide the appropriate mechanism for processing dues 
allotments and have not adopted these suggestions.
Section 9701.517--Unfair Labor Practices
    In the proposed regulations, the Department and OPM identified 
those actions that would constitute unfair labor practices in the 
Department's labor-management relations system. This list of unfair 
labor practices is almost identical to that set forth in 5 U.S.C. 7116. 
The proposal made only slight modifications to this list. Specifically, 
we clarified that the HSLRB, not FLRA, would be the arbiter of whether 
a party refused to consult or negotiate in good faith, or failed or 
refused to cooperate in impasse procedures and impasse decisions 
required by the Department's regulations. In addition, because these 
regulations provide that any provision of a collective bargaining 
agreement that is inconsistent with these regulations or the 
implementing directives is unenforceable on the effective date of 
coverage, we did not identify the action set forth in 5 U.S.C. 
7116(a)(7) as an unfair labor practice.
    The labor organizations suggested that references to the HSLRB be 
removed from the regulation because of their

[[Page 5310]]

objection to the creation of the HSLRB. In addition, they urged that we 
retain 5 U.S.C. 7116(a)(7) because an agency should not be permitted to 
enforce a rule or regulation that is in conflict with a collective 
bargaining agreement if the agreement was in effect prior to the 
issuance of the rule or regulation.
    We decline to adopt the first recommendation in light of the fact 
that we have retained the HSLRB in the final regulations. In addition, 
for reasons of homeland security, it is imperative that these 
regulations and any implementing directives trump provisions of 
existing collective bargaining agreements if these provisions are 
inconsistent with the regulations or directives. Therefore, we decline 
to adopt this second recommendation.
    We have made technical corrections in the second sentence of 
paragraph (e) to reflect the intent of the proposed regulations to 
mirror the language in 5 U.S.C. 7116(d).
Section 9701.518--Duty To Bargain, Confer, and Consult in Good Faith
    Commenters, including those labor organizations participating in 
the meet-and-confer process, objected to (1) the removal of 
Departmental implementing directives and other regulations from the 
scope and duty to bargain; (2) the modification to the de minimis 
standard, which limits the duty to bargain to those matters that 
``significantly affect a substantial portion of the bargaining unit''; 
(3) the establishment of a 60-day time limit for term bargaining; and 
(4) the absence of a mechanism for resolving mid-term bargaining 
impasses.
    We retained the bar on negotiations over Departmental implementing 
directives and other regulations. Under current law, Departmental 
implementing directives and other regulations would be subject to 
collective bargaining at a subordinate level of recognition, unless the 
Department could demonstrate a ``compelling need'' for uniformity. We 
believe that this is inconsistent with the basic purposes of the 
Homeland Security Act. The Department was created, in part, to bring 
about greater cohesion and coordination among its formerly separate 
components, and by definition, we believe there is a compelling need 
for uniformity among those components. Therefore, we have excepted 
Departmental implementing directives and other regulations from 
bargaining. The prospect of subjecting critical Department-wide human 
resources policies to modification through bargaining in over 70 
separate bargaining units is untenable, and the resulting patchwork of 
human resources policies could have an adverse effect on the 
Department's mission.
    However, we have revised the regulation to provide for labor 
organization involvement in three ways: (1) With respect to 
Departmental implementing directives, the Department will provide 
appropriate labor organizations with an opportunity to participate in 
the ``continuing collaboration'' process under Sec.  9701.105; (2) with 
respect to other Departmental regulations dealing with conditions of 
employment, the Department will confer with labor organizations granted 
national consultation rights under Sec.  9701.518(d)(2), in accordance 
with the procedures set forth in Sec.  9701.512; and (3) with respect 
to all other Department-wide matters that impact bargaining unit 
members, the Department will consult with national labor organizations.
    During the meet-and-confer process, we agreed to revise the 
proposed de minimis standard. Participating labor organizations 
expressed concern that the proposed standard relieved management from 
the duty to bargain unless the change impacted a majority of bargaining 
unit employees. In response to those concerns, we further clarified the 
standard to reflect current Federal and private sector case law, which 
requires management to afford an exclusive representative an 
opportunity to bargain over changes that are ``foreseeable, 
substantial, and significant in terms of both impact and duration on 
the bargaining unit, or on those employees in that part of the 
bargaining unit affected by the change.'' Under this standard, 
management is not required to negotiate when the impact is on a single 
employee. We also agreed to extend the time limit for term bargaining 
from 60 days to 90 days. In addition, we provide that the parties may 
refer a mid-term bargaining impasse to an independent mediator/
arbitrator (by mutual agreement), FMCS, and/or HSLRB for assistance or 
resolution.
Section 9701.519--Negotiation Impasses
    The proposed regulation provided the Homeland Security Labor 
Relations Board with the authority to resolve negotiation impasses. We 
have retained this authority, but deleted Sec.  9701.519(b) involving 
the HSLRB's regulations and reincorporated the concepts into Sec.  
9701.508, Homeland Security Labor Relations Board, where it more 
appropriately flows with the HSLRB's authority to issue regulations 
concerning its impasse resolution procedures. Commenters recommended 
that negotiation impasses should be referred through the Federal 
Mediation and Conciliation Service (FMCS) and then to the Federal 
Service Impasses Panel (FSIP) for resolution. We have incorporated 
provisions for parties to use the services of FMCS in Sec.  9701.508, 
Homeland Security Labor Relations Board. However, we continue to 
believe that FSIP is not positioned to adequately respond to the unique 
and critical mission of the Department, and the labor organizations 
during the meet-and-confer process were not opposed to the creation of 
a streamlined impasse resolution process.
Section 9701.521--Grievance Procedures
    In their comments, labor organizations recommended that we modify 
paragraph (b)(2) of the proposed regulations to retain an arbitrator's 
current authority to stay a personnel action in the same manner as MSPB 
if a prohibited personnel action is involved. We agree and have so 
modified the regulation.
    Paragraph (f) of the proposed regulations provided that employees 
may no longer challenge adverse actions through the negotiated 
grievance procedure. Several labor organizations commented that access 
to the grievance/arbitration process is a fundamental element of the 
statutory right to organize and bargain collectively. Other commenters 
also opposed this change. We agree and have modified the regulations to 
permit employees who are subjected to certain adverse actions to seek 
redress either through the appeals process or grievance procedure, but 
not both. We have revised the regulations to provide that 5 U.S.C. 
7121(f) is modified so that matters covered by subpart G are deemed to 
be matters covered by 5 U.S.C. 4303 and 7512 for the purpose of 
obtaining judicial review. Section 7121(f) also is modified to provide 
that judicial review under 5 U.S.C. 7703 will apply to an arbitration 
award under the same manner and under the same conditions as if the 
matter had been decided by MSPB under Sec.  9701.706, including the 
requirement that the preponderance of the evidence standard applies to 
arbitrators as well as to MSPB. The new Sec.  9701.521(f) is consistent 
with 5 U.S.C. chapter 71 and requires arbitrators hearing adverse 
action grievances to be bound by these regulations and MSPB case law as 
it applies to DHS.
    For example, section 9701.706(k)(6) clarifies that MSPB may 
mitigate a penalty only if the penalty is so disproportionate to the 
offense as to be wholly without justification. Under the

[[Page 5311]]

final regulations, this standard applies with equal force to 
arbitrators who adjudicate adverse actions under the negotiated 
grievance procedure. Adverse action penalties which do not meet this 
standard may not be modified by either MSPB or an arbitrator; in other 
words, they are barred from substituting their judgment as to the 
penalty for that of the Department. In cases of multiple charges, MSPB 
or an arbitrator may still mitigate a penalty where not all of the 
charges are sustained. The third party's judgment is based on the 
justification for the penalty as it relates to the sustained charge(s). 
The regulations are intended to ensure that when a penalty is 
mitigated, the maximum justifiable penalty will be applied.
    In order to ensure consistency in the adjudication of adverse 
actions, the Department's two largest labor organizations recommended 
the establishment of a mutually acceptable panel of arbitrators who 
have been trained and qualified to hear adverse action grievances. The 
Secretary and the Director concurred with this recommendation, and 
Sec.  9701.521(f) has been revised accordingly.
    Consistent with the change to allow grievances regarding certain 
adverse actions, we have revised Sec.  9701.521 to provide that adverse 
actions under subpart F are grievable, except for mandatory removal 
offenses and adverse actions taken in the interest of national security 
under Sec.  9701.613. This revision also eliminates confusion caused by 
the language in 5 U.S.C. 7121(c)(5) and accurately reflects the current 
situation that, although adverse actions are grievable, the exclusive 
recourse with regard to classification disputes is the OPM 
classification appeals procedure (5 CFR 511.603). The revision also is 
consistent with the statutory exclusion of classification matters from 
the definition of ``conditions of employment'' in 5 U.S.C. 
7103(a)(14)(B). (See related clarifications in Sec. Sec.  9701.222 and 
9701.604(b)(15).)
    In their comments, labor organizations recommended that we delete 
paragraph (g), which provided that an employee may grieve a performance 
rating only if it was not raised in connection with an adverse action 
appeal. However, during the meet-and-confer process, they withdrew 
their objections.
    Labor organizations also objected to that part of paragraph (g) 
requiring that an arbitrator must sustain a grieved rating of record 
unless the grievant proves that it was arbitrary or capricious. The 
labor organizations argued that a rating should be cancelled upon a 
showing of a prejudicial violation of applicable law or the provisions 
of a labor agreement. During the meet-and-confer process, we agreed to 
revise paragraph (g) to address the authority of an arbitrator to 
cancel a performance rating. Paragraph (g) now provides that an 
arbitrator may cancel such a rating upon a finding that management 
applied the employee's established performance expectations in 
violation of law, regulation, or collective bargaining agreement if the 
violation prejudices the grievant. Further, the revision precludes an 
arbitrator from ordering a change to a rating, except when he or she is 
able to determine the rating that the manager would have given but for 
the violation; if the arbitrator cannot do so, the case must be 
remanded for re-evaluation. Finally, paragraph (g) states that an 
arbitrator does not have authority to conduct an independent evaluation 
of an employee's performance or otherwise substitute his or her 
judgment for that of the manager, unless otherwise provided by law.
Section 9701.522--Exceptions to Arbitration Awards
    Commenters, including labor organizations, objected to giving the 
HSLRB jurisdiction over exceptions to arbitration awards and requested 
that FLRA retain such jurisdiction. We adopted this suggestion in part, 
revising the regulations to give FLRA jurisdiction over exceptions that 
do not involve the exercise of management rights and/or the scope and 
duty to bargain. Because those matters involving the exercise of 
management rights and/or the scope and duty to bargain potentially 
impact Department operations, we believe that they should remain within 
the purview of the HSLRB. This will also facilitate the HSLRB's 
development of a single, integrated dispute resolution process for such 
matters. During the meet-and-confer process, participating labor 
organizations also suggested that we develop procedures to resolve 
disputes over whether exceptions to a particular arbitration award 
involve the exercise of a management right or the duty to bargain. The 
final regulations include such procedures at Sec.  9701.522(b). (See 
Section 9701.509--Powers and Duties of the HSLRB and Section 9701.510--
Powers and Duties of the Federal Labor Relations Authority.)
Section 9701.527--Savings Provision
    We have revised this section to clarify our intent that any remedy 
that applies after the date of coverage under any provision of subpart 
E and that is in conflict with applicable provisions of this part is 
not enforceable.

Subpart F--Adverse Actions

General Comments
    Some commenters felt that the proposed regulations would adversely 
impact due process rights, equal employment opportunity claims, 
whistleblowing claims, and recruiting and retention efforts. We 
disagree. Under the Homeland Security Act of 2002, DHS is prohibited 
from waiving or modifying any provision relating to prohibited 
personnel practices or merit system principles, including reprisal 
against whistleblowing or discrimination. We retained these protections 
intact. The Homeland Security Act also requires DHS to ensure that 
employees are afforded the protections of due process, and we have done 
so, not only for actions that trigger due process protections, but for 
all covered adverse actions. We have retained these protections as 
well, assuring an employee a right to notice of a proposed adverse 
action, a right to reply, a right to a final written decision, and a 
right to appeal the action. Although we have made changes to the 
proposed regulations, those changes preserve due process and guarantee 
other legal protections, and as a result, we do not believe they will 
have any effect on recruiting and retention efforts.
    One commenter expressed concern that the new time limits could lead 
to longer processing times and more burdensome delays for other Federal 
agencies attempting to defend their adverse actions before MSPB. We 
intend to conduct an evaluation of the appellate procedures after they 
have been in effect for 2 years in order to determine, among other 
things, whether additional modifications to 5 U.S.C. chapter 77 and/or 
these regulations should be considered.
Other Comments on Specific Sections of Subpart F
Section 9701.601--Purpose
    Section 9701.601 of the proposed regulations revised the number of 
days for a furlough from 30 days or less to 90 days or less. Commenters 
noted that this revision conflicts with current Governmentwide rules 
where a furlough of more than 30 days requires the use of reduction in 
force procedures. This conflict was not intended. We have revised the 
final regulations to retain the current number of days for a furlough 
action as 30 days or less. We have also clarified this section by 
including a statement that DHS may issue

[[Page 5312]]

implementing directives to carry out the provisions of this subpart.
Section 9701.602--Waivers
    Section 9701.602 of the proposed regulations specified the 
provisions of title 5, U.S. Code, that are waived for employees covered 
by the DHS adverse action system established under subpart F. We have 
revised this section to be consistent with language used in other 
waivers sections of the regulations.
Section 9701.603--Definitions
    Section 9701.603 of the proposed regulations defined an ``initial 
service period'' as the 1 to 2 years employees must serve upon 
appointment to DHS before being covered by subpart F, and counts prior 
Federal service toward this requirement. We have clarified the initial 
service period in a new separate section in the final regulations, 
numbered as Sec.  9701.605.
    Labor organizations requested that we retain the current 
probationary period of one year as sufficient time to evaluate 
employees. However, we note that the initial service period is not a 
probationary period. A probationary period is an extension of the 
examination process. An initial service period focuses on an employee's 
developmental progress. Accordingly, we have retained the initial 
service period for those jobs that have an extended (12- to 24-month) 
developmental cycle, in order to allow the Department sufficient time 
to determine whether a trainee has the potential to acquire the 
competencies required at the full performance level of the employee's 
occupation and should be retained. However, in response to the concerns 
of labor organizations, we have specified that initial service periods 
will be standardized for particular occupations via DHS implementing 
directives, rather than left to individual supervisory discretion. We 
have also revised the definition to specify that the 1- to 2-year 
initial service period (ISP) applies only to employees selected for a 
designated DHS position in the competitive service, and to credit 
relevant prior Federal service towards satisfactory completion of the 
ISP.
    We use the term ``competencies'' in this subpart, and have added 
this term to the definitions. It is identical to the definition of that 
term in Sec.  9701.404 concerning the DHS performance management 
system. Additionally, we use the identical definition of ``band'' found 
at Sec.  9701.204, rather than referring the reader to that section for 
the definition. We have also included the current title 5 definitions 
for ``probationary period,'' ``current continuous service,'' ``similar 
positions,'' and ``trial period'' to coincide with the use of these 
terms in subpart F of the final regulations.
    Finally, we have added definitions of adverse action, mandatory 
removal offense (MRO), and Mandatory Removal Panel (MRP).
Section 9701.604--Coverage
    Section 9701.604(b)(1) of the proposed regulations indicated that 
employees in the competitive service who are removed during an initial 
service period are subject to the limited appeal rights under 5 CFR 
part 315. Labor organizations observed an inconsistency with this 
section and Sec.  9701.704(c) which indicates that employees in the 
competitive service who are removed during the first year of an initial 
service period are covered by 5 CFR part 315, while employees removed 
during the second year of an initial service period are not covered by 
either part 315 or subpart G of these regulations. As a result, the 
labor organizations noted, those employees could conceivably have fewer 
rights in their second year of service than their first year of 
service. We have clarified this drafting error in Sec.  9701.704(c) of 
the final regulations to reflect that the applicable appeal procedures 
of 5 CFR part 315 apply during the entire initial service period. We 
have also moved the reference to 5 CFR part 315 coverage in Sec.  
9701.604(b)(1) of the proposed regulations to Sec.  9701.605(c) in the 
final regulations.
    We have added a new paragraph (b)(15) to clarify that 
classification determinations, including classification determinations 
under subpart B, are not subject to adverse action procedures under 
subpart F. Under Sec.  9701.222, classification determinations under 
subpart B are subject to DHS and/or OPM review and are not subject to 
further review or appeal.
    We revised Sec.  9701.604(d) to add employees appointed and serving 
under Executive Order 11203, members of the Homeland Security Labor 
Relations Board, and members of the Mandatory Removal Panel to the list 
of exclusions. The members of the HSLRB and the Panel may be removed 
only under the same conditions and according to the same procedures 
applicable to members of the Federal Labor Relations Authority and the 
Merit Systems Protection Board, respectively, as specified in the 
relevant sections of the two subparts.
    Section 9701.604(d)(1) of the proposed regulations excluded 
employees serving a term, temporary, or otherwise time-limited 
appointment. During the meet-and-confer process, participating labor 
organizations requested that the regulation exclude employees serving a 
time-limited appointment, except those employees who have completed a 
trial period. We have partially adopted this suggestion. Preference 
eligible employees who are serving a time-limited appointment of any 
length (including a term appointment) and who have completed a 
probationary or trial period are covered by subpart F. Non-preference 
eligible employees who are on a time-limited appointment of longer than 
2 years and who have completed a trial period are also covered by 
subpart F except as otherwise provided by Sec. Sec.  9701.604 and 
9701.605. We have revised this paragraph accordingly and have also 
redesignated this paragraph as Sec.  9701.604(d)(4).
    Section 9701.604(d)(2) of the proposed regulation provided that 
preference eligible employees would be covered by subpart F adverse 
action procedures, as well as subpart G appeal procedures, after their 
first year of an initial service period, regardless of the length of 
the initial service period. During the meet-and-confer process and in 
their comments, participating labor organizations suggested that the 
protections for preference eligible employees apply to all DHS 
employees. We have not adopted this suggestion. Placing non-preference 
eligible employees on equal footing with preference eligible employees 
in this instance would diminish preference status. We have redesignated 
this paragraph as Sec.  9701.604(d)(1) in the final regulations, and 
revised it to exclude employees in the competitive service who are 
serving a probationary, trial, or initial service period. We have also 
moved the reference to 5 CFR part 315 coverage in Sec.  9701.604(d)(2) 
of the proposed regulations to Sec.  9701.605(c) in the final 
regulations.
    To further clarify coverage of subpart F, we created parallel 
provisions to 5 U.S.C. 7511 that retain the adverse action procedures 
for employees in the excepted service. These provisions are included at 
Sec.  9701.604(d)(2) and (d)(3) of the final regulations.
Section 9701.605--Standard for Action
    We redesignated this section as Sec.  9701.606 due to insertion of 
the new section on ``Initial service period'' at Sec.  9701.605. (See 
discussion of ISP in Section 9701.603--Definitions.)
    Section 9701.605 of the proposed regulations provided that DHS may 
take an adverse action only when it establishes a factual basis for the 
action and a connection between the action and a legitimate 
Departmental interest.

