Washington D.C. Employment Law Update : Washington D.C. Employment Lawyer & Attorney : Littler Mendelson Law Firm : Virginia, Tyson's Corner

New OFCCP Directive

In conjunction with its formal rescission of the 2006 Standards and Guidelines, OFCCP issued a Directive that describes the procedures its compliance officers will now use when reviewing contractor compensation systems and practices. The procedures provide significant flexibility in how compensation investigations are conducted and what analytical framework OFCCP can apply in an investigation. According to OFCCP, this Directive clarifies and improves the agency’s procedures to align pay discrimination enforcement more fully with Title VII principles. The Directive explains that OFCCP will take a case-by-case approach consistent with Title VII when analyzing a contractor’s compensation systems. While OFCCP will continue to use statistical analyses, such as multiple regression, and non-statistical analyses, such as the use of comparators, OFCCP will also investigate compensation disparities in non-systemic cases and even in some instances where no anecdotal evidence exists. OFCCP states in its Directive that this approach will allow the agency to better protect workers from compensation discrimination.

Impact of New Developments?

In reality, the formal rescission of the Standards and Guidelines and the issuance of the new Directive are non-developments. These documents simply formalize how OFCCP has been approaching its compensation investigations for the last several years under the Obama administration. The agency has focused decidedly less on statistical analysis and much more on identifying job titles with differences in pay by gender or race/ethnicity and making sure that contractors are able to provide non-discriminatory explanations for such differences. As was the case when OFCCP applied the 2006 Standards, OFCCP continues to have very limited success in finding discrimination in contractors’ pay practices.

One particularly noteworthy item in OFCCP’s rescission Notice and new Directive is the agency’s insistence that it is following Title VII principles in determining whether pay discrimination has occurred. The Notice of rescission and new Directive are OFCCP’s first formal pronouncements on pay discrimination since the 2007 U.S. Supreme Court’s decision in Ledbetter v. Goodyear Tire & Rubber Co., 550 U.S. 618 (2007), and the subsequent passage of the Lilly Ledbetter Fair Pay Act of 2009. The Lilly Ledbetter Fair Pay Act formally established that an “unlawful employment practice . . . with respect to discrimination in compensation” is something that results from a discriminatory decision or other practice. 42 U.S.C. § 2000e-5(e)(3)(A). Despite this statutory language, OFCCP’s compensation investigations continue to focus on pay disparities and the employer’s ability to explain the non-discriminatory reasons for such disparities, as OFCCP does not investigate whether any discriminatory decisions caused the disparity. The new guidance documents do not indicate that OFCCP intends to change this approach. As a result, it is unclear which Title VII principles OFCCP intends to apply -- those that pre-date the U.S. Supreme Court’s 2007 decision, or the concepts reflected in the Lilly Ledbetter Fair Pay Act. Notably, the only reference to either the Ledbetter provisions of Title VII or the Ledbetter decision in OFCCP’s Notice of rescission or its new Directive is a sentence from Justice Ginsburg’s dissenting U.S. Supreme Court opinion.

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In June 2011, the OFCCP issued a directive updating the application and approval procedures for FAAP agreements. As discussed in the agency’s supporting statement, (pdf) the OFCCP is planning to revise that updated directive and establish standard application procedures for contractors seeking OFCCP’s approval to use FAAP agreements. To this end, the OFCCP’s latest information collection request (ICR) “addresses the collection of information associated with the process for obtaining, modifying, updating, and renewing an agreement that allows contractors to develop and use functional AAPs.”

Comments must be received on or before July 23, 2012, and identified by Control Number 1250-XXXX. Comments may be submitted electronically through the federal eRulemaking portal. Alternatively, written comments may be sent by mail or hand-delivery to: Debra A. Carr, Director, Division of Policy, Planning and Program Development, Office of Federal Contract Compliance Programs, 200 Constitution Avenue NW., Room C-3325, Washington, DC 20210.

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Agency Changes

On the regulatory front, the OFCCP issued in December 2011 a proposed rule that would amend the nondiscrimination and affirmative action requirements regarding individuals with disabilities for federal contractors and subcontractors. Earlier that year the agency issued a proposal to amend its regulations regarding a contractor’s and subcontractor’s affirmative action and nondiscrimination obligations towards protected veterans under the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA). In addition, in August 2011 the OFCCP issued an advance notice of proposed rulemaking (ANPRM) to solicit public input on the agency’s development and implementation of a new compensation data collection tool.

As for policy and enforcement changes, in December 2010 the agency issued a directive to discontinue the former Active Case Enforcement (ACE) process for conducting supply and service (S&S) compliance evaluations that had been in place since 2003. In early 2011 the OFCCP issued a directive outlining new ACE procedures. In June 2011 the agency issued another new directive updating the application and approval procedures for Functional Affirmative Action Program (FAAP) Agreements. In October 2011 the agency submitted to the Office of Management and Budget (OMB) for review revised forms it uses to collect information in connection with non-construction S&S contractor compliance reviews. These changes to the scheduling letter and itemized listing would significantly impact how federal contractors maintain their records and respond to audit scheduling letters.

