NOVEMBER 2005
Pennsylvania Gaming
Pennsylvania Gaming and Diversity: It’s the Law
The Pennsylvania Race Horse Development and
Gaming Act, 4 Pa.C.S. § 1101, et seq. (the “Act”)
has been controversial from its inception to
litigation concerning its constitutionality to
disputes about ownership to the identity of the
licensees. Lost in these more controversial aspects
is a very fundamental precept of the Act: it requires
licensees under the Act and all those who do
business with licensees directly or indirectly to
adopt, implement, and enforce plans to assure
diversity in their employment and in those with
whom they deal.
STATUTORY DIRECTIVES
Diversity requirements and affirmative action are
certainly not a new concept. Any employer who
has done any substantial amount of business with
the federal government is aware of affirmative
action obligations toward minorities and women,
the disabled, and veterans under various federal
statutes and regulations. The Commonwealth of
Pennsylvania under its general procurement
statutes and regulations has broadly required
consideration of diversity activities by contractors
and suppliers. Finally, other states with gaming
activities have to one extent or another required
that licensees and providers participate in diversity
programs. Thus, the diversity mandate in the Act is
not unusual. News accounts during legislative
debate on the Act reported that African American
legislators insisted on strong diversity initiatives in
return for their support of the legislation.
4 Pa.C.S. § 1212(a) titled Diversity Goals of Board,
provides:
1
Gaming operations are regulated and controlled by
the Pennsylvania Gaming Control Board (the
“Board”). The statutory mandate for diversity
begins with 4 Pa.C.S. § 1202(b)(12) which gives the
Board the power and duty “[w]ithin six months after
the effective date of this part, . . . to develop and
implement an affirmative action plan to assure that
all persons are accorded equality of opportunity in
employment and contracting by the board, its
contractors, subcontractors, assignees, lessees,
agents, vendors and suppliers.”
It is the intent and goal of the General
Assembly that the board promote and ensure
diversity in all aspects of the gaming activities
authorized under this part. The board shall work
to enhance the representation of diverse groups in
the ownership, participation and operation of
licensed entities1 and licensed facilities in this
Commonwealth and through the ownership,
participation and operation of business enterprises
associated with or utilized by licensed entities1 and
licensed facilities and through the provision of
goods and services utilized by slot machine
licensees under this part.
The diversity mandate is enforced through the
licensure requirements set forth in 4 Pa.C.S. § 1325.
Section 1325(b) provides that a license or permit
shall not be granted or renewed unless the Board
finds that the applicant satisfies certain criteria,
including the following:
“Licensed entity” is defined in § 1103 as any slot machine, manufacturer, or supplier licensee, or other person licensed by
the board.
(1) The applicant has developed and implemented
or agreed2 to develop and implement a diversity
plan to assure that all persons are accorded
equality of opportunity in employment and
contracting by the applicant, its contractors,
subcontractors, assignees, lessees, agents, vendors
and suppliers.”
Section 1325(c) then lists additional eligibility
requirements which the Board may take into
account when considering an application:
(4) The applicant’s good faith plan for enhancing
the representation of diverse groups in the
operation of its facility through the ownership and
operation of business enterprises associated with
or utilized by its facility or through the provision
of goods or services utilized by its facility and
through the participation in the ownership of the
applicant.
(5) The applicant’s good faith effort to assure that
all persons are accorded equality of opportunity in
employment and contracting by it and any
contractors, subcontractors, assignees, lessees,
agents, vendors and suppliers it may employ
directly or indirectly.
(10) The record of the applicant and its developer
regarding compliance with:
(i) Federal, State and local discrimination, wage
and hour, disability and occupational and
environmental health and safety laws; and
(ii) State and local labor relations and
employment laws.
(11) The applicant’s record in dealing with its
employees and their representatives at other
locations.3
IMPLEMENTING REGULATIONS
In order to implement the Act, the Board has issued
temporary regulations on a whole variety of
licensing issues pursuant to 4 Pa.C.S.
§§1202(B)(14) & 1203. The regulations are found
at 58 Pa. Code Chs. 401-501.
Subpart G, Chapter 481, et seq., titled Minority and
Women’s Business Enterprises, is the portion of the
regulations implementing the diversity
requirements. The title is misleading, for this
subpart of the regulations goes beyond minority
and women’s business enterprise issues. As will be
seen in the subsequent discussion, the regulations
attempt to implement the diversity requirements of
the Act. The regulations are in many respects vague
and simply pronounce goals rather than list specific
requirements. This lack of specificity may be both
good and bad for license applicants. It may be
good in that it leaves an applicant reasonably free
to design its own plan. It may be bad because this
lack of specificity results in comparatively little
guidance on what the plan must contain, and thus
subjects an applicant to the Board’s concluding that
it does not like the content of the plan without
having any specific requirements as a frame of
reference.