[[Page 5313]]

During the meet-and-confer process, the participating labor 
organizations requested that the long-standing ``efficiency of the 
service standard'' be retained. We agree. We originally deleted the 
efficiency of the service standard in the proposed regulations to allay 
any confusion that might arise from case law linking this standard with 
the authority to review and mitigate penalties, an authority we did not 
provide in the proposed regulations. However, because we have revised 
the proposed regulations to provide for a limited authority to mitigate 
in other than mandatory removal offenses, we have also revised the 
proposed regulations to retain the current efficiency of the service 
standard. See the discussion on mitigation in the Major Issues section 
of the Supplementary Information.
Section 9701.606--Mandatory Removal Offenses
    This section has been redesignated as Sec.  9701.607. Section 
9701.606 of the proposed regulations provided that the Secretary in his 
or her sole, exclusive, and unreviewable discretion will identify 
offenses that have a direct and substantial impact on the ability of 
the Department to protect homeland security. The Secretary intends to 
consult with the Department of Justice in preparing the list of 
offenses. An employee who commits such an offense must be removed from 
Federal service, and must be provided due process including third-party 
review by an independent DHS Panel. Commenters suggested that the 
Secretary would have too much discretion in such cases, that removal 
may be too harsh, and that due process would be diminished. We disagree 
and have retained this provision, including the Secretary's sole, 
exclusive, and unreviewable discretion to mitigate.
    During the meet-and-confer process, participating labor 
organizations initially opposed this provision. However, upon their 
review of a tentative list of MROs, they agreed in concept. They also 
agreed that the proposed regulations met due process requirements. In 
that regard, the participating labor organizations recommended that the 
final list of MROs be publicized and communicated annually to 
employees. We agree. We will publish the final list of MROs in the 
Federal Register and will include it in DHS implementing directives; we 
have also revised Sec.  9701.607(a) to provide for making them known to 
employees annually. See the discussion on ``Mandatory Removal 
Offenses'' in the Major Issues section of the Supplementary 
Information.
    Also in response to proposals made by labor organizations during 
the meet-and-confer process, we added a requirement in Sec.  
9701.607(c) that a proposed notice of a MRO be reviewed and approved by 
the Secretary or designee prior to issuance of the notice to the 
employee. In addition, we moved the reference to the Secretary's 
mitigation authority from paragraph (b) to a new paragraph (d). 
Finally, we have added a new paragraph (f) to clarify that the current 
authority to remove an employee based on the revocation of a security 
clearance is not limited by the establishment of MROs.
Section 9701.607--Procedures
    We redesignated this section as Sec.  9701.608. Section 9701.607 of 
the proposed regulations provided shorter advance notice and reply 
periods. Labor organizations and other commenters requested that we 
retain the current notice and reply periods (currently 30 and 7 days, 
respectively) because they believed proposed shorter periods deprive 
employees of a full and fair defense or would make it extremely 
difficult for employees to enforce their rights. However, we believe 
that one of the fundamental objectives of the Homeland Security Act was 
to streamline the process for taking an adverse action, and as a 
result, we have retained a minimum notice period of 15 days as 
originally proposed. However, based on the comments of participating 
labor organizations, we have extended the reply period from a minimum 
of 5 days to a minimum of 10 days. Moreover, employees may always 
request an extension of their reply period.
    We have revised the notice period in paragraph (a) for mandatory 
removal offenses from ``at least 5 days'' to ``at least 15 days'' to be 
consistent with the notice period for other adverse actions. Should DHS 
need longer notice periods when taking an adverse action, the 
regulations provide that flexibility as well in that the notice periods 
are only minimum required timeframes. Similarly, we have revised the 
reply periods in paragraph (b) for both mandatory removal offenses and 
other adverse actions from ``at least 5 days'' to ``at least 10 days''. 
The net result is a shorter notice period coupled with a longer, but 
concurrent, reply period than currently provided under 5 U.S.C. 7513. 
The only situation where a shorter 5-day notice and reply period is 
permitted is where there is reasonable cause to believe the employee 
has committed a crime for which a sentence of imprisonment may be 
imposed. This ``crime provision'' is patterned after that provided for 
in the current law at 5 U.S.C. 7513.
    Section 9701.607 of the proposed regulations established a single, 
integrated process for taking adverse action based on unacceptable 
performance and for disciplinary reasons, and eliminated the 
requirement for a formal, set period for an employee to improve 
performance before management can take an adverse action. Some 
commenters indicated that the requirement for an opportunity to improve 
should be retained, while another commenter agreed with having the 
single process. We have not revised the proposed regulations in this 
regard. However, the final regulations continue to provide for the 
optional use of performance improvement periods.
    Section 9701.607(b)(4) of the proposed regulation provided that the 
Department may disallow an employee's choice of representative when 
that choice could compromise security. One commenter expressed concern 
that employees would not be able to be represented by attorneys who did 
not have security clearances. Labor organizations participating in the 
meet-and-confer process raised similar concerns. Generally, we agree 
and have revised the regulation to reflect 5 CFR 752.404(e). However, 
we have limited the applicability of this section to mandatory removal 
offenses because of their very nature. We have also clarified that an 
employee must designate his or her representative in writing.
    Section 9701.607(b)(5) of the proposed regulations provided that 
the Department must comply with 5 CFR part 339 when addressing an 
employee's medical condition relevant to a proposed adverse action. A 
commenter suggested that we include language to clarify the 
Department's compliance requirement with the Rehabilitation Act found 
at 29 CFR 1614.203. During the meet-and-confer process, participating 
labor organizations suggested that we edit Sec.  9701.607(b)(5) and (c) 
so that it reads as it currently does in 5 CFR part 752. We agree and 
have revised this section in the final regulations to better clarify 
the Department's required compliance with the Rehabilitation Act, 29 
CFR 1614.203. We have also revised Sec.  9701.607(b)(5)(i) and (c) of 
the proposed regulations so that they read as they currently do in 5 
CFR part 752.
    Finally, to aid the reader, we have split the material in this 
section of the regulations into a total of four sections (Sec.  
9701.608--Procedures, Sec.  9701.609--Proposal notice, Sec.  9701.610--
Opportunity to reply, and Sec.  9701.611--

[[Page 5314]]

Decision notice), and we have redesignated the subsequent sections 
accordingly.
Section 9701.608--Departmental Record
    We redesignated this section as Sec.  9701.612. Section 9701.608(a) 
of the proposed regulations provided that the Department must retain a 
record of the adverse action pursuant to the General Records Schedule 
and the Guide to Processing Personnel Actions. One commenter asked that 
we clarify whether an employee's SF-50 and Official Personnel Folder 
(OPF) will be documented. We have revised this section in the final 
regulations to correct the citation from the Guide to Processing 
Personnel Actions to the Guide to Personnel Recordkeeping. The 
Department will comply with the requirements for documenting an 
employee's SF-50 and OPF as provided by the General Records Schedule 
and the Guide to Personnel Recordkeeping.
Section 9701.609--Suspension and Removal
    We redesignated this section as Sec.  9701.613. Section 9701.609 of 
the proposed regulations provided procedures for taking an adverse 
action based on national security reasons, as provided by 5 U.S.C. 
7532. Labor organizations suggested that we delete this section because 
they believe Congress needs to designate DHS as one of the agencies 
with the authority to use these special procedures. We have not revised 
this section in the final regulations. Such a designation is not 
necessary because Congress already gave the Department the authority to 
waive and/or modify 5 U.S.C. chapter 75 through the Homeland Security 
Act.
    We revised paragraph (c) to clarify that employees who have 
completed their initial service period, probationary period, or trial 
period are covered by this section.
Section 9701.614--Savings Provision
    We have added this new section in the final regulations to clarify 
that this subpart does not apply to adverse actions proposed prior to 
the date of an affected employee's coverage under this subpart.

Subpart G--Appeals

Section 9701.701--Purpose
    Section 9701.701 of the proposed regulations specified that the 
purpose of subpart G is to provide regulations implementing the 
provisions of 5 U.S.C. 9701(a) through (c) and (f) concerning the 
Department's appeals system for certain adverse actions covered under 
subpart F. During the meet-and-confer process, the participating labor 
organizations recommended that we either delete this section or revise 
it to accurately reflect the text from the Homeland Security Act of 
2002. We agree and have deleted it as unnecessary, given that it is a 
legal requirement.
Section 9701.702--Waivers
    Section 9701.702 specifies the provisions of title 5, U.S. Code, 
that are waived for employees covered by the DHS appeals system 
established under subpart G. We have revised this section to be 
consistent with language used in other waivers sections of the 
regulations.
    This section also specifies that the appellate procedures in 
subpart G replace those of the Merit Systems Protection Board (MSPB) to 
the extent MSPB's procedures are inconsistent with these regulations, 
and that MSPB must follow these regulations until it issues conforming 
regulations. In this regard, commenters questioned how the deadlines 
for handling DHS cases would impact MSPB's handling of non-DHS cases 
and suggested that rather than include the streamlined procedures in 
the final regulation, DHS and MSPB should instead enter into a 
voluntary memorandum of understanding streamlining the MSPB's 
procedures. In addition, during the meet-and-confer process, the 
participating labor organizations questioned the authority of DHS and 
OPM to waive, modify, or supersede MSPB's appellate procedures or 
otherwise diminish its authority to take final action on any matter 
within its jurisdiction. However, they concurred with the substance of 
the streamlined procedures contained in the regulations. We believe 
that sufficient legal authority exists to modify MSPB procedures. 
Moreover, as required by the Homeland Security Act, we have consulted 
extensively with MSPB on these matters, and MSPB has indicated an 
intention to issue its own conforming regulations pursuant to this 
section.
    The participating labor organizations also suggested that this 
section be amended to clarify that appeals of actions not covered by 
subpart F continue to be covered by 5 U.S.C. 7701. We have not revised 
this section. We believe that the proposed regulation is clear with 
respect to the continued applicability of 5 U.S.C. 7701 to actions not 
covered by subpart F.
    We also received numerous comments expressing concern that limiting 
the discretion of MSPB to mitigate penalties would make MSPB review 
``practically meaningless,'' and would decrease the credibility of 
MSPB. The labor organizations participating in the meet-and-confer 
process also argued strongly for retaining MSPB authority to mitigate, 
identifying this as one of their most important priorities. Based on 
these comments and concerns, we have reconsidered this provision and 
have attempted to balance the equity issues raised by commenters and 
participating labor organizations with the Department's critical 
homeland security mission. In this regard, we have decided to authorize 
MSPB to mitigate penalties, but only under certain limited 
circumstances, and have thus included a standard for mitigation that is 
more stringent than current case law. See the discussion on mitigation 
in the Major Issues section of the Supplementary Information.
    Commenters and participating labor organizations also recommended 
that we return to the status quo with respect to the criteria for the 
award of attorney fees. We agree that awards of attorney fees should be 
based on current requirements and have revised the final regulations 
accordingly. See Sec. Sec.  9701.706 and 9701.707.
Section 9701.704--Coverage
    Section 9701.704(c) of the proposed regulation provided that the 
removal of an employee in the competitive service during an initial 
service period is subject to the provisions of 5 CFR 315.806. During 
the meet-and-confer process, participating labor organizations 
requested that we delete the initial service period and replace it with 
the existing probationary or trial period. As previously discussed with 
regard to Sec.  9701.604, we have retained the initial service period 
in the final regulations.
Section 9701.705--Alternative Dispute Resolution
    Section 9701.705 of the proposed regulations provided for the 
development of alternative dispute resolution (ADR) methods to address 
employee-employer disputes arising in the workplace, including those 
which may involve disciplinary actions. Commenters endorsed the concept 
of ADR and we continue to provide for these techniques in the final 
regulations, as appropriate. Participating labor organizations during 
the meet-and-confer process requested that the Department negotiate 
with the labor organization(s) before implementing a new ADR process or 
making changes to an existing ADR process. We have revised this section 
to add that ADR will be subject to collective bargaining to the extent 
permitted by subpart E.

[[Page 5315]]

Section 9701.706--MSPB Appellate Procedures
    This section established streamlined MSPB appellate procedures and 
provided for such things as limited discovery, summary judgment, and 
expedited timeframes. The process for computing number of days allowed 
for filing under the expedited timeframes, however, will be consistent 
with current MSPB procedures. For example, if a filing deadline falls 
on a weekend or Federal holiday, the filing period will include the 
first workday after that date.
    During the meet-and-confer process, participating labor 
organizations questioned our authority to establish streamlined 
procedures to replace current MSPB regulations. However, those labor 
organizations ultimately agreed that these streamlined procedures would 
serve appellants without compromising fundamental fairness. 
Accordingly, we have retained all of these provisions, with specific 
revisions as follows.
    Section 9701.706(d)(1) of the proposed regulations provided that 
the Department's adverse action decision must be sustained if it is 
supported by substantial evidence. Several commenters, including labor 
organizations, commented that the reduction in the standard of proof 
from a preponderance of the evidence to substantial evidence violated 
the fundamental notions of fairness and due process. During the meet-
and-confer process, participating labor organizations also identified 
this issue as one of major import and proposed that we revert to the 
current ``preponderance'' standard. Based on those discussions, we have 
revised this paragraph to retain the current preponderance of the 
evidence standard. See discussion on burden of proof in the Major 
Issues section of the SUPPLEMENTARY INFORMATION.
    Section 9701.706(d)(2) of the proposed regulations also provided 
that the MSPB may not reverse a Department action based on the way 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. During the meet-and-confer process, 
participating labor organizations expressed concern that this proposal 
would violate the right of employees to due process in that the 
Department would not be required to prove all the specific elements of 
a charge. Although we do not agree, we have revised this section to 
delete the provision regarding the framing of charges or charge-
labeling.
    Section 9701.706(h) of the proposed regulations established a new 
standard for recovering attorney fees which was intended to simplify 
the process. Comments received on the proposed regulations and during 
the meet-and-confer process argued that the new standard was 
unreasonable, beyond the authority provided under the Homeland Security 
Act, and would discourage employees from challenging wrongful 
terminations. As noted previously, we have revised this paragraph to 
retain the current statutory standard under which such fees may be 
awarded.
    Section 9701.706(i)(1) of the proposed regulations provided that 
the MSPB may not require settlement discussions in connection with any 
appealed action. A commenter remarked that settlement can contribute to 
fast and simple case resolution. We agree that settlement can aid in 
timely case resolution. However, we have not revised this section 
because we believe strongly that settlement should be a completely 
voluntary decision made by the parties on their own, based on their 
individual interests.
    Section 9701.706(k)(3) of the proposed regulations provided for 
limited discovery. A commenter suggested that the proposed discovery 
changes were ``one-sided,'' and should be reconsidered. Another 
commenter thought the proposed changes failed to address the 
disproportionate impact of current discovery procedures on Federal 
agencies. The commenter suggested that the regulations provide for 
motions by DHS to preclude factual assertions or legal arguments made 
by appellants in their prehearing submissions, or at the hearing, where 
they have failed to respond to DHS discovery requests seeking complete 
information on their defenses to the charges against them and their 
affirmative defenses. We believe we have this authority now and have 
decided not to revise this section. These rules of discovery are 
derived from the Federal Rules of Civil Procedure and apply equally to 
all parties.
    Section 9701.706(k)(5) of the proposed regulations provided that 
the MSPB must render summary judgment on the law without a hearing when 
there is no dispute of material fact. We received comments from labor 
organizations and others expressing concern that this change would 
violate or ``scrap'' employee due process rights. We have not revised 
this section. Summary judgment will help to significantly expedite and 
streamline the appeals process. When material facts are in dispute, a 
hearing will be held and a transcript will be kept (as is the case 
today, a tape recording is sufficient for this purpose). Thus, the 
regulations retain due process protections.
    Section 9701.706(k)(6) of the proposed regulations also established 
procedures for appeals in which the MSPB sustains fewer than all of the 
Department's charges. A commenter observed that the proposal would 
effectively eliminate MSPB review of the charges. We have revised this 
section to provide for limited mitigation, and eliminated the special 
procedures for processing of MSPB decisions that sustain fewer than all 
of the charges. See discussion on mitigation in the Major Issues 
section of the Supplementary Information.
    We moved the reference to judicial review to a new paragraph on 
judicial review at Sec.  9701.706(m).
    We also received suggestions from commenters to clarify that 
whistleblower and prohibited personnel practice protections are 
unchanged. We have not revised the proposed regulations in response to 
these suggestions because we believe that the waiver sections of this 
subpart clearly identify the provisions of law that we have waived. 
Whistleblower and prohibited personnel practice protections are 
unchanged.
Section 9701.707--Appeals of Mandatory Removal Actions
    Section 9701.707 of the proposed regulations established the 
appellate procedures for a mandatory removal action (MRO), including 
creation of the DHS independent panel to decide MRO appeals. Commenters 
and participating labor organizations stated that the MRO panel would 
not be transparent, accountable, or objective, nor would it protect 
employee due process rights. A commenter suggested that the judicial 
review issue could be resolved by providing for MSPB review of 
mandatory removal offenses. Another commenter suggested that the 
Department consider having members of the panel removed only by a 
majority decision of the panel, and that we stagger the terms of the 
members to ensure a degree of continuity.
    During extensive discussions in the meet-and-confer process, 
participating labor organizations emphasized that the nomination 
process for that panel should be credible, transparent, and not subject 
to politicization. We agree and have established a process for 
appointing Panel members by the Secretary that includes labor 
organization involvement in the nomination of candidates. (See Sec.  
9701.708.) The process for appointing members of the Mandatory Removal 
Panel (MRP) mirrors those for

[[Page 5316]]

appointing members of the Homeland Security Labor Relations Board, as 
described in Sec.  9701.508 of the final regulations. Specific 
revisions include--
     Sec.  9701.708(a), which provides that the MRP is a 
standing panel composed of three members who are appointed by the 
Secretary for fixed terms. The members must be independent, 
distinguished citizens of the U.S. who are well known for their 
integrity, impartiality, and expertise in labor or employee relations 
and law enforcement/homeland security. Also, members serve for 3-year 
staggered terms.
     Sec.  9701.708(b), which provides that the Secretary 
appoints the Chair of the MRP.
     Sec.  9701.708(c), which authorizes labor organizations to 
submit lists of proposed nominees to serve as non-Chair MRP members.
    In addition, Sec.  9701.707(b) provides that all members of the MRP 
will hear a particular appeal and will decide the appeal based on a 
majority vote of the members. The MRP must provide a hearing, and may 
not mitigate the Department's penalty. An employee may petition the 
Equal Employment Opportunity Commission to review the MRP decision as a 
``mixed case'' under procedures established in 5 U.S.C. 7702, except 
that a Special Panel convened under those procedures will include a 
member of the MRP and not MSPB.
    The proposed regulations also discussed judicial review of MRO 
Panel decisions and posed two options for consideration by commenters. 
One option would have the regulations remain silent with regard to 
judicial review, thus allowing existing governing legal principles to 
determine the circumstances under which there would be judicial review. 
The second option would have required MSPB review, under the same 
procedures and standards for judicial review of MSPB decisions as a 
condition precedent to Federal Circuit jurisdiction.
    One commenter noted that under the first option, judicial review 
would most likely be available under 5 U.S.C. 704. However, another 
commenter recommended the second option because, according to the 
commenter, the first option could permit review in a broad array of 
Federal courts of competent jurisdiction, resulting in greater second-
guessing of DHS management decisions, as well as the creation of 
fragmented and inconsistent case law in this area. This commenter 
favored the second option because it has the advantage of keeping 
interpretation and enforcement of the DHS regulations within the 
existing MSPB/Federal Circuit review structure and therefore promises 
much greater uniformity and consistency than the first option. The 
commenter cautioned, however, that based on its experience with the 
Federal Circuit, that court would likely subject to very searching and 
critical scrutiny any Panel claims to special deference under the U.S. 
Supreme Court's decision in Chevron U.S.A., Inc. v. Natural Resources 
Defense Council, Inc., 467 U.S. 837 (1984)). Therefore, this commenter 
believes the likelihood of the court respecting those claims is 
somewhat debatable. The labor organizations did not have any 
recommendations in this regard during the meet-and-confer process. 
Accordingly, after further consultation with MSPB (as well as FLRA with 
regard to subpart E), we have adopted the second option in revising 
Sec.  9701.707(d), which now provides that either party may request 
review of the record of an MRP decision by MSPB. In conducting its 
review, MSPB will accept the findings of fact and interpretations of 
these regulations made by the MRP. The provision also establishes a 30-
day time limit for MSPB to render its decision. This 30-day time limit 
is mandatory, except that MSPB may extend its time for review by a 
maximum of 15 additional days if it determines that a case is unusually 
complex, or that an extension is necessary to prevent any prejudice to 
the parties; however, the regulations do not permit any further 
extension. In addition, Sec.  9701.707(f) was revised to provide for 
judicial review under 5 U.S.C. 7703 of any final MSPB order or decision 
on an MRO. See the discussion on mandatory removal offenses and 
mandatory removal panel in the Major Issues section of the 
Supplementary Information.
Section 9701.709--Savings Provision
    We have added this new section in the final regulations to clarify 
that this subpart does not apply to adverse actions proposed prior to 
the date of an affected employee's coverage under this subpart.

Next Steps

    The mission of homeland security has never been more important. 
Whether it be the ability to appropriately compensate and reward our 
top performers, the ability to attract top talent from industry to our 
key mission areas, the ability to more rapidly respond to workforce and 
organizational requirements, or the ability to identify and establish 
career progression opportunities for all of the workforce, the 
flexibilities contained in the new DHS regulations are a top priority.
    These regulations affect people, processes, and technology across 
the Department and represent a significant change management 
undertaking. The communications and training requirements to ensure 
success are enormous. DHS will apply the new labor relations, adverse 
actions, and appeals provisions no sooner than 30 days, but no later 
than 180 days, after the publication of these final regulations (unless 
the Secretary and the Director jointly approve a later date). The 
Preamble to the proposed regulations also outlined a tentative schedule 
for implementing classification, pay and performance management system 
changes, starting with employees of DHS Headquarters, Science and 
Technology and Intelligence Analysis and Infrastructure Protection, as 
well as GS employees of the Coast Guard (Phase 1).
    The proposed regulations contemplated conversion of these groups of 
employees to a new performance management system in the fall of 2004, 
with a subsequent conversion to the new classification and pay system 
in early 2005. At that time, affected employees would have been 
converted to the new system with a one-time within-grade increase buy-
out and would have received their first performance-based pay increase 
in the summer/fall of 2005, to coincide with the completion of their FY 
2005 performance management cycle. The first annual rate range 
adjustment for these employees was contemplated for early 2006.
    A second phase would convert all remaining GS employees to new 
performance management provisions in fall 2005, with conversion to new 
job evaluation and pay systems in early 2006. The first annual rate 
range adjustment for Phase 2 employees was contemplated for early 2007.
    However, many commenters voiced concern over the proposed schedule 
for conversion to the new pay and performance systems. Specific 
concerns were noted regarding the ability of the Department to 
adequately provide DHS leaders with the requisite training and skills 
that would be required to manage a pay-for-performance system during 
the Phase 1 proposed schedule. Other concerns included the need for 
additional time to plan for and conduct a thorough evaluation of Phase 
1, making necessary course corrections prior to expanding the scope of 
the deployment effort to all remaining GS employees. Additionally, 
during the meet-and-confer process, participating

[[Page 5317]]

labor organizations repeatedly stated their case for conducting a pilot 
test of the systems prior to converting bargaining unit employees.
    DHS is committed to the successful implementation of these 
regulations and to addressing employee concerns. Accordingly, we have 
revised our implementation schedule with respect to pay, 
classification, and performance management. The revised implementation 
plan has been adjusted to provide the majority of employees with at 
least 2 full years under the new performance management system before 
the results of performance ratings are used for pay purposes.
    The performance management cycle for all employees (except civilian 
employees of the U.S. Coast Guard) will run concurrently with the 
fiscal year (October through September). Under the revised schedule, 
the new DHS performance management system will be applied to as many 
DHS employees as feasible during calendar year 2005. No later than 
October 2006, the new DHS performance management system will be applied 
to all covered employees.
    We have also redefined the phases for implementation of the pay-
for-performance system. The first phase will include covered employees 
at DHS Headquarters, Information Analysis and Infrastructure 
Protection, Science and Technology, Emergency Preparedness and 
Response, and the Federal Law Enforcement Training Center. The second 
phase will include covered employees at the U.S. Secret Service and the 
U.S. Coast Guard. The third will include covered employees at Customs 
and Border Patrol, Immigration and Customs Enforcement, and Citizenship 
and Immigration Services. Conversion to the new pay system will occur 
for employees in the first phase in early calendar year 2006. The first 
performance-based pay adjustments under the new DHS pay system will 
occur at the beginning of calendar year 2007. Employees in the second 
phase will be converted to the new pay system in early calendar year 
2007; performance-based pay adjustments for these employees will occur 
at the beginning of calendar 2008. Employees in the third phase will be 
converted to the new pay system in early calendar year 2008; 
performance-based pay adjustments for these employees will occur at the 
beginning of calendar 2009.
    This revised schedule will provide (1) additional time for 
implementation and evaluation of the pay-for-performance system and (2) 
adequate lead time to train DHS managers and employees on their pay-
for-performance responsibilities under the new system.

Moving Forward

    Every day the men and women of DHS work tirelessly to maintain the 
safety and security of the Nation. They patrol 195,000 miles of 
coastline and navigable waters and 7,500 miles of borderline with 
Canada and Mexico. They inspect tons of imported food products and 
review thousands of visa and green card applications. They work with 
States, cities, and citizens to help them prepare for and recover from 
emergencies such as tornados and hurricanes. They review dozens of 
technology proposals, some 500 cyber security reports, and more than 
1,000 pieces of intelligence, maintaining constant daily communication 
with authorities throughout the country to safeguard our Nation's most 
critical infrastructure and assets.
    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 labor organizations, and a broad array of 
stakeholders and experts from the Federal sector and private industry 
in order to provide the best system possible for the men and women of 
Homeland Security. The final regulations governing the new human 
resources system for DHS are a testament to that commitment to 
carefully weigh, and include as appropriate, the constructive 
recommendations of the labor organizations with which DHS and OPM 
collaborated throughout the entire design and development process, as 
well as others who provided comments. The Secretary and the Director 
are confident that these regulations will enable DHS to--
     Act swiftly and decisively in response to mission needs,
     Recognize and reward high performance,
     Adapt readily and rapidly to the changing nature of the 
Department's work,
     Attract and maintain a highly skilled and motivated 
workforce, and
     Protect the rights guaranteed by the Homeland Security 
Act.

Regulatory Requirements

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 HR system to be adopted for DHS, and that analysis is 
presented here.
    Integral to the administration of the 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 
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

[[Page 5318]]

conversion of current employees to that system, and the creation of the 
new Homeland Security 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 final 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 will not have a 
significant economic impact on a substantial number of small entities 
because they will apply only to Federal agencies and employees.

E.O. 12988, Civil Justice Reform

    This regulation is consistent with the requirements of E.O. 12988. 
The regulation clearly specifies the effects on existing Federal law or 
regulation; 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 that these regulations will not have 
Federalism implications because they will apply only to Federal 
agencies and employees. The regulations will 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 regulations will 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.

0
Accordingly, under the authority of section 9701 of title 5, United 
States Code, the Department of Homeland Security and the Office of 
Personnel Management 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 Eligibility and coverage.
9701.103 Definitions.
9701.104 Scope of authority.
9701.105 Continuing collaboration.
9701.106 Relationship to other provisions.
9701.107 Program evaluation.
Subpart B--Classification

General

9701.201 Purpose.
9701.202 Coverage.
9701.203 Waivers.
9701.204 Definitions.
9701.205 Bar on collective bargaining.

Classification Structure

9701.211 Occupational clusters.
9701.212 Bands.

Classification Process

9701.221 Classification requirements.
9701.222 Reconsideration of classification decisions.

Transitional Provisions

9701.231 Conversion of positions and employees to the DHS 
classification system.
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 Homeland Security Compensation Committee.
9701.314 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.
9701.324 Treatment of employees whose rate of basic pay does not 
fall below the minimum rate of their band.
9701.325 Treatment of employees whose rate of basic pay falls below 
the minimum rate of their band.

Locality and Special Rate Supplements

9701.331 General.
9701.332 Locality rate supplements.
9701.333 Special rate supplements.
9701.334 Setting and adjusting locality and special rate 
supplements.
9701.335 Eligibility for pay increase associated with a supplement 
adjustment.
9701.336 Treatment of employees whose pay does not fall below the 
minimum adjusted rate of their band.
9701.337 Treatment of employees whose pay falls below the minimum 
adjusted rate of their band.

Performance-Based Pay

9701.341 General.
9701.342 Performance pay increases.
9701.343 Within-band reductions.
9701.344 Special within-band increases.
9701.345 Developmental pay adjustments.
9701.346 Pay progression for new supervisors.

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.
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 system requirements.

[[Page 5319]]

9701.406 Setting and communicating performance expectations.
9701.407 Monitoring performance and providing feedback.
9701.408 Developing performance and addressing poor performance.
9701.409 Rating and rewarding performance.
9701.410 DHS responsibilities.
Subpart E--Labor-Management Relations
9701.501 Purpose.
9701.502 Rule of construction.
9701.503 Waivers.
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 HSLRB.
9701.510 Powers and duties of the Federal Labor Relations Authority.
9701.511 Management rights.
9701.512 Conferring on procedures for the exercise of management 
rights.
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, confer, and consult.
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 HSLRB.
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.
9701.605 Initial service period.

Requirements for Furlough of 30 Days or Less, Suspension, Demotion, 
Reduction in Pay, or Removal

9701.606 Standard for action.
9701.607 Mandatory removal offenses.
9701.608 Procedures.
9701.609 Proposal notice.
9701.610 Opportunity to reply.
9701.611 Decision notice.
9701.612 Departmental record.

National Security

9701.613 Suspension and removal.

Savings Provision

9701.614 Savings provision.
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 Mandatory Removal Panel.
9701.709 Actions involving discrimination.
9701.710 Savings provision.

    Authority: 5 U.S.C. 9701.

Subpart A--General Provisions


Sec.  9701.101  Purpose.

    (a) 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 waive and replace various statutory provisions 
that would otherwise be applicable to affected DHS employees. These 
regulations are issued jointly by the Secretary of Homeland Security 
and the Director of the Office of Personnel Management (OPM).
    (b) The system established under this part is designed to be 
mission-centered, performance-focused, flexible, contemporary, and 
excellent; to generate respect and trust through employee involvement; 
to be based on the principles of merit and fairness embodied in the 
statutory merit system principles; and to comply with all other 
applicable provisions of law.


Sec.  9701.102  Eligibility and coverage.

    (a) All civilian employees of the Department are eligible for 
coverage under one or more subparts of this part except those covered 
by a provision of law 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 members, Coast Guard Academy faculty 
members, and Coast Guard military members are not eligible for coverage 
under any classification or pay system established under subpart B or C 
of this part. Refer to subparts B through G of this part for specific 
information regarding the coverage of each subpart.
    (b)(1) Subpart A of this part becomes applicable to all eligible 
employees on March 3, 2005.
    (2) The Secretary or designee may, at his or her sole and exclusive 
discretion and after coordination with OPM, establish the effective 
date for applying subparts E, F, and G of this part to all eligible 
employees. Unless otherwise determined by the Secretary and the 
Director, subparts E, F, and G of this part will become applicable to 
all eligible employees no later than August 1, 2005.
    (3) With respect to subparts B, C, and D of this part, the 
Secretary or designee may, at his or her sole and exclusive discretion 
and after coordination with OPM, apply one or more of these subparts to 
a specific category or categories of eligible civilian employees at any 
time. With respect to any given category of civilian employees, the 
Secretary or designee may apply some of these subparts, but not others, 
and such coverage determinations may be made effective on different 
dates (e.g., in order to phase in coverage under a new classification, 
pay, and performance management system).
    (4) DHS will notify affected employees and labor organizations in 
advance of the application of one or more subparts of this part to 
them.
    (c) Until the Secretary or designee makes a determination under 
paragraph (b) of this section to apply the provisions of one or more 
subparts of this part to a particular category or categories of 
eligible DHS employees, those DHS employees will continue to be covered 
by the applicable Federal laws and regulations that would apply to them 
in the absence of this part. All personnel actions affecting DHS 
employees must be based on the Federal laws and regulations applicable 
to them on the effective date of the action.
    (d) Any new DHS classification, pay, or performance management 
system covering Senior Executive Service (SES) members must be 
consistent with the policies and procedures established 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 classification, pay, or performance management 
provisions that differ substantially from the Governmentwide SES pay-
for-performance system, the Secretary and the Director must issue joint 
regulations consistent with all of the requirements of 5 U.S.C. 9701.
    (e) At his or her sole and exclusive discretion, the Secretary or 
designee may, after coordination with OPM, rescind the application 
under paragraph (b) of this section of one or more subparts of this 
part to a particular category of employees and prescribe implementing 
directives for converting that category of employees to coverage under 
applicable title 5 provisions. DHS will notify affected employees and 
labor

[[Page 5320]]

organizations in advance of a decision to rescind the application of 
one or more subparts of this part to them.
    (f) The Secretary or other authorized DHS official may exercise an 
independent legal 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 this part.


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, if OPM indicates the matter has 
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.
    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.
    Implementing directives means directives issued at the Departmental 
level by the Secretary or designee to carry out any policy or procedure 
established in accordance with this part. These directives may apply 
Departmentwide or to any part of the Department as determined by the 
Secretary at his or her sole and exclusive discretion.
    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 serves 
as--
    (1) The Undersecretary for Management; or
    (2) 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 classification;
    (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  Continuing collaboration.

    (a) In accordance with 5 U.S.C. 9701(e)(1)(D), this section 
provides employee representatives with an opportunity to participate in 
the development of implementing directives. This process is not subject 
to the requirements established by subpart E of this part, including 
but not limited to Sec. Sec.  9701.512 (regarding conferring on 
procedures for the exercise of management rights), 9701.517(a)(5) 
(regarding enforcement of the duty to consult or negotiate), 9701.518 
(regarding the duty to bargain, confer, and consult), or 9701.519 
(regarding impasse procedures).
    (b)(1) For the purpose of this section, the term ``employee 
representatives'' includes representatives of labor organizations with 
exclusive recognition rights for units of DHS employees, as well as 
representatives of employees who are not within a unit for which a 
labor organization has exclusive recognition.
    (2) Consistent with 5 U.S.C. 9701(e)(2)(A), (B), and (D), DHS will 
determine the number of employee representatives to be engaged in the 
continuing collaboration process.
    (3) Each national labor organization with multiple collective 
bargaining units accorded exclusive recognition will determine how its 
units will be represented within the limitations imposed by DHS.
    (c)(1) Within timeframes specified by DHS, employee representatives 
will be provided with an opportunity to submit written comments and/or 
to discuss their views with DHS officials on proposed final draft 
implementing directives.
    (2) As the Department determines necessary, employee 
representatives will be provided with an opportunity to discuss their 
views with DHS officials and/or to submit written comments at initial 
identification of implementation issues and conceptual design and/or at 
review of draft recommendations or alternatives.
    (d) Employee representatives will be provided with access to 
information, including research, to make their participation in the 
continuing collaboration process productive.
    (e) Any written comments submitted by employee representatives 
regarding proposed final draft implementing directives will become part 
of the record and will be forwarded to the Secretary or designee for 
consideration in making a final decision.
    (f) Nothing in the continuing collaboration process affects the 
right of the Secretary to determine the content of implementing 
directives and to make them effective at any time.
    (g) In accordance with 5 U.S.C. 9701(e)(2), any procedures 
necessary to carry out this section will be established by the 
Secretary and the Director jointly as internal rules of Departmental 
procedure which will not be subject to review.


Sec.  9701.106  Relationship to other provisions.

    (a)(1) The provisions of title 5, U.S. Code, are waived or modified 
to the extent authorized by 5 U.S.C. 9701 to conform to the provisions 
of this part.
    (2) This part must be interpreted in a way that recognizes the 
critical mission of the Department. Each provision of this part 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 the regulations in this part by DHS and 
OPM must be accorded great deference.
    (b) For the purpose of applying other provisions of law or 
Governmentwide regulations that reference provisions under chapters 43, 
51, 53, 71, 75, and 77 of title 5, U.S. Code, the referenced provisions 
are not waived but are modified consistent with the corresponding 
regulations in this part, except as otherwise provided in this part 
(including paragraph (c) of this

[[Page 5321]]

section) or in DHS implementing directives. Applications of this rule 
include, but are not limited to, the following:
    (1) If another provision of law or Governmentwide regulations 
requires coverage under one of the chapters modified or waived under 
this part (i.e., chapters 43, 51, 53, 71, 75, and 77 of title 5, U.S. 
Code), DHS employees are deemed to be covered by the applicable chapter 
notwithstanding coverage under a system established under this part. 
Selected examples of provisions that continue to apply to any DHS 
employees (notwithstanding coverage under subparts B through G of this 
part) include, but are not limited to, the following:
    (i) Foreign language awards for law enforcement officers under 5 
U.S.C. 4521-4523;
    (ii) Pay for firefighters under 5 U.S.C. 5545b;
    (iii) Differentials for duty involving physical hardship or hazard 
under 5 U.S.C. 5545(d);
    (iv) Recruitment, relocation, and retention payments under 5 U.S.C. 
5753-5754;
    (v) Physicians' comparability allowances under 5 U.S.C. 5948; and
    (vi) 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 Pub. L. 101-509).
    (2) In applying the back pay law in 5 U.S.C. 5596 to DHS employees 
covered by subpart G of this part (dealing with appeals), the reference 
in section 5596(b)(1)(A)(ii) to 5 U.S.C. 7701(g) (dealing with attorney 
fees) is considered to be a reference to a modified section 7701(g) 
that is consistent with Sec.  9701.706(h).
    (3) In applying the back pay law in 5 U.S.C. 5596 to DHS employees 
covered by subpart E of this part (dealing with labor relations), the 
reference in section 5596(b)(5) to section 7116 (dealing with unfair 
labor practices) is considered to be a reference to a modified section 
7116 that is consistent with Sec.  9701.517.
    (c) When a specified category of employees is covered by a 
classification and pay system established under subparts B and C of 
this part, the following provisions do not apply:
    (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 Pub. L. 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.