This largely unfettered scope of review certainly
exists under other provisions of the licensing
requirements, and are of equal concern. In many
instances, the grant of a license will be to one of
several competing applicants. When the Board has
wide discretion to pick, the less guidance in the
regulations the greater the chance of an arbitrary
decision. As this article is being written, the
Harness Racing Commission allegedly denied a
license to an applicant in part because the
now-deceased grandfather of one of the applicant’s
owners lent money to reputed mobsters 20 years
ago.4 Although the Commission operates under a
differrent statute and regulations, and whether or
not the Commission’s decision can be defended,
2
The statute raises an interesting question in its phraseology that the applicant has developed and implemented “or agreed to
develop and implement” a diversity plan. This suggests that the Board would have the authority to issue a license even
though the applicant had not yet developed a diversity plan but simply has promised to develop a plan. This same “or
agreed to” language is reflected in the implementing regulations subsequently discussed at 58 PA.Code § 423.3(a)(1). By
contrast, § 481.4(a) requires a plan be submitted with the application. It would seem, however, that an applicant would be
taking an unnecessary risk if it did not submit with its application a developed diversity plan.
3
The very broad authority given to the Board by (10) and (11) to consider the applicant’s compliance with a wide variety of
labor and employment laws at other times and other locations is a potential Pandora’s box. It is easy to imagine an
applicant attempting to harm a competing applicant by alleging real or imagined violations of law or unpleasant dealings
with its employees, or a labor organization at another location using this provision as leverage in its own dealings with the
applicant.
4
See Tracie Mauriello, State Harness Racing Board Explains License Rejections, The Pittsburgh Post-Gazette, Nov. 11, 2005,
at http://www.post-gazette.com/pg/05315/604644.stm.
2 NOVEMBER 2005
KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP
it raises concern about the Board’s degree of
discretion.
One over arching concept in the statute and
regulations must be understood. An applicant is not
required only to have its own diversity plan
applicable to its hiring and to the entities with
which it directly deals. An applicant is also
obligated as part of its diversity plan to require that
any entity which provides goods or services which
eventually affects the goods or services received by
the licensed entity must also have a diversity plan.
The licensee is at the top of the pyramid, but those
many layers down in the pyramid are also affected
by the requirements. Thus, although the Board
does not have direct control over entities other than
those entities which must be licensed, it has
imposed these far-reaching diversity obligations on
entities which may be far removed from the gaming
industry. How far down the pyramid the Board will
expect a licensee to police remains an unanswered
question.5
The breadth of the diversity requirements can be
seen in the language used in § 481.1(b) and (c)
which provides as follows:
(b) It is the policy of the Board to promote and
ensure that licensed entities and applicants for
licensure conduct all aspects of their operations in
a manner that assures diversity of opportunity as
follows:
(1) In the ownership, participation, and operation
of licensed entities in this Commonwealth.
(2) Through the ownership, participation and
operation of business enterprises associated with
or utilized by licensed entities.
(3) Through the provision of goods and services
utilized by licensed entities.
(c) It is further the policy of the Board to promote
and ensure diversity in employment and
contracting by each licensed entity or applicant for
a license and its contractors, subcontractors,
assignees, lessees, agents, vendors, and suppliers.
Although the requirements of subsection (b) are
amplified in later sections of the regulations,
subsection (b) raises several questions which are not
subsequently clarified by the regulations.
5
First, it is anticipated that the actual operators of
the gaming establishments as well as the
manufacturer licensees will be well financed,
privately held entities, or subsidiaries or affiliates
of publicly owned entities. They may have little or
no minority or female ownership, or may be broadly
owned public entities. To what extent will minority
or female ownership of such entities be considered
in awarding licenses?
Second, what is the difference between the
requirements of (2) and (3)?
This attention to ownership of both licensed
entities and first and second tier entities, and the
focus on issues other than direct employment by
licensed entities and first and second tier entities,
make the gaming diversity regulations significantly
different from those that exist under the federal
affirmative action obligations which focus on
employment by the government contractor and
subcontractor at each tier but not on their
contracting arrangements.
Section 481.2 defines the terms “diversity plan,”
“minority,” and “participation plan.” A diversity
plan is simply the plan developed by the entity to
pursue the diversity goals. Minority is defined as
the ethnic/racial categories used by the
United States Equal Employment Opportunity
Commission and Office of Federal Contract
Compliance Programs of the United States
Department of Labor. The critical definition is that
of participation plan, which is defined as follows:
An obligation imposed by a licensed entity or
applicant as part of its contract with a contractor
that requires the contractor to perform the
contract through the utilization of minority or
women owned business enterprises.
Thus, the licensed entity is required in its contract
with a first tier contractor to require that the
contractor perform the contract through the
utilization of minority or women owned business
enterprises (“MWBE”). Section 481.3 of the
regulations provides that the Board will compile a
list of MWBEs as certified by the Bureau of
For ease of discussion, the entity directly contracting with the licensee will be referred to as the first tier, and all other
entities will be referred to as second tier.