Sec.  9701.107  Program evaluation.

    (a) DHS will establish procedures for evaluating the regulations in 
this part and their implementation. DHS will provide designated 
employee representatives with an opportunity to be briefed and a 
specified timeframe to provide comments on the design and results of 
program evaluations.
    (b) Involvement of employee representatives under this section will 
occur at the following stages:
    (1) Identification of the scope, objectives, and methodology to be 
used in program evaluation; and
    (2) Review of draft findings and recommendations.
    (c) Involvement in the evaluation process does not waive the rights 
of any party under applicable law or regulations.

Subpart B--Classification

General


Sec.  9701.201  Purpose.

    (a) This subpart contains regulations establishing a classification 
structure and rules for covered DHS employees and positions to replace 
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, in accordance 
with the merit principle of equal pay for work of equal value.
    (b) Any classification system prescribed under this subpart must be 
established in conjunction with the pay system described in subpart C 
of this part.


Sec.  9701.202  Coverage.

    (a) This subpart applies to eligible DHS employees and positions 
listed in paragraph (b) of this section, subject to a determination by 
the Secretary or designee under Sec.  9701.102(b).
    (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 (SES) who would 
otherwise be covered by 5 U.S.C. chapter 53, subchapter VIII, subject 
to Sec.  9701.102(d).


Sec.  9701.203  Waivers.

    (a) When a specified category of employees is covered by a 
classification system established under this subpart, the provisions of 
5 U.S.C. chapter 51 and 5 U.S.C. 5346, and related regulations, are 
waived with respect to that category of employees, except as provided 
in paragraph (b) of this section, Sec.  9701.106, and Sec.  9701.222(d) 
(with respect to OPM's authority under 5 U.S.C. 5112(b) and 5346(c) to 
act on requests for review of classification decisions).
    (b) Section 5108 of title 5, U.S. Code, dealing with the 
classification of positions above GS-15, is not waived.


Sec.  9701.204  Definitions.

    In this subpart:
    Band means a work level or pay range within an occupational 
cluster.
    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 and special rate supplements.
    Classification, also referred to as job evaluation, means the 
process of analyzing and assigning a job or position to an occupational 
series, cluster, and band for pay and other related purposes.
    Competencies means the measurable or observable knowledge, skills, 
abilities, behaviors, and other characteristics required by a position.
    Occupational cluster means a grouping of one or more associated or 
related occupations or positions. An occupational cluster may include 
one or more occupational series.
    Occupational series means the 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

[[Page 5322]]

employee whom the Secretary or designee approves for coverage under 
Sec.  9701.202(a).


Sec.  9701.205  Bar on collective bargaining.

    As provided in the definition of conditions of employment in Sec.  
9701.504, any classification system established under this subpart is 
not subject to collective bargaining. This bar on collective bargaining 
applies to all aspects of the classification system, including but not 
limited to coverage determinations, the design of the classification 
structure, and classification methods, criteria, and administrative 
procedures and arrangements.

Classification Structure


Sec.  9701.211  Occupational clusters.

    For the purpose of classifying positions, DHS may, after 
coordination with OPM, establish occupational clusters based on factors 
such as mission or function; nature of work; qualifications or 
competencies; career or pay progression patterns; relevant labor-market 
features; and other characteristics of those occupations or positions. 
DHS must document in implementing directives the criteria and rationale 
for grouping occupations or positions into occupational clusters.


Sec.  9701.212  Bands.

    (a) For purposes of identifying relative levels of work and 
corresponding pay ranges, DHS may, after coordination with OPM, 
establish one or more bands within each occupational cluster.
    (b) Each occupational cluster may include, but is not limited to, 
the following bands:
    (1) Entry/Developmental--work that involves gaining the 
competencies needed to perform successfully in a Full Performance band 
through appropriate formal training and/or on-the-job experience.
    (2) Full Performance--work that involves 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.
    (3) Senior Expert--work that involves 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.
    (4) Supervisory--work that may involve hiring or selecting 
employees, assigning work, managing performance, recognizing and 
rewarding employees, and other associated duties.
    (c) DHS must document in implementing directives the definitions 
for each band which specify the type and range of difficulty and 
responsibility, qualifications, competencies, or other characteristics 
of the work encompassed by the band.
    (d) DHS must, after coordination with OPM, establish qualification 
standards and requirements for each occupational cluster, occupational 
series, and/or band. DHS may use the qualification standards 
established by OPM or, after coordination with OPM, may establish 
different qualification standards. This paragraph does not waive or 
modify any DHS authority to establish qualification standards or 
requirements under 5 U.S.C. chapters 31 and 33 and OPM implementing 
regulations.

Classification Process


Sec.  9701.221  Classification 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, after 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 classifying jobs and may make 
such inquiries or investigations of the duties, responsibilities, and 
qualification requirements of jobs as it considers necessary for the 
purpose of this section.
    (d) Classification decisions become effective on the date 
designated by the authorized agency official who makes the decision.
    (e) DHS must establish a plan to periodically review the accuracy 
of classification decisions.


Sec.  9701.222  Reconsideration of classification decisions.

    (a) An individual employee may request that DHS or OPM reconsider 
the pay system, occupational cluster, occupational series, or band 
assigned to his or her current official position of record at any time.
    (b) DHS will, after coordination with OPM, establish implementing 
directives for reviewing requests for reconsideration, including 
nonreviewable issues, rights of representation, and the effective date 
of any corrective actions. OPM will, after consulting with DHS, 
establish separate policies and procedures for reviewing 
reconsideration requests.
    (c) An employee may request OPM to review a DHS determination made 
under paragraph (a) of this section. If an employee does not request an 
OPM reconsideration decision, DHS's classification determination is 
final and not subject to further review or appeal.
    (d) OPM's final determination on a request made under this section 
is not subject to further review or appeal.

Transitional Provisions


Sec.  9701.231  Conversion of positions and employees to the DHS 
classification system.

    (a) This section describes the transitional provisions that apply 
when DHS positions and employees are converted to a classification 
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,'' 
``converting,'' and ``conversion'' refer to positions and employees 
that become covered by the classification system as a result of a 
coverage determination made under Sec.  9701.102(b) and exclude 
employees who are reassigned or transferred from a noncovered position 
to a position already covered by the DHS system.
    (b) DHS will issue implementing directives prescribing policies and 
procedures for converting the GS or 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 classification 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 to the system without a reduction in their rate of pay 
(including basic pay and any applicable locality payment under 5 U.S.C. 
5304, special rate under 5 U.S.C. 5305, locality rate supplement under 
Sec.  9701.332, or special rate supplement under Sec.  9701.333).


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

[[Page 5323]]

under a classification system that is parallel to the classification 
system that was applicable to the Federal Air Marshal Service within 
TSA. DHS may, after coordination with OPM, modify that system. DHS will 
issue implementing directives on converting Federal Air Marshal Service 
employees to any new classification system that may subsequently be 
established under this subpart, consistent with the conversion rules in 
Sec.  9701.231.

Subpart C--Pay and Pay Administration

General


Sec.  9701.301  Purpose.

    (a) This subpart contains regulations establishing pay structures 
and pay administration rules for covered DHS employees to replace 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.
    (b) Any pay system prescribed under this subpart must be 
established in conjunction with the classification system described in 
subpart B of this part.
    (c) The pay system established under this subpart, working in 
conjunction with the performance management system established under 
subpart D of this part, is designed to incorporate the following 
features:
    (1) Adherence to merit principles set forth in 5 U.S.C. 2301;
    (2) A fair, credible, and transparent employee performance 
appraisal system;
    (3) A link between elements of the pay system established in this 
subpart, the employee performance appraisal system, and the 
Department's strategic plan;
    (4) Employee involvement in the design and implementation of the 
system (as specified in Sec.  9701.105);
    (5) Adequate training and retraining for supervisors, managers, and 
employees in the implementation and operation of the pay system 
established in this subpart;
    (6) Periodic performance feedback and dialogue among supervisors, 
managers, and employees throughout the appraisal period, and setting 
timetables for review;
    (7) Effective safeguards so that the management of the system is 
fair and equitable and based on employee performance; and
    (8) A means for ensuring that adequate resources are allocated for 
the design, implementation, and administration of the performance 
management system that supports the pay system established under this 
subpart.


Sec.  9701.302  Coverage.

    (a) This subpart applies to eligible DHS employees in the 
categories listed in paragraph (b) of this section, subject to a 
determination by the Secretary or designee under Sec.  9701.102(b).
    (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 (SES) who would 
otherwise be covered by 5 U.S.C. chapter 53, subchapter VIII, subject 
to Sec.  9701.102(d).


Sec.  9701.303  Waivers.

    (a) When a specified category of employees is covered by the pay 
system established under this subpart, the provisions of 5 U.S.C. 
chapter 53, and related regulations, are waived with respect to that 
category of employees, except as provided in Sec.  9701.106 and 
paragraphs (b) through (f) of this section.
    (b) The following provisions of 5 U.S.C. chapter 53 are not waived:
    (1) Section 5307, dealing with the aggregate limitation on pay;
    (2) Sections 5311 through 5318, dealing with Executive Schedule 
positions;
    (3) Section 5371, insofar as it authorizes OPM to apply the 
provisions of 38 U.S.C. chapter 74 to DHS employees in 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 
classification system established under subpart B of this part; and
    (4) Section 5377, dealing with the critical pay authority.
    (c) Section 5373 is modified. The limit on rates of basic pay, 
including any applicable locality payment or supplement, for DHS 
employees who are not covered by this subpart and whose pay is set by 
administrative action (e.g., Coast Guard Academy faculty) is increased 
to the rate for level III of the Executive Schedule.
    (d) Section 5379 is modified. DHS may, after coordination with OPM, 
establish and administer a 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 provisions established under this paragraph, subject to a 
determination by the Secretary or designee under Sec.  9701.102(b).
    (e) 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.
    (f) 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 means a work level or pay range within an occupational 
cluster.
    Band rate range means the range of rates of basic pay (excluding 
any locality or special rate 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,

[[Page 5324]]

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 and special rate supplements.
    Competencies means the measurable or observable knowledge, skills, 
abilities, behaviors, and other characteristics required by a position.
    Day means a calendar day.
    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 implementing directives issued by DHS 
pursuant to Sec.  9701.355.
    Locality rate supplement means a geographic-based addition to basic 
pay, as described in Sec.  9701.332.
    Modal rating means the rating of record that occurs most frequently 
in a particular pay pool.
    Occupational cluster means a grouping of one or more associated or 
related occupations or positions. An occupational cluster may include 
one or more occupational series.
    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 implementing directives issued by DHS 
pursuant to Sec.  9701.355.
    Rating of record means a performance appraisal prepared--
    (1) At the end of an appraisal period covering an employee's 
performance of assigned duties against performance expectations (as 
defined in Sec.  9701.404) 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.
    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 rate supplement means an addition to basic pay for a 
particular category of employees to address staffing problems, as 
described in Sec.  9701.333. A special rate supplement is paid in place 
of any lesser locality rate supplement that would otherwise apply.
    Unacceptable performance means the failure to meet one or more 
performance expectations, as described in Sec.  9701.406.


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 but not 
limited to 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.

    Through the issuance of implementing directives, 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 classification structure 
described in subpart B of this part;
    (b) Policies regarding the setting and adjusting of basic pay rate 
ranges based on mission requirements, labor market conditions, and 
other factors, as described in Sec. Sec.  9701.321 and 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 through 9701.325 and 9701.335 through 9701.337;
    (e) Policies regarding performance-based pay adjustments, as 
described in Sec. Sec.  9701.341 through 9701.346;
    (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  Homeland Security Compensation Committee.

    (a) DHS will establish a Homeland Security Compensation Committee 
to provide options and/or recommendations for consideration by the 
Secretary or designee on strategic compensation matters such as 
Departmental compensation policies and principles, the annual 
allocation of funds between market and performance pay adjustments, and 
the annual adjustment of rate ranges and locality and special rate 
supplements. The Compensation Committee will consider factors such as 
turnover, recruitment, and local labor market conditions in providing 
options and recommendations for consideration by the Secretary. The 
Secretary's or designee's determination with regard to those options 
and/or recommendations is final and not subject to further review.
    (b) The Compensation Committee will be chaired by the DHS 
Undersecretary for Management. The Compensation Committee has 14 
members, including 4 officials of labor organizations granted national 
consultation rights (NCR) in accordance with Sec.  9701.518(d)(2). An 
OPM official will serve as an ex officio member of the Compensation 
Committee. DHS will provide technical staff to support the Compensation 
Committee.
    (c) DHS will establish procedures governing the membership and 
operation of the Compensation Committee.
    (d) An individual will be selected by the Chair to facilitate 
Compensation Committee meetings. The facilitator will be selected from 
a list of nominees developed jointly by representatives of the 
Department and NCR labor organizations, the latter acting as a single 
party, according to procedures and time limits established by 
implementing directives. Nominees must be known for their integrity, 
impartiality, and expertise in facilitation and compensation. If the 
Department and the labor organizations are unable to reach agreement on 
a joint list of nominees, they will enlist the services of the Federal 
Mediation and Conciliation Service (FMCS) to assist them. If the 
parties are unable to reach agreement with FMCS assistance, each

[[Page 5325]]

party will prepare a list of up to three nominees and provide those 
separate lists to FMCS; FMCS may add up to three additional nominees. 
From that combined list of nominees, the Department and the labor 
organizations, the latter acting as a single party, will alternately 
strike names from the list until five names remain; those five nominees 
will be submitted to the Chair for consideration. The Chair may request 
that the parties develop an additional list of nominees. If the 
representatives of the Department's NCR labor organizations, acting as 
a single party, do not participate in developing the list of nominees 
in accordance with this section, the Chair will select the facilitator.
    (e) After considering the views of all Compensation Committee 
members, the Chair prepares and provides options and/or recommendations 
to the Secretary or designee. Members may present their views on the 
final recommendations in writing as part of the final recommendation 
package. The Secretary or designee will make the final decision and 
notify the Compensation Committee. This process is not subject to the 
requirements established by Sec. Sec.  9701.512 (regarding conferring 
on procedures for the exercise of management rights), 9701.517(a)(5) 
(regarding enforcement of the duty to consult or negotiate), 9701.518 
(regarding the duty to bargain, confer, and consult), or 9701.519 
(regarding impasse procedures).
    (f) The Secretary retains the right to make determinations 
regarding the annual allocation of funds between market and performance 
pay adjustments, the annual adjustment of rate ranges and locality and 
special rate supplements, or any other matter recommended by the 
Compensation Committee, and to make such determinations effective at 
any time.


Sec.  9701.314  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) DHS may, after coordination with OPM, establish ranges of basic 
pay for bands, with minimum and maximum rates set and adjusted as 
provided in Sec.  9701.322. 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.


Sec.  9701.322  Setting and adjusting rate ranges.

    (a) Within its sole and exclusive discretion, DHS may, after 
coordination with OPM, set and adjust the rate ranges established under 
Sec.  9701.321 on an annual basis. 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) DHS may, after coordination with OPM, determine the effective 
date of newly set or adjusted band rate ranges. Unless DHS determines 
that a different effective date is needed for operational reasons, 
these adjustments will become effective on or about the date of the 
annual General Schedule pay adjustment authorized by 5 U.S.C. 5303.
    (c) DHS may establish different rate ranges and provide different 
rate range adjustments for different bands.
    (d) 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) When a band rate range is adjusted under Sec.  9701.322, 
employees covered by that band are eligible for an individual pay 
increase. An employee who meets or exceeds performance expectations 
(i.e., has a rating of record above the unacceptable performance level 
for the most recently completed appraisal period) 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 Sec. Sec.  9701.324 and 9701.325. For an employee receiving 
a retained rate, the amount of the increase under this paragraph is 
determined under Sec.  9701.356.
    (b) If an employee does not have a rating of record for the most 
recently completed appraisal period, he or she must be treated in the 
same manner as an employee who meets or exceeds performance 
expectations and is entitled to receive an increase based on the rate 
range adjustment, as provided in paragraph (a) of this section.
    (c) An employee whose rating of record is unacceptable is 
prohibited from receiving a pay increase as a result of a rate range 
adjustment, except as provided by Sec. Sec.  9701.324 and 9701.325. 
Because the employee's pay remains unchanged, failure to receive a pay 
increase is not considered an adverse action under subpart F of this 
part.


Sec.  9701.324  Treatment of employees whose rate of basic pay does not 
fall below the minimum rate of their band.

    An employee who does not receive a pay increase under Sec.  
9701.323 because of an unacceptable rating of record and whose rate of 
basic pay does not fall below the minimum rate of his or her band as a 
result of that rating will receive such an increase if he or she 
demonstrates performance that meets or exceeds performance 
expectations, as reflected by a new rating of record issued under Sec.  
9701.409(b). Such an increase will be made effective on the first day 
of the first pay period beginning on or after the date the new rating 
of record is issued.


Sec.  9701.325  Treatment of employees whose rate of basic pay falls 
below the minimum rate of their band.

    (a) In the case of an employee who does not receive a pay increase 
under Sec.  9701.323 because of an unacceptable rating of record and 
whose rate of basic pay falls below the minimum rate of his or her band 
as a result of that rating, DHS must--
    (1) If the employee demonstrates performance that meets or exceeds 
performance expectations within 90 days after the date of the rate 
range adjustment, issue a new rating of record under Sec.  9701.409(b) 
and adjust the employee's pay prospectively by making the increase 
effective on the first day of the first pay period beginning on or 
after the date the new rating of record is issued; or
    (2) Initiate action within 90 days after the date of the rate range 
adjustment to demote or remove the employee in accordance with the 
adverse action procedures established in subpart F of this part.
    (b) If DHS fails to initiate a removal or demotion action under 
paragraph (a)(2) of this section within 90 days after the date of a 
rate range adjustment, the employee becomes entitled to the minimum 
rate of his or her band rate range on the first day of the first pay 
period beginning on or after the 90th day following the date of the 
rate range adjustment.

[[Page 5326]]

Locality and Special Rate Supplements


Sec.  9701.331  General.

    The basic pay ranges established under Sec. Sec.  9701.321 through 
9701.323 may be supplemented in appropriate circumstances by locality 
or special rate supplements, as described in Sec. Sec.  9701.332 
through 9701.335. These supplements are expressed as a percentage of 
basic pay and are set and adjusted as described in Sec.  9701.334. As 
authorized by Sec.  9701.356, DHS implementing directives will 
determine the extent to which Sec. Sec.  9701.331 through 9701.337 
apply to employees receiving a retained rate.


Sec.  9701.332  Locality rate supplements.

    (a) For each band rate range, DHS may, after coordination with OPM, 
establish locality rate supplements that apply in specified locality 
pay areas. Locality rate supplements apply to employees whose official 
duty station is located in the given area. DHS may provide different 
locality rate supplements for different occupational clusters or for 
different bands within the same occupational cluster in the same 
locality pay area.
    (b) For the purpose of establishing and modifying locality pay 
areas, 5 U.S.C. 5304 is not waived. A DHS decision to use the locality 
pay area boundaries established under 5 U.S.C. 5304 does not require 
separate DHS regulations. DHS may, after coordination with OPM and in 
accordance with the public notice and comment provisions of 5 U.S.C. 
553, publish Departmental regulations (6 CFR Chapter I) in the Federal 
Register that establish and adjust different locality pay areas within 
the 48 contiguous States or establish and adjust new locality pay areas 
outside the 48 contiguous States. These regulations are subject to the 
continuing collaboration process described in Sec.  9701.105. As 
provided by 5 U.S.C. 5304(f)(2)(B), judicial review of any DHS 
regulation regarding the establishment or adjustment of locality pay 
areas is limited to whether or not the regulation was promulgated in 
accordance with 5 U.S.C. 553.
    (c) Locality rate supplements are considered basic pay for only 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) Application of the maximum rate limitation set forth in Sec.  
9701.312;
    (6) Determining the rate of basic pay upon conversion to the DHS 
pay system established under this subpart, consistent with Sec.  
9701.373(b);
    (7) Other payments and adjustments authorized under this subpart as 
specified by DHS implementing directives;
    (8) 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
    (9) Any provisions for which DHS locality rate supplements must be 
treated as basic pay by law.


Sec.  9701.333  Special rate supplements.

    DHS will, after coordination with OPM, establish special rate 
supplements that provide higher pay levels for subcategories of 
employees within an occupational cluster if DHS determines that such 
supplements are warranted by current or anticipated recruitment and/or 
retention needs. In exercising this authority, DHS will issue necessary 
implementing directives. Any special rate supplement must be treated as 
basic pay for the same purposes as locality rate 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 rate 
supplements.

    (a) Within its sole and exclusive discretion, DHS may, after 
coordination with OPM, set and adjust locality and special rate 
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 any other relevant factors.
    (b) DHS may, after coordination with OPM, determine the effective 
date of newly set or adjusted locality and special rate supplements. 
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) When a locality or special rate supplement is adjusted under 
Sec.  9701.334, an employee to whom the supplement applies is entitled 
to the pay increase resulting from that adjustment if the employee 
meets or exceeds performance expectations (i.e., has a rating of record 
above the unacceptable performance level for the most recently 
completed appraisal period). This includes an increase resulting from 
the initial establishment and setting of a special rate supplement. The 
pay increase takes effect at the same time as the applicable supplement 
is set or adjusted, except as provided in Sec. Sec.  9701.336 and 
9701.337.
    (b) If an employee does not have a rating of record for the most 
recently completed appraisal period, he or she must be treated in the 
same manner as an employee who meets or exceeds performance 
expectations and is entitled to any pay increase associated with a 
supplement adjustment, as provided in paragraph (a) of this section.
    (c) An employee who has an unacceptable rating of record is 
prohibited from receiving a pay increase as a result of an increase in 
an applicable locality or special rate supplement, except as provided 
by Sec. Sec.  9701.336 and 9701.337. Because the employee's pay remains 
unchanged, failure to receive a pay increase is not considered an 
adverse action under subpart F of this part.


Sec.  9701.336  Treatment of employees whose pay does not fall below 
the minimum adjusted rate of their band.

    An employee who does not receive a pay increase under Sec.  
9701.335 because of an unacceptable rating of record and whose rate of 
basic pay (including a locality or special rate supplement) does not 
fall below the minimum adjusted rate of his or her band as a result of 
that rating will receive such an increase if he or she demonstrates 
performance that meets or exceeds performance expectations, as 
reflected by a new rating of record issued under Sec.  9701.409(b). 
Such an increase will be made effective on the first day of the first 
pay period beginning on or after the date the new rating of record is 
issued.


Sec.  9701.337  Treatment of employees whose rate of pay falls below 
the minimum adjusted rate of their band.

    (a) In the case of an employee who does not receive a pay increase 
under Sec.  9701.335 because of an unacceptable rating of record and 
whose rate of basic pay (including a locality or special rate 
supplement) falls below the minimum adjusted rate of his or her band as 
a result of that rating, DHS must--
    (1) If the employee demonstrates performance that meets or exceeds 
performance expectations within 90 days after the date of the locality 
or special rate supplement adjustment, issue a new rating of record 
under

[[Page 5327]]

Sec.  9701.409(b) and adjust the employee's pay prospectively by making 
the increase effective on the first day of the first pay period 
beginning on or after the date the new rating of record is issued; or
    (2) Initiate action within 90 days after the date of the locality 
or special rate supplement adjustment to demote or remove the employee 
in accordance with the adverse action procedures established in subpart 
F of this part.
    (b) If DHS fails to initiate a removal or demotion action under 
paragraph (a)(2) of this section within 90 days after the date of a 
locality or special rate supplement adjustment, the employee becomes 
entitled to the minimum adjusted rate of his or her band rate range on 
the first day of the first pay period beginning on or after the 90th 
day following the date of the locality or special rate supplement 
adjustment.

Performance-Based Pay


Sec.  9701.341  General.

    Sections 9701.342 through 9701.346 describe various types of 
performance-based pay adjustments 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. (1) 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 
performance management system established under 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.
    (2) The rating of record used as the basis for a performance pay 
increase is the one assigned for the most recently completed appraisal 
period (subject to the requirements of subpart D of this part), except 
that if the supervisor or other rating official determines that an 
employee's current performance is inconsistent with that rating, the 
supervisor or other rating official may prepare a more current rating 
of record, consistent with Sec.  9701.409(b). If an employee does not 
have a rating of record, DHS will use the modal rating received by 
other employees covered by the same pay pool during the most recent 
rating cycle for the purpose of determining the employee's performance 
pay increase.
    (b) Performance pay pools. (1) DHS will establish pay pools for 
performance pay increases.
    (2) Each pay pool covers a defined group of DHS employees, as 
determined by DHS.
    (3) An authorized agency official(s) may determine the distribution 
of funds among pay pools and may adjust those amounts based on overall 
levels of organizational performance or contribution to the 
Department's mission.
    (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 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 (exclusive of locality or special rate supplements under 
Sec. Sec.  9701.332 and 9701.333) 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 assigned to the rating.
    (3) To the extent that the adjustment does not cause the employee's 
rate of basic pay to exceed the maximum rate 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) DHS may, after coordination with OPM, determine the effective 
date of adjustments in basic pay made under paragraph (d)(3) of this 
section.
    (5) For an employee receiving a retained rate under Sec.  9701.356, 
DHS will issue implementing directives to provide for granting a lump-
sum performance payout that may not exceed the amount that may be 
received by an employee in the same pay pool with the same rating of 
record whose rate of pay is at the maximum rate of the same band.
    (e) Proration of performance payouts. DHS will issue implementing 
directives regarding 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 (except as provided in paragraphs 
(f) and (g) of this section); 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 issue implementing 
directives regarding 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). DHS 
will credit the employee with intervening rate range adjustments under 
Sec.  9701.323(a), as well as developmental pay adjustments under Sec.  
9701.345 (as determined by DHS in accordance with its implementing 
directives), and performance pay adjustments under this section based 
on the employee's last DHS rating of record. For employees

[[Page 5328]]

who have no such rating of record, DHS will use the modal rating 
received by other employees covered by the same pay pool during the 
most recent rating cycle. An employee returning from qualifying service 
in the uniformed services will receive the full amount of the 
performance pay increase associated with his or her rating of record.
    (g) Adjustments for employees returning to duty after being in 
workers' compensation status. DHS will issue implementing directives 
regarding how it sets the rate of basic pay prospectively for an 
employee who returns to duty after a period of receiving injury 
compensation under 5 U.S.C. chapter 81, subchapter I (in a leave-
without-pay status or as a separated employee). DHS will credit the 
employee with intervening rate range adjustments under Sec.  
9701.323(a), as well as developmental pay adjustments under Sec.  
9701.345 (as determined by DHS in accordance with its implementing 
directives), and performance pay adjustments under this section based 
on the employee's last DHS rating of record. For employees who have no 
such rating of record, DHS will use the modal rating received by other 
employees covered by the same pay pool during the most recent rating 
cycle. An employee returning to duty after receiving injury 
compensation will receive the full amount of the performance pay 
increase associated with his or her rating of record.


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 be more than 10 percent or cause an employee's rate of basic 
pay to fall below the minimum rate of the employee's band rate range. 
Such a reduction may be made effective at any time.


Sec.  9701.344  Special within-band increases.

    DHS may issue implementing directives regarding special within-band 
basic pay increases for employees within a Full Performance or higher 
band established under Sec.  9701.212 who possess exceptional skills in 
critical areas or who make exceptional contributions to mission 
accomplishment or in other circumstances determined by DHS. 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. 
Special within-band increases may not be based on length of service.


Sec.  9701.345  Developmental pay adjustments.

    DHS will issue implementing directives regarding pay adjustments 
within the Entry/Developmental band. These directives may require 
employees to meet certain standardized assessment or certification 
points as part of a formal training/developmental program. In 
administering Entry/Developmental band pay progression plans, DHS may 
link pay progression to the demonstration of required knowledge, 
skills, and abilities (KSAs)/competencies. 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, and/or 
other factors.


Sec.  9701.346  Pay progression for new supervisors.

    DHS will issue implementing directives requiring an employee newly 
appointed to or selected for a supervisory position to meet certain 
assessment or certification points as part of a formal training/
developmental program. In administering performance pay increases for 
these employees under Sec.  9701.342, DHS may take into account the 
employee's success in completing a formal training/developmental 
program, as well as his or her performance.

Pay Administration


Sec.  9701.351  Setting an employee's starting pay.

    DHS will, after coordination with OPM, issue implementing 
directives regarding 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 will issue implementing directives regarding 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 at least 8 percent. The rate of basic pay 
after promotion may not be less than the minimum rate of the higher 
band.
    (b) DHS will issue implementing directives 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; or
    (3) Employees in other circumstances specified by DHS implementing 
directives.
    (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 at least 8 percent higher than the maximum 
rate of the employee's current band (except in circumstances specified 
by DHS implementing directives). The rate of basic pay after promotion 
may not be less than the minimum rate of the employee's new band rate 
range or the employee's existing retained rate of basic pay. If the 
maximum rate of the employee's new band rate range is less than the 
employee's existing rate of basic pay, the employee will continue to be 
entitled to the existing rate as a retained rate.
    (d) DHS may determine the circumstances under which and the extent 
to which any locality or special rate supplements are treated as basic 
pay in applying the promotion increase rules in this section.


Sec.  9701.354  Setting pay upon demotion.

    DHS will issue implementing directives regarding how to set an 
employee's pay when he or she is demoted. The directives 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

[[Page 5329]]

temporary promotion or canceling of a promotion during a new 
supervisor's probationary period). A reduction in basic pay upon 
demotion under adverse action procedures may not exceed 10 percent 
unless a larger reduction is needed to place the employee at the 
maximum rate of the lower band.


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

    DHS will issue implementing directives regarding 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, DHS will, after 
coordination with OPM, issue implementing directives regarding 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) In applying Sec.  9701.323 (regarding pay increases provided at 
the time of a rate range adjustment under Sec.  9701.322), any increase 
in the rate of basic pay for an employee receiving a retained rate is 
equal to one-half of the percentage value of any increase in the 
minimum rate of the employee's band.


Sec.  9701.357  Miscellaneous.

    (a) Except in the case of an employee who does not receive a pay 
increase under Sec. Sec.  9701.323 or 9701.335 because of 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 (or the adjusted 
minimum rate of that band).
    (b) Except as provided in Sec.  9701.356, 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 will issue implementing directives regarding the movement 
of employees to or from a band with a rate range that is increased by a 
special rate 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 GS position within DHS having a higher level of 
duties and responsibilities, DHS may issue implementing directives that 
provide for a special increase prior to the employee's movement in 
recognition of the fact that the employee will not be eligible for a 
promotion increase under the GS system.

Special Payments


Sec.  9701.361  Special skills payments.

    DHS will issue implementing directives regarding 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 will issue implementing directives regarding 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 will issue implementing directives regarding additional 
payments for employees serving in positions for which DHS is 
experiencing or anticipates significant recruitment and/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.

    (a) Sections 9701.371 through 9701.374 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. For the purpose of this section 
and Sec. Sec.  9701.372 through 9701.374, the terms ``convert,'' 
``converted,'' ``converting,'' and ``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(b)) and 
exclude employees who are reassigned or transferred from a noncovered 
position to a position already covered by the DHS system.
    (b) DHS will issue implementing directives prescribing the policies 
and procedures necessary to implement these transitional provisions.


Sec.  9701.372  Creating initial pay ranges.

    (a) DHS must, after coordination with OPM, set the initial band 
rate ranges for the DHS pay system established under this subpart. The 
initial ranges will 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).


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 their rate of pay

[[Page 5330]]

(including basic pay and any applicable locality payment under 5 U.S.C. 
5304, special rate under 5 U.S.C. 5305, locality rate supplement under 
Sec.  9701.332, or special rate supplement under Sec.  9701.333).
    (b) When 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 rate 
supplement, the conversion will not be considered as resulting in a 
reduction in basic pay for the purpose of applying subpart F of this 
part.
    (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 will issue implementing directives governing any such 
pay adjustment, including rules governing employee eligibility, pay 
computations, and the timing of any such pay adjustment.
    (f) The Secretary has discretion to 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. DHS will issue implementing 
directives governing any such conversion, including rules governing 
employee eligibility, pay computations, and the timing of any such 
conversion. As provided in paragraph (a) of this section, DHS must 
convert employees without a reduction in their rate of pay.


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, after coordination with OPM, modify that system. 
DHS will issue implementing directives on 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) The performance management system established under this 
subpart, working in conjunction with the pay system established under 
subpart C of this part, is designed to promote and sustain a high-
performance culture by incorporating the following features:
    (1) Adherence to merit principles set forth in 5 U.S.C. 2301;
    (2) A fair, credible, and transparent employee performance 
appraisal system;
    (3) A link between elements of the pay system established in 
subpart C of this part, the employee performance appraisal system, and 
the Department's strategic plan;
    (4) Employee involvement in the design and implementation of the 
system (as provided in Sec.  9701.105);
    (5) Adequate training and retraining for supervisors, managers, and 
employees in the implementation and operation of the performance 
management system;
    (6) Periodic performance feedback and dialogue among supervisors, 
managers, and employees throughout the appraisal period, with specific 
timetables for review;
    (7) Effective safeguards so that the management of the system is 
fair and equitable and based on employee performance; and
    (8) A means for ensuring that adequate resources are allocated for 
the design, implementation, and administration of the performance 
management system that supports the pay system established under 
subpart C of this part.


Sec.  9701.402  Coverage.

    (a) This subpart applies to eligible DHS employees in the 
categories listed in paragraph (b) of this section, subject to a 
determination by the Secretary or designee under Sec.  9701.102(b), 
except as provided in paragraph (c) of this section.
    (b) The following employees are eligible for coverage under this 
subpart:
    (1) Employees who would otherwise be covered by 5 U.S.C. chapter 
43; and
    (2) Employees who were excluded from chapter 43 by OPM under 5 CFR 
430.202(d) prior to the date of coverage of this subpart, as determined 
under Sec.  9701.102(b).
    (c) This subpart does not apply to employees who are not expected 
to be employed longer than a minimum period (as defined in Sec.  
9701.404) during a single 12-month period.


Sec.  9701.403  Waivers.

    When a specified category of employees is covered by the 
performance management system(s) established under this subpart, 5 
U.S.C. chapter 43 is waived with respect to that category of employees.


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, behaviors, and other characteristics required by a 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 the 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 expectations means that which an employee is required 
to do, as described in Sec.  9701.406, and may include observable or 
verifiable descriptions of quality, quantity, timeliness, and cost 
effectiveness.
    Performance management means applying the integrated processes of 
setting and communicating performance expectations, monitoring 
performance and providing feedback, developing performance and 
addressing poor performance, and rating and rewarding performance in 
support of the organization's goals and objectives.
    Performance management system means the policies and requirements 
established under this subpart, as supplemented by DHS implementing 
directives, for setting and communicating employee performance 
expectations, monitoring performance and providing feedback, developing 
performance and addressing poor

[[Page 5331]]

performance, and rating and rewarding performance.
    Rating of record means a performance appraisal prepared--
    (1) At the end of an appraisal period covering an employee's 
performance of assigned duties against performance expectations 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 system requirements.

    (a) DHS will issue implementing directives that establish one or 
more performance management systems for DHS employees, subject to the 
requirements set forth in this subpart.
    (b) Each DHS performance management system must--
    (1) Specify the employees covered by the system(s);
    (2) Provide for the periodic appraisal of the performance of each 
employee, generally once a year, based on performance expectations.
    (3) Specify the minimum period during which an employee must 
perform before receiving a rating of record;
    (4) Hold supervisors and managers accountable for effectively 
managing the performance of employees under their supervision as set 
forth in paragraph (c) of this section;
    (5) Include procedures for setting and communicating performance 
expectations, monitoring performance and providing feedback, and 
developing, rating, and rewarding performance; and
    (6) Specify the criteria and procedures to address the performance 
of employees who are detailed or transferred and for employees in other 
special circumstances.
    (c) In fulfilling the requirements of paragraph (b) of this 
section, supervisors and managers are responsible for--
    (1) Clearly communicating performance expectations and holding 
employees responsible for accomplishing them;
    (2) Making meaningful distinctions among employees based on 
performance;
    (3) Fostering and rewarding excellent performance; and
    (4) Addressing poor performance.


Sec.  9701.406  Setting and communicating performance expectations.

    (a) 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. Such expectations include those general performance 
expectations that apply to all employees, such as standard operating 
procedures, handbooks, or other operating instructions and requirements 
associated with the employee's job, unit, or function.
    (b) Supervisors and managers must communicate performance 
expectations, including those that may affect an employee's retention 
in the job. Performance expectations need not be in writing, but must 
be communicated to the employee prior to holding the employee 
accountable for them. However, notwithstanding this requirement, 
employees are always accountable for demonstrating appropriate 
standards of conduct, behavior, and professionalism, such as civility 
and respect for others.
    (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, operating instructions, 
administrative manuals, internal rules and directives, 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) 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 management.


Sec.  9701.407  Monitoring performance and providing feedback.

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


Sec.  9701.408  Developing performance and addressing poor performance.

    (a) Subject to budgetary and other organizational constraints, a 
supervisor must--
    (1) Provide employees with the proper tools and technology to do 
the job; and
    (2) Develop employees to enhance their ability to perform.
    (b) If during the appraisal period 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, which include but are not limited to remedial 
training, an improvement period, a reassignment, an oral warning, a 
letter of counseling, a written reprimand, 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 and rewarding performance.

    (a)(1) Except as provided in paragraphs (a)(2) and (3) of this 
section, each DHS performance management system must establish a single 
summary rating level of unacceptable performance, a summary rating 
level of fully successful performance (or equivalent), and at least one 
summary rating level above fully successful performance.
    (2) For employees in an Entry/Developmental band, the DHS 
performance management system(s) may establish two summary rating 
levels, i.e., an unacceptable rating level and a rating level of fully 
successful (or equivalent).
    (3) At his or her sole and exclusive discretion, the Secretary or 
designee may under extraordinary circumstances establish a performance 
management system with two summary rating levels, i.e., an unacceptable 
level and a higher rating level, for employees not in an Entry/
Developmental band.