3 NOVEMBER 2005
KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP
Minority and Women’s Business Enterprises in the
Department of General Services, and make that list
available to all licensed entities and applicants.
The effect of the requirement of a participation plan
is to require the applicant to require its first-tier
contractors to have the contract performed through
the use of MWBEs. What is unclear from this
portion of the regulations is whether that obligation
to have a participation plan extends to second tier
entities. Literally read, the requirement to have a
participation plan appears to apply only to the
license applicant, but the general theme of the Act
and the diversity regulations is to require diversity
effort at each tier in the pyramid. This obligation
could present serious obstacles to a first or lower
tier supplier who prefers to do the work solely or
largely with its own employees, and does not intend
to contract any portion of the work to another
entity. The further removed from the licensed
entity, the harder it becomes to require or enforce
participation by MWBEs.
The regulations are in many ways poorly drafted.
They use the term diversity or diversity plan in two
significantly different ways but often fail to
distinguish between the two uses. In some places,
diversity plan refers only to the required
participation of MWBEs. In other places, the term
refers to diversity in direct employment by the
licensee or tier entities. Using the same term for
two very different obligations causes confusion in
understanding and applying the regulations.
Section 481.4(a) requires each applicant to have a
diversity plan in its application for licensure that
establishes a separate goal of diversity in the
(1) ownership, (2) participation in, (3) operation of,
and (4) employment at, the applicant. The Board
then gives itself great discretion by stating, with
absolutely no criteria, that it will determine whether
the stated goals are reasonable to establish equality
of opportunity in contracting and employment both
by the licensed entity and by its contractors,
subcontractors, vendors and suppliers, i.e., the first
and second tier entities. Is the licensed entity to
develop goals for each tier and, if so, how?
The confusion in failure to separate the concept of
4 NOVEMBER 2005
diversity in employment and diversity in
contracting is reflected in § 481.4(b) which
provides that the applicant can achieve its
“diversity goals” through either contracting or
transacting directly with MWBEs or contracting
with a non-MWBE in a contract that contains a
participation plan. That section totally fails to
address the issue of direct employment by either the
licensed entity or any of the tier entities. It is
inconceivable and in conflict with the Act and other
sections of the regulations that the Board would not
require that diversity in direct employment also be
a part of the diversity goals.
The regulations conclude in § 481.5 by requiring
that each licensed entity seeking to renew a license
file a report concerning the performance of its
diversity plan. This section of the regulations, by
defining what must be in the report, also provides
the best guidance as to the expected content of the
diversity plan. The report is required to contain all
of the following information:
1. Employment data, including information on
minority and women representation in the
workforce, including at the executive and
managerial level, and recruitment, training,
retention and outreach efforts toward minorities
and women. In addition, salary information is
required, presumably to monitor potential
discrimination in compensation between males
and females and minorities and non-minorities.
Compensation discrimination is becoming a part of
increased focus by the office of Federal Contract
Compliance Programs under the federal
affirmative action regulations, and that trend may
have impacted Pennsylvania’s regulations.
2. Total number and value of all contracts awarded
for goods and services.
3. Total number and value of all contracts awarded
to MWBEs.
4. Total number and value of contracts that
contain a participation plan.
5. Total number and value of all subcontracts to be
awarded to minorities and business enterprises
under contracts containing a participation plan.
This provision will require the licensee to obtain
information from at a minimum its first tier
contractors with participation plans as to the
contracts that they have entered with MWBEs.
6. An identification of each subcontract actually
awarded to a MWBE under contracts with a
participation plan during each calendar quarter
and the actual value of such subcontract.
KIRKPATRICK & LOCKHART NICHOLSON GRAHAM LLP
CONCLUSION
7. An identification of each contract awarded to a
minority or women’s business enterprise. This
requirement apparently applies to direct contracts
between the licensee and MWBEs.
8. A description of efforts made by the licensed
entity to monitor and enforce “the participation
plan.”
9. Information on minority and women
investment, equity ownership, and other
ownership or management opportunities initiated
or promoted by the licensed entity.
10. Other information deemed necessary by the
Board.
Even with this greater detail in the requirements,
the Board still retains extensive discretion on
deciding whether the licensee has compiled with
it’s diversity obligations.
Diversity is a key component of the Act. An
application for a license under the Act must contain
a diversity plan, or at least a promise to create one.
The diversity plan must address ownership,
participation, operation, and employment at the
applicant, and must address use of MWBEs at
several tier levels. Goals must be set, and reports on
the degree of success in achieving these goals
submitted. Beyond these broad requirements, the
content of a diversity plan is not specified. An
applicant must first be creative in comprehending
the requirements, and then in creating a diversity
plan which will satisfy the Board.
Hayes C. Stover
412.355.6476
hstover@klng.com
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