[[Page 5332]]

    (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 reflect a substantial 
change in the employee's performance when appropriate. A rating of 
record will be used as a basis for determining--
    (1) An increase in basic pay under Sec.  9701.324;
    (2) A locality or special rate supplement increase under Sec.  
9701.336;
    (3) A performance pay increase determination under Sec.  
9701.342(a);
    (4) A within-grade increase determination under 5 CFR 531.404, 
prior to conversion to the pay system established under subpart C of 
this part;
    (5) A pay determination under any other applicable pay rules;
    (6) Awards under any legal authority, including 5 U.S.C. chapter 
45, 5 CFR part 451, and a Departmental or organizational awards 
program;
    (7) Eligibility for promotion; or
    (8) Such other action that DHS considers appropriate, as specified 
in the implementing directives.
    (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 forced distribution or quota on any rating 
level or levels.
    (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) DHS may not lower the rating of record of an employee on an 
approved absence from work, including the absence of a disabled veteran 
to seek medical treatment, as provided in Executive Order 5396.
    (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. 
An arbitrator hearing a grievance is subject to the standards of review 
set forth in Sec.  9701.521(g)(2). Except as otherwise provided by law, 
an arbitrator may not conduct an independent evaluation of the 
employee's performance or otherwise substitute his or her judgment for 
that of the supervisor.
    (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) DHS implementing directives will establish policies and 
procedures for crediting performance in 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  DHS responsibilities.

    In carrying out its performance management system(s), DHS must--
    (a) Transfer ratings between subordinate organizations and to other 
Federal departments or agencies;
    (b) Evaluate its performance management system(s) for effectiveness 
and compliance with this subpart, DHS implementing directives and 
policies, and the provisions of 5 U.S.C. chapter 23 that set forth the 
merit system principles and prohibited personnel practices;
    (c) Provide OPM with a copy of the implementing directives, 
policies, and procedures that implement this subpart; and
    (d) Comply with 29 CFR 1614.102(a)(5), which requires agencies to 
review, evaluate, and control managerial and supervisory performance to 
ensure enforcement of the policy of equal opportunity.

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, without 
compromising statutorily protected employee rights. 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 
relations 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 to organize and bargain collectively, subject to any 
exclusion from coverage or limitation on negotiability established by 
law, including these regulations, applicable Executive orders, and any 
other legal authority.


Sec.  9701.502  Rule of construction.

    In interpreting this subpart, the rule of construction in Sec.  
9701.106(a)(2) must be applied.


Sec.  9701.503  Waivers.

    When a specified category of employees is covered by the labor-
management relations system established under this subpart, the 
provisions of 5 U.S.C. 7101 through 7135 are waived with respect to 
that category of employees, except as otherwise specified in this part 
(including Sec.  9701.106).


Sec.  9701.504  Definitions.

    In this subpart:
    Authority means the Federal Labor Relations Authority described in 
5 U.S.C. 7104(a).
    Collective bargaining means the performance of the mutual 
obligation of a management representative of the Department and an 
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 
classification determinations 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.

[[Page 5333]]

    Confidential employee means an employee who acts in a confidential 
capacity with respect to an individual who formulates or effectuates 
management policies in the field of labor-management relations.
    Day means a calendar day.
    Dues means dues, fees, and assessments.
    Exclusive representative means any labor organization which is 
recognized as the exclusive representative of employees in an 
appropriate unit consistent with the Department's organizational 
structure, pursuant to 5 U.S.C. 7111 or as otherwise provided by Sec.  
9701.514.
    Grievance means any complaint--
    (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 
concerning--
    (i) The effect or interpretation, or a claim of breach, of a 
collective bargaining agreement; or
    (ii) Any claimed violation, misinterpretation, or misapplication of 
any law, rule, or regulation issued for the purpose of affecting 
conditions of employment.
    HSLRB means the Homeland Security Labor Relations Board.
    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 the Department 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 the Department; 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.
    Professional employee has the meaning given that term in 5 U.S.C. 
7103(a)(15).
    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.

    (a) Employees covered. This subpart applies to eligible DHS 
employees, subject to a determination by the Secretary or designee 
under Sec.  9701.102(b), except as provided in paragraph (b) of this 
section. DHS employees who would otherwise be covered by 5 U.S.C. 
chapter 71 are eligible for coverage under this subpart. In addition, 
this subpart applies to an employee whose employment has ceased because 
of an unfair labor practice under Sec.  9701.517 of this subpart and 
who has not obtained any other regular and substantially equivalent 
employment.
    (b) Employees excluded. This subpart does not apply to--
    (1) An alien or noncitizen of the United States who occupies a 
position outside the United States;
    (2) A member of the uniformed services as defined in 5 U.S.C. 
2101(3);
    (3) A supervisor or a management official;
    (4) Any person who participates in a strike in violation of 5 
U.S.C. 7311;
    (5) Employees of the United States Secret Service, including the 
United States Secret Service Uniformed Division;
    (6) Employees of the Transportation Security Administration; or
    (7) Any employee excluded pursuant to Sec.  9701.514 or any other 
legal authority.


Sec.  9701.506  Impact on existing agreements.

    (a) Any provision of a collective bargaining agreement that is 
inconsistent with this part and/or its implementing directives is 
unenforceable on the effective date of coverage under the applicable 
subpart or directive. In accordance with procedures and time limits 
established by the HSLRB under Sec.  9701.509, an exclusive 
representative may appeal to the HSLRB the Department's determination 
that a provision is unenforceable. Provisions that are identified by 
the Department as unenforceable remain unenforceable unless held 
otherwise by the HSLRB on appeal. The Secretary or designee, in his or 
her sole and exclusive discretion, may continue all or part of a 
particular provision(s) with respect to a specific category or 
categories of employees and may cancel such continued provisions at any 
time; such determinations are not precedential.
    (b) Upon request by an exclusive representative, the parties will 
have 60 days after the effective date of coverage under the applicable 
subpart and/or implementing directive to bring into conformance those 
remaining negotiable terms directly affected by the terms rendered 
unenforceable by the applicable subpart and/or implementing directive. 
If the parties fail to reach agreement by that date, they may utilize 
the negotiation impasse provisions of Sec.  9701.519 to resolve the 
matter. Agreements reached under this section are subject to approval 
under Sec.  9701.515(d). Nothing in this paragraph will delay the 
effective date of an implementing directive.


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) Composition. (1) The Homeland Security Labor Relations Board is 
composed of at least three members who will be appointed by the 
Secretary for terms of 3 years, except that the

[[Page 5334]]

appointments of the initial HSLRB members will be for terms of 2, 3, 
and 4 years, respectively. The Secretary may extend the term of any 
member beyond 3 years when necessary to provide for an orderly 
transition and/or appoint the member for an additional term. The 
Secretary, in his or her sole and exclusive discretion, may appoint 
additional members to the HSLRB; in so doing, he or she will make such 
appointments to ensure that the HSLRB consists of an odd number of 
members.
    (2) Members of the HSLRB must be independent, distinguished 
citizens of the United States who are well known for their integrity 
and impartiality. Members must have expertise in labor relations, law 
enforcement, or national/homeland or other related security matters. At 
least one member of the Board must have experience in labor relations. 
Members must be able to acquire and maintain an appropriate security 
clearance. Members may be removed by the Secretary on the same grounds 
as an FLRA member.
    (3) An individual chosen to fill a vacancy on the HSLRB will be 
appointed for the unexpired term of the member who is replaced.
    (b) Appointment of the Chair. The Secretary, at his or her sole and 
exclusive discretion, will appoint one member to serve as Chair of the 
HSLRB.
    (c) Appointment procedures for non-Chair HSLRB members. (1) The 
appointments of the two non-Chair HSLRB members will be made by the 
Secretary after he or she considers any lists of nominees submitted by 
labor organizations that represent employees in the Department of 
Homeland Security.
    (2) The submission of lists of recommended nominees by labor 
organizations must be in accordance with timelines and requirements set 
forth by the Secretary, who may provide for additional consultation in 
order to obtain further information about a recommended nominee. The 
ability of the Secretary to appoint HSLRB members may not be delayed or 
otherwise affected by the failure of any labor organization to provide 
a list of nominees that meets the timeframe and requirements 
established by the Secretary.
    (d) Appointment of additional non-Chair HSLRB members. If the 
Secretary determines that additional members are needed, he or she may, 
subject to the criteria set forth in paragraph (a)(2) of this section, 
appoint the additional members according to the procedures established 
by paragraph (c) of this section.
    (e) Filling a HSLRB vacancy. A HSLRB vacancy will be filled 
according to the procedure in effect at the time of the appointment.
    (f) Procedures of the HSLRB. (1) The HSLRB will establish 
procedures for the fair, impartial, and expeditious assignment and 
disposition of cases. To the extent practicable, the HSLRB will use a 
single, integrated process to address all matters associated with a 
negotiations dispute, including unfair labor practices, negotiability 
disputes, and bargaining impasses. The HSLRB may, pursuant to its 
regulations, use a combination of mediation, factfinding, and any other 
appropriate dispute resolution method to resolve all such disputes at 
the earliest practicable time and with a minimum of process. Such 
proceedings will be conducted by the HSLRB, a HSLRB member, or employee 
of the HSLRB. Individual HSLRB members may decide a particular dispute. 
However, at the motion of a party upon its initial request for HSLRB 
assistance or upon the HSLRB's own motion at any time, the full HSLRB 
(or, where the Secretary appoints more than three members, a three-
person panel of the HSLRB) may decide a particular dispute involving a 
matter of first impression or a major policy.
    (2) In cases where the full HSLRB acts, a vote of the majority of 
the HSLRB (or a three-person panel of the HSLRB) will be dispositive. A 
vacancy on the HSLRB does not impair the right of the remaining members 
to exercise all of the powers of the HSLRB. The vote of the Chair will 
be dispositive in the event of a tie.
    (g) Finality of HSLRB decisions. Decisions of the HSLRB are final 
and binding. However, in cases involving unfair labor practices and/or 
negotiability disputes decided by a single member, a party may seek 
review of that decision with the full HSLRB, according to rules 
prescribed by the HSLRB. In such cases the initial decision is stayed 
pending the final decision by the full HSLRB.
    (h) Review of a HSLRB decision. (1) In order to obtain judicial 
review of a HSLRB decision, a party must request a review of the record 
of a HSLRB decision by the Authority by filing such a request in 
writing within 15 days after the issuance of the decision. Within 15 
days after the Authority's receipt of the request for a review of the 
record, any response must be filed. A party may each submit, and the 
Authority may grant for good cause shown, a request for a single 
extension of time not to exceed a maximum of 15 additional days. The 
Authority will establish, in conjunction with the HSLRB, standards for 
the sufficiency of the record and other procedures, including notice to 
the parties. The Authority must defer to findings of fact and 
interpretations of this part made by the HSLRB and sustain the HSLRB's 
decision unless the requesting party shows that the HSLRB's decision 
was--
    (i) Arbitrary, capricious, an abuse of discretion, or otherwise not 
in accordance with law;
    (ii) Based on error in applying the HSLRB's procedures that 
resulted in substantial prejudice to a party affecting the outcome; or
    (iii) Unsupported by substantial evidence.
    (2) The Authority must complete its review of the record and issue 
a final decision within 30 days after receiving the party's timely 
response to such request for review. This 30-day time limit is 
mandatory, except that the Authority may extend its time for review by 
a maximum of 15 additional days if it determines that--
    (i) The case is unusually complex; or
    (ii) An extension is necessary to prevent any prejudice to the 
parties that would otherwise result.
    (3) No extension beyond that provided by paragraph (h)(2) of this 
section is permitted.
    (4) If the Authority does not issue a final decision within the 
mandatory time limit established by paragraph (h) of this section, the 
Authority will be considered to have denied the request for review of 
the HSLRB's decision, which will constitute a final decision of the 
Authority and is subject to judicial review in accordance with 5 U.S.C. 
7123.


Sec.  9701.509  Powers and duties of the HSLRB.

    (a) The HSLRB may, to the extent provided in this subpart and in 
accordance with regulations prescribed by the HSLRB--
    (1) 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;
    (2) Resolve disputes concerning requests for information under 
Sec.  9701.515(b)(5) and (c);
    (3) Resolve exceptions to arbitration awards involving the exercise 
of management rights, as defined in

[[Page 5335]]

Sec.  9701.511, and the duty to bargain, as defined in Sec.  9701.518. 
The HSLRB must conduct any review of an arbitral award in accordance 
with the same standards set forth in 5 U.S.C. 7122(a), which is not 
waived for the purpose of this subpart but which is modified to apply 
to this section and to read ``HSLRB'' wherever the term ``Authority'' 
appears;
    (4) Resolve negotiation impasses in accordance with Sec.  9701.519;
    (5) Conduct de novo review of legal conclusions involving all 
matters within the HSLRB's jurisdiction;
    (6) Have discretion to evaluate the evidence presented in the 
record and reach its own independent conclusions with respect to the 
matters at issue; and
    (7) Assume jurisdiction over any matter concerning Department 
employees that has been submitted to FLRA pursuant to Sec.  9701.510, 
if the HSLRB determines that the matter affects homeland security.
    (b) The HSLRB may issue binding Department-wide opinions, which may 
be appealed as if they were decisions of the HSLRB in accordance with 
Sec.  9701.508(h).
    (c) In issuing opinions under paragraph (b) of this section, the 
HSLRB may elect to consult with the Authority.
    (d)(1) In any matter filed with the HSLRB, if the responding party 
believes that the HSLRB lacks jurisdiction, that party must timely 
raise the issue with the HSLRB and simultaneously file a copy of its 
response with the Authority in accordance with regulations established 
by the HSLRB. The HSLRB's determination with regard to its jurisdiction 
in a particular matter is final and not subject to review by the 
Authority.
    (2) If a matter involves one or more issues that are appropriately 
before the HSLRB and one or more issues that are appropriately before 
the Authority, the matter must be filed with the HSLRB in accordance 
with its procedures. The HSLRB will have primary jurisdiction over the 
matter. The HSLRB will decide those issues within its jurisdiction and 
will promptly transfer the matter to the Authority for resolution of 
any remaining issues.


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

    (a) 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:
    (1) Determine the appropriateness of units pursuant to the 
provisions of Sec.  9701.514;
    (2) 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, which are not waived for 
the purpose of this subpart but which are modified to apply to this 
section;
    (3) Conduct hearings and resolve complaints of unfair labor 
practices under Sec.  9701.517(a)(1) through (4) and (b)(1) through 
(4), and in accordance with the provisions of 5 U.S.C. 7118, which is 
not waived for this purpose but which is modified to apply to this 
section;
    (4) Resolve exceptions to arbitrators' awards otherwise in its 
jurisdiction and not involving the exercise of management rights under 
Sec.  9701.511, the duty to bargain, as defined in Sec.  9701.518, and 
matters under Sec.  9701.521(f); and
    (5) Review HSLRB decisions and issue final decisions pursuant to 
Sec.  9701.508(h).
    (b) In any matter filed with the Authority, if the responding party 
believes that the Authority lacks jurisdiction, that party must timely 
raise the issue with the Authority and simultaneously file a copy of 
its response with the HSLRB in accordance with regulations established 
by the Authority. The Authority must promptly transfer the case to the 
HSLRB, which will determine whether the matter is within the HSLRB's 
jurisdiction. If the HSLRB determines that the matter is not within its 
jurisdiction, the HSLRB will return the matter to the Authority for 
appropriate action. The HSLRB's determination with regard to its 
jurisdiction in a particular matter is final and not subject to review 
by the Authority.
    (c) Judicial review of any Authority decision is as prescribed in 5 
U.S.C. 7123, which is not waived.


Sec.  9701.511  Management rights.

    (a) Subject to paragraphs (b), (c), and (d) 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 Department;
    (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 Departmental operations may be 
conducted; to determine the numbers, types, grades, or occupational 
clusters and bands of employees or positions assigned to any 
organizational subdivision, work project or tour of duty, and the 
technology, methods, and means of performing work; to assign and deploy 
employees to meet any operational demand; and to take whatever other 
actions may be necessary 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 is prohibited from bargaining over the exercise of 
any authority under paragraph (a) of this section or the procedures 
that it will observe in exercising the authorities set forth in 
paragraphs (a)(1) and (2) of this section.
    (c) Notwithstanding paragraph (b) of this section, management will 
confer with an exclusive representative over the procedures it will 
observe in exercising the authorities set forth in paragraphs (a)(1) 
and (2) of this section, in accordance with the process set forth in 
Sec.  9701.512.
    (d) If an obligation exists under Sec.  9701.518 to bargain, 
confer, or consult regarding the exercise of any authority under 
paragraph (a) of this section, management must provide notice to the 
exclusive representative concurrently with the exercise of that 
authority and an opportunity to present its views and recommendations 
regarding the exercise of such authority under paragraph (a) of this 
section. However, nothing in this section prevents management from 
exercising its discretion to provide notice as far in advance of the 
exercise of that authority as appropriate. Further, nothing in 
paragraph (d) of this section establishes an independent right to 
bargain, confer, or consult.
    (e) To the extent otherwise required by Sec.  9701.518 and at the 
request of an exclusive representative, the parties will bargain at the 
level of recognition (unless otherwise delegated below that level, at 
their sole and exclusive discretion) over--
    (1) Appropriate arrangements for employees adversely affected by 
the exercise of any authority under paragraph (a)(3) of this section 
and procedures which management officials and supervisors will observe 
in exercising any authority under paragraph (a)(3) of this section; and

[[Page 5336]]

    (2)(i) Appropriate arrangements for employees adversely affected by 
the exercise of any authority under paragraph (a)(1) or (2) of this 
section, provided that the effects of such exercise have a significant 
and substantial impact on the bargaining unit, or on those employees in 
that part of the bargaining unit affected by the action or event, and 
are expected to exceed or have exceeded 60 days. Appropriate 
arrangements within the duty to bargain include proposals on matters 
such as--
    (A) Personal hardships and safety measures; and
    (B) Reimbursement of out-of-pocket expenses incurred by employees 
as the direct result of the exercise of authorities under this section, 
to the extent such reimbursement is in accordance with applicable law 
and governing regulations.
    (ii) Appropriate arrangements within the duty to bargain do not 
include proposals on matters such as--
    (A) The routine assignment to specific duties, shifts, or work on a 
regular or overtime basis; and
    (B) Compensation for expenses not actually incurred, or pay or 
credit for work not actually performed.
    (f) Nothing in this section will delay or prevent the Department 
from exercising its authority. Any agreements reached with respect to 
paragraph (e)(2) of this section will not be precedential or binding on 
subsequent acts, or retroactively applied, except at the Department's 
sole, exclusive, and unreviewable discretion.


Sec.  9701.512  Conferring on procedures for the exercise of management 
rights.

    (a) As provided by Sec.  9701.511(c), management, at the level of 
recognition, will confer with an appropriate exclusive representative 
to consider its views and recommendations with regard to procedures 
that management will observe in exercising its rights under Sec.  
9701.511(a)(1) and (2). This process is not subject to the requirements 
established by Sec. Sec.  9701.517(a)(5) (regarding enforcement of the 
duty to consult or negotiate), 9701.518 (regarding the duty to bargain 
and consult), and 9701.519 (regarding impasse procedures). Nothing in 
this section requires that the parties reach agreement on any covered 
matter. The parties may, upon mutual agreement, provide for the Federal 
Mediation and Conciliation Service or another third party to assist in 
this process. Neither the HSLRB nor the Authority may intervene in this 
process.
    (b) The parties will meet at reasonable times and places but for no 
longer than 30 days, including any voluntary third party assistance, 
unless the parties mutually agree to extend this period.
    (c) Nothing in the process established under this section will 
delay the exercise of a management right under Sec.  9701.511(a)(1) and 
(2).
    (d) Management retains the sole, exclusive, and unreviewable 
discretion to determine the procedures that it will observe in 
exercising the authorities set forth in Sec.  9701.511(a)(1) and (2) 
and to deviate from such procedures, as necessary.


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 as determined by the Authority, who 
cast valid ballots in the election.


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

    (a) The Authority will determine the appropriateness of any unit. 
The Authority must determine in each case whether, in order to ensure 
employees the fullest freedom in exercising the rights guaranteed under 
this subpart, the appropriate unit should be established on a 
Department, plant, installation, functional, or other basis and will 
determine any unit to be an appropriate unit only if the determination 
will ensure a clear and identifiable community of interest among the 
employees in the unit and will promote effective dealings with, and 
efficiency of the operations of the Department, consistent with the 
Department's mission and organizational structure.
    (b) A unit may not be determined to be 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 
appropriate if it includes--
    (1) Except as provided under 5 U.S.C. 7135(a)(2), which is not 
waived for the purpose of this subpart, 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) Both professional employees and other employees, unless a 
majority of the professional employees vote for inclusion in the unit;
    (6) Any employee engaged in intelligence, counterintelligence, 
investigative, or security work which directly affects national 
security; or
    (7) Any employee primarily engaged in investigation or audit 
functions relating to the work of individuals employed by the 
Department whose duties directly affect the internal security of the 
Department, but only if the functions are undertaken to ensure that the 
duties are discharged honestly and with integrity.
    (c) Pursuant to 6 U.S.C. 412(b)(2), a unit to which continued 
recognition was provided upon transfer to DHS may not include an 
employee whose primary duty has materially changed to consist of 
intelligence, counterintelligence, or investigative work directly 
related to terrorism investigation.
    (d) Any employee who is engaged in administering any provision of 
law or this subpart relating to labor-management relations may not be 
represented by a labor organization--
    (1) Which represents other individuals to whom such provision 
applies; or
    (2) Which is affiliated directly or indirectly with an organization 
which represents other individuals to whom such provision applies.
    (e) Two or more units in the Department 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 Authority considers the 
larger unit to be appropriate. The Authority will certify the labor 
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 of an appropriate unit must be 
given the opportunity to be represented at--
    (i) Any formal discussion between Department representative(s) and 
bargaining unit employees, the purpose of which is to discuss and/or 
announce new or substantially changed personnel policies, practices, or 
working conditions. This right does not apply to meetings between 
Department

[[Page 5337]]

representative(s) and bargaining unit employees for the purpose of 
discussing operational matters where any discussion of personnel 
policies, practices or working conditions--
    (A) Constitutes a reiteration or application of existing personnel 
policies, practices, or working conditions;
    (B) Is incidental or otherwise peripheral to the announced purpose 
of the meeting; or
    (C) Does not result in an announcement of a change to, or a promise 
to change, an existing personnel policy(s), practice(s), or working 
condition(s);
    (ii) Any discussion between one or more Department representatives 
and one or more bargaining unit employees concerning any grievance;
    (iii) Any examination of a bargaining unit employee by a 
representative of the Department in connection with an investigation if 
the employee reasonably believes that the examination may result in 
disciplinary action against the employee and the employee requests such 
representation; or
    (iv) Any discussion between a representative of the Department and 
a bargaining unit employee in connection with a formal complaint of 
discrimination only if the employee, at his or her sole discretion, 
requests such representation.
    (3) Notwithstanding any other provision of this paragraph, if the 
Supreme Court determines that the definition of ``grievance'' in 5 
U.S.C. 7103(a)(9) includes a formal complaint of discrimination filed 
by a bargaining unit employee, the definition of grievance in Sec.  
9701.504, and its application to this section, will be interpreted and 
applied consistent with that decision.
    (4) The Department must annually inform its employees of their 
rights under paragraph (a)(2)(iii) of this section.
    (5) Except in the case of grievance procedures negotiated under 
this subpart, 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 other grievance or appeal action; or
    (ii) Exercising other grievance or appellate rights established by 
law, rule, or regulation.
    (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 conditions of 
employment;
    (3) To meet at reasonable times and convenient places as frequently 
as may be necessary, and to avoid unnecessary delays;
    (4) 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; and
    (5) In the case of the Department or appropriate component(s) of 
the Department, to furnish information to an exclusive representative, 
or its authorized representative, when--
    (i) Such information exists, is normally maintained, and is 
reasonably available;
    (ii) The exclusive representative has requested such information 
and demonstrated a particularized need for the information in order to 
perform its representational functions in grievance proceedings or in 
negotiations; and
    (iii) Disclosure is not prohibited by law.
    (c) Disclosure of information in paragraph (b)(5) of this section 
does not include the following:
    (1) Disclosure prohibited by law or regulations, including, but not 
limited to, the regulations in this part, Governmentwide rules and 
regulations, Departmental implementing directives and other policies 
and regulations, and Executive orders;
    (2) 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;
    (3) Internal Departmental guidance, counsel, advice, or training 
for managers and supervisors relating to collective bargaining;
    (4) Any disclosure that would compromise the Department's mission, 
security, or employee safety; and
    (5) Home addresses, telephone numbers, email addresses, or any 
other information not related to an employee's work.
    (d)(1) An agreement between the Department or appropriate 
component(s) of the Department and the exclusive representative is 
subject to approval by the Secretary or designee.
    (2) The Secretary or designee 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 Secretary or designee does not approve or disapprove the 
agreement within the 30-day period specified in paragraph (d)(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, the regulations in 
this part, Governmentwide rules and regulations, Departmental 
implementing directives and other policies 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 Departmental regulations. 
Bargaining will be at the level of recognition except where delegated.
    (5) Provisions in existing collective bargaining agreements are 
unenforceable if an authorized agency official determines that they are 
contrary to law, the regulations in this part, Governmentwide rules and 
regulations, Departmental implementing directives (as provided by Sec.  
9701.506) and other policies and regulations, or 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 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.

[[Page 5338]]

    (c)(1) Subject to paragraph (c)(2) of this section, if a petition 
has been filed with the Authority 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 Authority must 
investigate the petition to determine its validity. Upon certification 
by the Authority 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 HSLRB, 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 HSLRB, 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 the Department 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 HSLRB, to consult or negotiate 
in good faith with the Department as required by this subpart;
    (6) To fail or refuse, as determined by the HSLRB, 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 the Department 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) The HSLRB will not consider any unfair labor practice 
allegation filed more than 6 months after the alleged unfair labor 
practice occurred, unless the HSLRB determines, pursuant to its 
regulations, that there is good cause for the late filing.
    (f) Issues which can properly be raised under an appeals procedure 
may not be raised as unfair labor practices prohibited under this 
section. Except where an employee has an option of using the negotiated 
grievance procedure or an appeals procedure in connection with an 
adverse action under subpart F of this part, 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.
    (g) 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, confer, and consult.

    (a) 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 as provided by this subpart 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 HSLRB, to assist in any 
negotiation.
    (b) If bargaining over an initial collective bargaining agreement 
or any successor agreement is not completed within 90 days after such 
bargaining begins, the parties may mutually agree to continue 
bargaining or mutually agree to refer the matter to an independent 
mediator/arbitrator for resolution. Alternatively, either party may 
refer the

[[Page 5339]]

matter to the HSLRB for resolution in accordance with procedures 
established by the HSLRB. Either party may refer the matter to the 
Federal Mediation Conciliation Service (FMCS) for assistance at any 
time.
    (c) If the parties bargain during the term of an existing 
collective bargaining agreement over a proposed change that is 
otherwise negotiable, and no agreement is reached within 30 days after 
such bargaining begins, the parties may mutually agree to continue 
bargaining or mutually agree to refer the matter to an independent 
mediator/arbitrator for resolution. Alternatively, either party may 
refer the matter to the HSLRB for resolution in accordance with 
procedures established by the HSLRB. Either party may refer the matter 
to the Federal Mediation Conciliation Service (FMCS) for assistance at 
any time.
    (d)(1) Management may not bargain over any matters that are 
inconsistent with law or the regulations in this part, Governmentwide 
rules and regulations, Departmental implementing directives and other 
policies and regulations, or Executive orders.
    (2) In promulgating Departmental policies and regulations that deal 
with otherwise negotiable subjects, the Department will utilize the 
process set forth in Sec.  9701.512, except that the Department will 
confer with those labor organizations that request and have been 
accorded national consultation rights (NCR) established pursuant to 5 
U.S.C. 7113, which is not waived for these purposes, and consult with 
those organizations on other appropriate matters.
    (3) Management has no obligation to bargain over a change to a 
condition of employment unless the change is otherwise negotiable 
pursuant to these regulations and is foreseeable, substantial, and 
significant in terms of both impact and duration on the bargaining 
unit, or on those employees in that part of the bargaining unit 
affected by the change.
    (4) Management has no obligation to confer or consult as required 
by this section unless the change is foreseeable, substantial, and 
significant in terms of both impact and duration on the bargaining 
unit, or on those employees in that part of the bargaining unit 
affected by the change.
    (5) Nothing in paragraphs (b) or (c) of this section prevents or 
delays management from exercising the rights enumerated in Sec.  
9701.511.
    (e) If a management official 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 HSLRB in accordance with procedures 
established by the HSLRB.


Sec.  9701.519  Negotiation impasses.

    (a) If the Department and exclusive representative are unable to 
reach an agreement under Sec. Sec.  9701.515 or 9701.518, either party 
may submit the disputed issues to the HSLRB for resolution.
    (b) If the parties do not arrive at a settlement after assistance 
by the HSLRB, the HSLRB may take whatever action is necessary and not 
inconsistent with this subpart to resolve the impasse.
    (c) Pursuant to Sec. Sec.  9701.508 and 9701.525, the HSLRB's 
regulations will provide for a single, integrated process to address 
all matters associated with a negotiations dispute, including unfair 
labor practices, negotiability disputes, and bargaining impasses.
    (d) Notice of any final action of the HSLRB 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, which is not waived.


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, if or to the extent that an alleged prohibited 
personnel practice is involved, allow the arbitrator to order a stay of 
any personnel action in a manner similar to the manner described in 5 
U.S.C. 1221(c) with respect to the Merit Systems Protection Board and 
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 Department had 
taken the disciplinary action absent arbitration.
    (c) The preceding paragraphs of this section do not apply with 
respect to any matter 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.  9701.613;
    (4) A mandatory removal under Sec.  9701.607;
    (5) Any examination, certification, or appointment; and
    (6) Any subject not within the definition of grievance in Sec.  
9701.504 (e.g., the classification or pay of any position), except for 
any other adverse action under subpart F of this part which is not 
otherwise excluded by paragraph (c) of this section.
    (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(b).
    (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

[[Page 5340]]

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)(1) For matters covered by subpart G of this part (except for 
mandatory removal offenses under Sec.  9701.707), an aggrieved employee 
may raise the matter under the appeals procedure of Sec.  9701.706 or 
under the negotiated grievance procedure, but not both. An employee 
will be deemed to have exercised his or her option under this section 
when the employee timely files an appeal under the applicable appellate 
procedures or a grievance in accordance with the provisions of the 
parties' negotiated grievance procedure, whichever occurs first.
    (2) An arbitrator hearing a matter appealable under subpart G of 
this part is bound by the applicable provisions of this part.
    (3) Section 7121(f) of title 5, United States Code, is not waived, 
but is modified to provide that--
    (i) Matters covered by subpart G are deemed to be matters covered 
by 5 U.S.C. 4303 and 7512 for the purpose of obtaining judicial review; 
and
    (ii) Judicial review under 5 U.S.C. 7703 will apply to the award of 
an arbitrator in the same manner and under the same conditions as if 
the matter had been decided by MSPB under Sec.  9701.706, including the 
preponderance of the evidence standard.
    (4) In order to ensure consistency, the Department and 
representatives of those labor organizations granted national 
consultation rights may establish a mutually acceptable panel of 
arbitrators who have been trained and qualified to hear adverse action 
grievances under this part.
    (g)(1) An employee may grieve a performance rating of record that 
has not been appealed in connection with an action 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.
    (2) An arbitrator may cancel a performance rating upon a finding 
that management applied the employee's established performance 
expectations in violation of applicable law, Department rule or 
regulation, or provision of collective bargaining agreement in a manner 
prejudicial to the grievant. An arbitrator who has properly canceled an 
employee's appraisal may order management to change the grievant's 
rating only when the arbitrator is able to determine the rating that 
management would have given but for the violation. When an arbitrator 
is unable to determine what the employee's rating would have been but 
for the violation, the arbitrator must remand the case to management 
for re-evaluation. Except as otherwise provided by law, an arbitrator 
may not conduct an independent evaluation of the employee's performance 
or otherwise substitute his or her judgment for that of the supervisor.
    (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;
    (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 one of the following, whichever election occurs first:
    (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)(1) In the case of awards involving the exercise of management 
rights or the duty to bargain under Sec. Sec.  9701.511 and 9701.518, 
either party to arbitration under this subpart may file with the HSLRB 
an exception to any arbitrator's award. The HSLRB may take such action 
and make such recommendations concerning the award as is consistent 
with this subpart.
    (2) In the case of awards not involving the exercise of management 
rights or the duty to bargain under Sec. Sec.  9701.511 and 9701.518, 
either party may file exceptions to an arbitration award with the 
Authority pursuant to 5 U.S.C. 7122 (which is not waived for the 
purpose of this subpart but which is modified to apply to arbitration 
awards under this section) and the Authority's regulations.
    (3) Notwithstanding paragraph (a)(2) of this section, exceptions to 
awards relating to a matter described in Sec.  9701.521(f) may not be 
filed with the Authority.
    (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).
    (c) Nothing in this section prevents the HSLRB from determining its 
own jurisdiction without regard to whether any party has raised a 
jurisdictional issue.


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 Department for 
such purposes.
    (b) Any activities performed by any employee relating to the 
internal business of the labor organization, including but not limited 
to 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 HSLRB, 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 HSLRB will be 
authorized official time for such purpose during the time the employee 
would otherwise be in a duty status.

[[Page 5341]]

    (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 Department 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 HSLRB 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.  9701.519.
    (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 HSLRB will establish rules in consultation with the 
Department for maintaining and making available for inspection 
sensitive information.


Sec.  9701.525  Regulations of the HSLRB.

    The Department may issue initial interim rules for the operation of 
the HSLRB and will consult with labor organizations granted national 
consultation rights on the rules. The HSLRB will prescribe and publish 
rules for its operation in the Federal Register.


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

    (a) Except as otherwise provided by Sec.  9701.506, 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 the Department or a component thereof and an 
exclusive representative of its employees, which is entered into before 
the effective date of this subpart, as determined under Sec.  
9701.102(b).
    (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(b)), 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 
implementing directives 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 date of coverage of this subpart, as 
determined under Sec.  9701.102(b). Any remedy that applies after the 
date of coverage under any provision of this part and that is in 
conflict with applicable provisions of this part is not enforceable.

Subpart F--Adverse Actions

General


Sec.  9701.601  Purpose.

    This subpart contains regulations prescribing the requirements when 
employees are furloughed for 30 days or less, suspended, demoted, 
reduced in pay, or removed. DHS may issue implementing directives to 
carry out the provisions of this subpart.


Sec.  9701.602  Waivers.

    When a specified category of employees is covered by the adverse 
action provisions established under this subpart, 5 U.S.C. 7501 through 
7514 and 7531 through 7533 are waived with respect to that category of 
employees. The provisions in 5 U.S.C. 7521 and 7541 through 7543 are 
not waived.


Sec.  9701.603  Definitions.

    In this subpart:
    Adverse action means a furlough for 30 days or less, a suspension, 
a demotion, a reduction in pay, or a removal.
    Band means a work level or pay range within an occupational 
cluster.
    Competencies means the measurable or observable knowledge, skills, 
abilities, behaviors, and other characteristics required by a position.
    Current continuous service means a period of service immediately 
preceding an adverse action in the same or similar positions without 
any break in Federal civilian employment.
    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 usually ends with either the employee 
returning to duty or the completion of any subsequent administrative 
action.
    Initial service period (ISP) means the 1 to 2 years employees must 
serve after selection (on or after the date this subpart becomes 
applicable, as determined under Sec.  9701.102(b)) for a designated DHS 
position in the competitive service for the purpose of providing an 
employee the opportunity to demonstrate competencies in a specific 
occupation.
    Mandatory removal offense (MRO) means an offense that the Secretary 
determines, in his or her sole, exclusive, and unreviewable discretion, 
has a direct and substantial adverse impact on the Department's 
homeland security mission.
    Mandatory Removal Panel (MRP) means the three-person panel composed 
of officials appointed by the Secretary for fixed terms to decide 
appeals of removals based on a mandatory removal offense.
    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 U.S.C. 5304, locality or special rate supplements under subpart 
C of this part, or other similar payments.
    Probationary period has the meaning given that term in 5 CFR 
315.801.
    Removal means the involuntary separation of an employee from the 
Department.
    Similar positions means positions in which the duties performed are 
similar in nature and character and require substantially the same or 
similar qualifications, so that the incumbent could be moved from one 
position to another without significant training or undue interruption 
to the work.
    Suspension means the temporary placement of an employee, for 
disciplinary reasons, in a nonduty/nonpay status.
    Trial period has the meaning given that term in 5 CFR 316.304.


Sec.  9701.604  Coverage.

    (a) Actions covered. This subpart covers furloughs of 30 days or 
less, suspensions, demotions, reductions in pay (including reductions 
in pay within a band), and removals.
    (b) Actions excluded. This subpart does not cover--

[[Page 5342]]

    (1) Any adverse action taken against an employee during a 
probationary, trial, or initial service period, except for an adverse 
action taken against a preference eligible employee in the competitive 
service who has completed the first year of an initial service period;
    (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 employee 
was informed that the promotion was to be of limited duration;
    (4) A reduction-in-force action under 5 U.S.C. 3502;
    (5) An action under 5 U.S.C. 1215;
    (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 OPM based on suitability under 5 
CFR part 731;
    (9) Termination of appointment on 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, U.S. Code, which excludes the action from 5 U.S.C. 
chapter 75 or this subpart;
    (14) A classification determination, including a classification 
determination under subpart B of this part; and
    (15) An action that entitles an employee to grade retention under 5 
CFR part 536 and an action to terminate this entitlement.
    (c) Employees covered. Subject to a determination by the Secretary 
or designee under Sec.  9701.102(b), this subpart applies to DHS 
employees, except as excluded by paragraph (d) of this section.
    (d) Employees excluded. This subpart does not apply to--
    (1) An employee in the competitive service who is serving a 
probationary, trial, or initial service period, except for a preference 
eligible employee in the competitive service who has completed the 
first year of an initial service period;
    (2) A preference eligible employee in the excepted service who has 
not completed 1 year of current continuous service in the same or 
similar positions in an Executive agency or in the United States Postal 
Service or Postal Rate Commission;
    (3) An employee in the excepted service (other than a preference 
eligible) who has not completed 2 years of current continuous service 
in the same or similar positions in an Executive agency under other 
than a temporary appointment of 2 years or less;
    (4) A non-preference eligible employee who is serving a time-
limited appointment (including a term appointment) of 2 years or less;
    (5) Members of the Senior Executive Service;
    (6) Administrative law judges;
    (7) Employees who are terminated in accordance with terms specified 
as conditions of employment at the time the appointment was made;
    (8) Employees whose appointments are made by and with the advice 
and consent of the Senate;
    (9) 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) The President or the Secretary for a position excepted from 
the competitive service by statute;
    (10) An employee whose appointment is made by the President;
    (11) 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;
    (12) An employee who is an alien or non-citizen occupying a 
position outside the United States, as described in 5 U.S.C. 
5102(c)(11);
    (13) Members of the Homeland Security Labor Relations Board or the 
Mandatory Removal Panel;
    (14) Employees against whom an adverse personnel action is taken or 
imposed under any statute or regulation other than this subpart (e.g., 
Transportation Security Administration employees); and
    (15) Employees appointed and serving under a Schedule B excepted 
service appointment subject to conversion to career status pursuant to 
Executive Order 11203.


Sec.  9701.605  Initial service period.

    (a) DHS may establish an initial service period of 1 to 2 years for 
certain designated occupations in order for employees in such 
occupations to demonstrate appropriate competencies. DHS will establish 
standard policies for determining the applicability and the length of 
the ISP for specific occupations.
    (b) Employees must complete an ISP after selection for a designated 
DHS position in the competitive service before obtaining coverage under 
this subpart. All relevant prior Federal civilian service (including 
non-appropriated fund service), as determined by appropriate standards 
established by DHS, counts toward completion of this requirement.
    (c) An employee who is removed during a probationary, trial, or 
initial service period must be removed in accordance with 5 CFR 315.804 
or 315.805, except for a preference eligible employee in the 
competitive service who has completed the first year of an ISP.

Requirements for Furlough of 30 Days or Less, Suspension, Demotion, 
Reduction in Pay, or Removal


Sec.  9701.606  Standard for action.

    The Department may take an adverse action under this subpart only 
for such cause as will promote the efficiency of the service. The 
standards for mandatory removal offenses and actions taken under the 
national security provisions are set forth in Sec. Sec.  9701.607 and 
9701.613, respectively.


Sec.  9701.607  Mandatory removal offenses.

    (a) The Secretary has the sole, exclusive, and unreviewable 
discretion to identify offenses that have a direct and substantial 
adverse impact on the Department's homeland security mission. Such 
offenses will be identified in advance as part of the Department's 
implementing directives, publicized via notice in the Federal Register, 
and made known to all employees on an annual basis.
    (b) When a mandatory removal action is proposed under this section, 
employees will have the right to advance notice, an opportunity to 
respond, a written decision, and a review by the Mandatory Removal 
Panel as set forth in subpart G of this part.
    (c) Prior to the issuance of a notice to the employee in question, 
the Secretary or designee will review and approve a proposed notice of 
removal on the grounds that the employee has committed a mandatory 
removal offense.

[[Page 5343]]

    (d) The Secretary has the sole, exclusive, and unreviewable 
discretion to mitigate the removal penalty.
    (e) 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 mandatory removal offenses.
    (f) Nothing in this subpart limits the discretion of the Department 
or any component thereof to remove an employee based on the revocation 
of that employee's security clearance.


Sec.  9701.608  Procedures.

    An employee against whom an adverse action is proposed is entitled 
to the following:
    (a) A proposal notice under Sec.  9701.609;
    (b) An opportunity to reply under Sec.  9701.610; and
    (c) A decision notice under Sec.  9701.611.


Sec.  9701.609  Proposal notice.

    (a) Notice period. The Department must provide at least 15 days 
advance written notice of a proposed adverse action. However, if there 
is reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed, the Department must 
provide at least 5 days advance written notice.
    (b) Contents of notice. (1) 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.
    (2) 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.
    (c) 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:
    (1) Assign the employee to duties where the Department determines 
the employee is no longer a threat to safety, the Department's mission, 
or Government property;
    (2) Allow the employee to take leave, or place him or her in an 
appropriate leave status (annual leave, sick leave, or leave without 
pay) or absence without leave if the employee has absented himself or 
herself from the worksite without approved leave; or
    (3) Place the employee in a paid, non-duty status for such time as 
is necessary to effect the action.


Sec.  9701.610  Opportunity to reply.

    (a) The Department must give employees at least 10 days, which must 
run concurrently with the notice period, to reply orally and/or in 
writing to a notice of proposed adverse action. However, if there is 
reasonable cause to believe the employee has committed a crime for 
which a sentence of imprisonment may be imposed, the Department must 
give the employee at least 5 days, which must run concurrently with the 
notice period, to reply orally and/or in writing.
    (b) The opportunity to reply orally does not include the right to a 
formal hearing with examination of witnesses.
    (c) 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.
    (d) The Department must designate an official to receive the 
employee's written and/or oral response. The official must have 
authority to make or recommend a final decision on the proposed adverse 
action.
    (e) The employee may be represented by an attorney or other 
representative of the employee's choice and at the employee's expense, 
subject to paragraph (f) of this section. The employee must provide the 
Department with a written designation of his or her representative.
    (f) The Department may disallow as an employee's representative--
    (1) An individual whose activities as representative would cause a 
conflict between the interest or position of the representative and 
that of the Department,
    (2) An employee of the Department whose release from his or her 
official position would give rise to unreasonable costs or whose work 
assignments preclude his or her release; or
    (3) An individual whose activities as representative could 
compromise security.
    (g)(1) 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, whenever possible.
    (2) When considering an employee's medical documentation, the 
Department may require or offer a medical examination pursuant to 5 CFR 
part 339, subpart C.
    (3) When considering an employee's medical condition, the 
Department is not required to withdraw or delay a proposed adverse 
action. However, the Department must--
    (i) Allow the employee to provide medical documentation during the 
opportunity to reply;
    (ii) Comply with 29 CFR 1614.203 and relevant Equal Employment 
Opportunity Commission rules; and
    (iii) Comply with 5 CFR 831.1205 when issuing a decision to remove.


Sec.  9701.611  Decision notice.

    (a) In arriving at its decision on a proposed adverse action, the 
Department may not consider any reasons for the action other than those 
specified in the proposal notice.
    (b) The Department must consider any response from the employee and 
the employee's representative, if the response is provided to the 
official designated under Sec.  9701.610(d) during the opportunity to 
reply, and any medical documentation furnished under Sec.  9701.610(g).
    (c) The decision notice must specify in writing the reasons for the 
decision and advise the employee of any appeal or grievance rights 
under subparts E or G of this part.
    (d) The Department must deliver the notice to the employee on or 
before the effective date of the action.


Sec.  9701.612  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 Personnel 
Recordkeeping. The record must include the following:
    (1) A copy of the proposal notice;
    (2) The employee's written response, if any, to the proposal;

[[Page 5344]]

    (3) A summary of the employee's oral response, if any;
    (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 MRP.

National Security


Sec.  9701.613  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 his or her initial service 
period, probationary period, or trial period, and is a citizen of the 
United States is entitled, after suspension and before removal, to--
    (1) A written statement of the charges against the employee within 
30 days after suspension, which may be amended within 30 days 
thereafter, and which must be stated as specifically as security 
considerations permit;
    (2) An opportunity within 30 days thereafter, plus an additional 30 
days if the charges are amended, to answer the charges and submit 
affidavits;
    (3) A hearing, at the request of the employee, by a Department 
authority duly constituted for this purpose;
    (4) A review of his or her case by the Secretary or designee, 
before a decision adverse to the employee is made final; and
    (5) A written decision from the Secretary.

Savings Provision


Sec.  9701.614  Savings provision.

    This subpart does not apply to adverse actions proposed prior to 
the date of an affected employee's coverage under this subpart.

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 certain adverse actions covered under subpart F of 
this part. These provisions require that the new appeals 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.


Sec.  9701.702  Waivers.

    When a specified category of employees is covered by an appeals 
system established under this subpart, the provisions of 5 U.S.C. 7701 
are waived with respect to that category of employees to the extent 
they are inconsistent with the provisions of this subpart. The 
provisions of 5 U.S.C. 7702 are modified as provided in Sec.  9701.709 
to use ``MSPB or MRP'' wherever the terms ``Merit Systems Protection 
Board'' or ``Board'' occur. The appellate procedures specified herein 
supersede those of MSPB to the extent MSPB regulations are inconsistent 
with this subpart. MSPB must follow the provisions in this subpart 
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 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 (MRO) means an offense that the Secretary 
determines in his or her sole, exclusive, and unreviewable discretion 
has a direct and substantial adverse impact on the Department's 
homeland security mission.
    Mandatory Removal Panel (MRP) means the three-person panel composed 
of officials appointed by the Secretary for fixed terms to decide 
appeals of removals based on a mandatory removal offense.
    MSPB means the Merit Systems Protection Board.
    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.


Sec.  9701.704  Coverage.

    (a) Subject to a determination by the Secretary or designee under 
Sec.  9701.102(b), this subpart applies to employees who appeal 
furloughs of 30 days or less, demotions, reductions in pay, suspensions 
of 15 days or more, or removals, provided such employees are covered by 
Sec.  9701.604.
    (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 an administrative 
grievance procedure, whichever is applicable.
    (c) The appeal rights in 5 CFR 315.806 apply to the removal of an 
employee while serving a probationary, trial, or initial service 
period, except for a preference eligible employee in the competitive 
service who has completed the first year of an initial service period.
    (d) Actions taken under Sec.  9701.613 are not appealable to MSPB.


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. Such methods will be subject to 
collective bargaining to the extent permitted by subpart E of this 
part.


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

[[Page 5345]]

by an attorney or other representative, and to a hearing if material 
facts are in dispute. 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 9701.613, 
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, subject to paragraph (c)(3) of 
this section, and such relief remains in effect pending the outcome of 
any petition for review unless--
    (i) 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, exclusive, 
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 that any award of back pay or attorney fees be paid before the 
decision is final.
    (d) The decision of the Department must be sustained under 
paragraph (b) of this section if it is supported by a preponderance of 
the 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.
    (e) The Director of OPM 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.  9701.709, any decision under 
paragraph (b) of this section is final unless a party to the appeal or 
the Director of OPM 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 or an adjudicating official is of the opinion that 
consolidation or joinder could result in more expeditious processing of 
appeals and would not adversely affect any party, MSPB or an 
adjudicating official 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)(1) Except as provided in paragraph (h)(2) of this section or as 
otherwise provided by law, MSPB or an adjudicating official may require 
payment by the Department of reasonable attorney fees incurred by an 
employee if the employee is the prevailing party and MSPB or an 
adjudicating official determines that payment by the Department is 
warranted in the interest of justice, including any case in which a 
prohibited personnel practice was engaged in by the Department or any 
case in which the Department's action was clearly without merit.
    (2) 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) MSPB or an adjudicating official may 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 or an adjudicating official, these discussions will be 
conducted by an official specifically designated by MSPB 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, 
neither the employee's status under any retirement system established 
by Federal statute nor any election made by the employee under any such 
system will 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 of documents, 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, neither party may 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) Given the Department's need to maintain an exceptionally high 
degree of order and discipline in the workplace, an arbitrator, 
adjudicating official, or MSPB may not modify the penalty imposed by 
the Department

[[Page 5346]]

unless such penalty is so disproportionate to the basis for the action 
as to be wholly without justification. In cases of multiple charges, 
the third party's determination in this regard is based on the 
justification for the penalty as it relates to the sustained charge(s). 
When a penalty is mitigated, the maximum justifiable penalty must be 
applied.
    (7) An initial decision must be made no later than 90 days after 
the date on which the appeal is filed. If that initial 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.
    (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 must state the reasons for its decision so that the Director can 
determine whether to seek judicial review and to facilitate expeditious 
judicial review.
    (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.
    (m) Except as otherwise provided by 5 U.S.C. 7702 with respect to 
cases involving allegations of discrimination, judicial review of any 
final MSPB order or decision is as prescribed under 5 U.S.C. 7703.


Sec.  9701.707  Appeals of mandatory removal actions.

    (a) General. Appeals of mandatory removal actions are governed by 
procedures set forth in this section. An employee may appeal such 
actions to the Mandatory Removal Panel (MRP) established under Sec.  
9701.708.
    (b) Procedures. (1) The MRP will establish procedures for the fair, 
impartial, and expeditious assignment and disposition of cases, 
consistent with the requirements set forth in Sec.  9701.706(k), as 
applicable, and for such other matters as may be necessary to ensure 
the operation of the MRP.
    (2) The MRP will conduct a hearing, for which a transcript will be 
kept, to resolve any factual disputes and other relevant matters. All 
members will hear a particular appeal and will decide it based on a 
majority vote of the members. If only two members are serving, the vote 
of the Chair will be dispositive in the event of a tie.
    (3) The appellant has the right to be represented by an attorney or 
other representative.
    (4) The only action available to the MRP is to sustain or overturn 
a mandatory removal. The MRP does not have authority to mitigate the 
penalty. Only the Secretary may mitigate the penalty in these cases 
after the MRP has rendered its decision.
    (5) The decision of the Department must be sustained if it is 
supported by a preponderance of the 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.
    (6)(i) Except as provided in paragraph (b)(6)(ii) of this section 
or as otherwise provided by law, the MRP may require payment by the 
Department of reasonable attorney fees incurred by an employee if the 
employee is the prevailing party and the Panel reviewing the initial 
appeal determines that payment by the Department is warranted in the 
interest of justice, including any case in which a prohibited personnel 
practice was engaged in by the Department or any case in which the 
Department's action was clearly without merit.
    (ii) 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 Sec.  706(k) of the Civil 
Rights Act of 1964 (42 U.S.C. 2000e-5(k)).
    (7) The MRP must issue a written decision (including dissenting 
opinions, where appropriate) in each case and serve each party and OPM 
with a copy. These decisions are final and binding.
    (8) Failure of the MRP to meet applicable deadlines imposed under 
Sec.  9701.706(k) in a case will not prejudice any party to the case 
and will not form the basis for any legal action by any party.
    (c) MSPB review. (1) In order to obtain judicial review of an MRP 
decision, an employee, the Department, or OPM must request a review of 
the record of an MRP decision by MSPB by filing such a request in 
writing within 15 days after the issuance of the decision. Within 15 
days after MSPB's receipt of the request for a review of the record, 
any response or OPM intervention must be filed. A party, or OPM, may 
each submit, and MSPB may grant for good cause shown, a request for a 
single extension of time not to exceed a maximum of 15 additional days. 
MSPB will establish, in conjunction with the MRP, standards for the 
sufficiency of the record and other procedures, including notice to the 
parties and OPM. MSPB must accept the findings of fact and 
interpretations of this part made by the MRP and sustain the MRP's 
decision unless the employee shows that the MRP's decision was--
    (i) Arbitrary, capricious, an abuse of discretion, or otherwise not 
in accordance with law;
    (ii) Caused by harmful error in the application of the MRP's 
procedures in arriving at such decision; or
    (iii) Unsupported by substantial evidence.
    (2) MSPB must complete its review of the record and issue a final 
decision within 30 days after receiving the party's timely response to 
such request for review or OPM's intervention brief, whichever is filed 
later. This 30-day time limit is mandatory, except that MSPB may extend 
its time for review by a maximum of 15 additional days if it determines 
that--
    (i) The case is unusually complex; or
    (ii) An extension is necessary to prevent any prejudice to the 
parties that would otherwise result.
    (3) No extension beyond that provided by paragraph (c)(2) of this 
section is permitted.
    (4) If MSPB does not issue a final decision within the mandatory 
time limit established by paragraph (c) of this section, MSPB will be 
considered to have denied the request for review of the MRP's decision, 
which will constitute a final decision of MSPB and is subject to 
judicial review in accordance with 5 U.S.C. 7703.
    (d) Subsequent action. (1) If either the MRP or MSPB sustains an 
employee's appeal based on a finding that the employee did not commit 
an MRO, the Department is not precluded from subsequently proposing an 
adverse action (other than an MRO) based on the same record evidence. 
Such a proposal must be issued--
    (i) In accordance with applicable law and regulation, including the 
procedures set forth in Sec.  9701.609; and
    (ii) Normally within 15 days after the date of MSPB's decision, 
unless the Department establishes good cause for exceeding this time 
limit.
    (2) Nothing in this section precludes the Department from taking a 
subsequent action against an employee based, in part, on additional 
evidence that was not part of the record in the initial proceeding 
before the MRP.

[[Page 5347]]

    (e) Judicial review. Except as otherwise provided by 5 U.S.C. 7702 
with respect to cases involving allegations of discrimination, judicial 
review of any final MSPB order or decision on an MRO is as prescribed 
under 5 U.S.C. 7703.
    (f) OPM intervention. (1) The Director may, as a matter of right at 
any time in the proceeding before the MRP or MSPB, 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.
    (2) Except as provided in Sec.  9701.709, any decision under 
paragraph (c) of this section is final unless the Director petitions 
MSPB for review within 30 days after receipt of the decision. 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) Appeal rights of retirees. If an employee has been removed 
under subpart F of this part, neither the employee's status under any 
retirement system established by Federal statute nor any election made 
by the employee under any such system will affect the employee's appeal 
rights.


Sec.  9701.708  Mandatory Removal Panel.

    (a) Composition. (1) The Mandatory Review Panel is a standing panel 
composed of three members who will be appointed by the Secretary for 
terms of 3 years, except that the appointments of the initial MRP 
members will be for terms of 2, 3, and 4 years, respectively. The 
Secretary may extend the term of any member beyond 3 years when 
necessary to provide for an orderly transition and/or appoint the 
member for an additional term.
    (2) Members of the MRP must be independent, distinguished citizens 
of the United States who are well known for their integrity and 
impartiality. Members must have expertise in either labor or employee 
relations or law enforcement/homeland security matters. At least one 
member of the Board must have experience in labor relations. Members 
may be removed by the Secretary on the same grounds as an MSPB member.
    (3) An individual chosen to fill a vacancy on the MRP will be 
appointed for the unexpired term of the member who is replaced.
    (b) Appointment of the Chair. The Secretary, at his or her sole and 
exclusive discretion, will appoint one member to serve as Chair of the 
MRP.
    (c) Appointment procedures for non-Chair MRP members. (1) The 
appointments of the two non-Chair MRP members will be made by the 
Secretary after he or she considers any lists of nominees submitted by 
labor organizations that represent employees in the Department of 
Homeland Security.
    (2) The submission of lists of recommended nominees by labor 
organizations must be in accordance with timelines and requirements set 
forth by the Secretary, who may provide for additional consultation in 
order to obtain further information about a recommended nominee. The 
ability of the Secretary to appoint MRP members may not be delayed or 
otherwise affected by the failure of any labor organization to provide 
a list of nominees that meets the timeframe and requirements 
established by the Secretary.


Sec.  9701.709  Actions involving discrimination.

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


Sec.  9701.710  Savings provision.

    This subpart does not apply to adverse actions proposed prior to 
the date of an affected employee's coverage under this subpart.

[FR Doc. 05-1629 Filed 1-27-05; 8:45 am]
BILLING CODE 6325-39-P; 4410-10-P