In addition, subcommittee Chairman Phil Roe (R-TN) noted that the OFCCP is seeking to require that federal contractors provide a “statement of reasons” that “explains why certain workers were not extended an employment opportunity.” Rep. Roe also considered the OFCCP’s attempt to expand its jurisdiction to certain TRICARE providers a “bureaucratic overreach.” TRICARE is the Defense Department’s health care program for active duty and retired military and their families. In a directive issued last December, the OFCCP clarified instances in which it believed health care providers and insurers are subject to OFCCP requirements, although during the hearing Horvitz pointed out that this directive is not available to contractors on the OFCCP’s website. Generally, the OFCCP’s position is that certain arrangements with the Federal Employees Health Benefit Program (FEHBP) and TRICARE constitute government contracts that create OFCCP jurisdiction. Litigation on this jurisdiction expansion is still pending. The National Defense Authorization Act for Fiscal Year 2012 included a provision stipulating that in determining whether TRICARE network providers are to be considered subcontractors subject to affirmative action and other requirements governed by the OFCCP, TRICARE managed care support contracts that include the requirement to establish, manage, or maintain a network of providers will not be considered to be a contract for the performance of health care services or supplies on the basis of that requirement.

Increasing Compliance Burdens

Some lawmakers and panelists voiced concern during the hearing that the growing number of requirements imposed on contractors is outweighing the benefits of the OFCCP’s mission. For example, the dollar threshold triggering OFCCP obligations is “far too low for the burden placed on companies,” according to Horvitz. She suggested that one way to ease this burden is to raise the current dollar threshold of $50,000 for a supply and service contract to a tiered approach based on contract value starting at $250,000. She also advocated that the “implementation time before OFCCP can select the company for an audit should be extended from its current 120 days to 12 months, if not longer.” In addition, Horvitz promoted the idea that companies whose federal contracts do not exceed $1 million in the first year working with the government be exempt from audits altogether. She recommended a tiered approach for audit eligibility for subsequent years. “Congress needs to give smaller and medium businesses that are new to these obligations adequate time to evaluate the profit margin from these contracts and to take steps to comply with OFCCP’s obligations.”

Horvitz also testified that the OFCCP needs to be more transparent. She noted that the agency has released a number of directives, including one that explains how compliance officers should evaluate compensation, but has never posted these directives on the agency’s website. Horvitz argued that if the OFCCP does not publish these directives, contractors have no guidance on how to evaluate their own pay data and perform self-audits. “How are companies who want to do the right thing and be in compliance, proactively, supposed to do that when OFCCP does not publish the directives it later enforces and without advising government contractors how to self-evaluate their own data?” She stated further that “it seems fundamentally contrary to notions of due process that companies could be accused of violating OFCCP’s regulations when the agency doing the enforcing has failed to identify the benchmarks and standards that companies should follow.”

Horvitz claimed that in her experience, the agency’s conduct during compliance reviews “is one of the principal reasons why more companies do not want to contract with the government. There is no current compliance manual that defines how audits ought to be conducted, which has led to OFCCP’s compliance officers conducting these audits very differently across OFCCP’s six regions.” In response to a question, Horvitz noted also that many businesses are becoming wary of doing business with federal contractors, as they could unwittingly become federal subcontractors subject to OFCCP jurisdiction.

Horvitz similarly criticized the OFCCP’s plan to create a “one-size-fits-all” approach to evaluating pay through a proposed compensation data tool.

Jeffrey Norris, President of the Equal Employment Advisory Council, echoed many of these points and discussed the OFCCP’s aggressive regulatory agenda, stating that the agency’s new efforts will “expand exponentially” the data that employers must provide to the government. With respect to the proposed new affirmative action requirements for veterans and individuals with disabilities, Norris claimed that these proposals:

would transform a qualitative program based on situation-specific good faith efforts, equal opportunity, and respect for privacy of a person’s disability into a quantitative program based on federally mandated numeric targets, preferential treatment, ineffective and extraordinarily burdensome paperwork requirements, and invasive inquiries into the disability status of tens of millions of U.S. workers and job seekers each year.

He also spoke against the proposed compensation data collection tool, stating that the agency has not yet demonstrated any need for a new method, and criticized the OFCCP’s withdrawal of its published guidance on legal and statistical standards for evaluating compensation for self-audits.

As for compliance evaluations, Norris claimed that the changed data collection requirements have “expanded dramatically” the information that a contractor must submit at the beginning of the audit, and that the agency has consistently underestimated the burdens and costs associated with the proposed changes.

For example, Norris testified that the proposed rule change related to affirmative action requirements for individuals with disabilities will cost employers $2 billion in its first year of implementation, and at least $1.5 billion for each subsequent year. According to Norris, this cost estimate is more than 30 times the agency’s projection.

Moreover, in response to a question posed by Rep. Todd Rokita (R-IN), Norris explained that this proposed rule “is inconsistent with the underlying philosophy of the [Americans with Disabilities Act].” One of the purposes of the ADA, he claimed, is to ensure that an individual’s disability is kept a private matter unless divulging this information is necessary. Instead, Norris claimed, “what this proposal would do would be to feature one’s disability.”

While other lawmakers debated the need for increased regulation regarding the nondiscrimination requirements the OFCCP is charged with enforcing, Rep. John Tierney (D-MA) questioned the need for a hearing at this time. He stated that since the OFCCP’s proposals are not yet finalized, an evaluation of the regulations at the date is premature.

Horvitz concluded her remarks by calling for the OFCCP to display a “greater willingness to be more objective” and be “less biased, and more conciliatory, especially when dealing with employers that truly are trying to do the right thing and be in compliance with the laws and regulations that OFCCP enforces.” 

A complete list of panelists and links to their testimony and an archived webcast of the hearing can be found here.

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Prior to issuance of the proposed rule, OFCCP had issued an advance notice of proposed rulemaking (ANPRM). The Agency noted that it had received 147 comments to the ANPRM.  According to the Agency, the significant changes proposed by the rule can be divided into four general categories. First, the proposal includes provisions aimed at connecting job-seeking individuals with disabilities to contractors. To that end, the proposal includes a mandatory job listing requirement and mandates that contractors provide additional information updated regularly to employment service delivery systems. The proposal also requires contractors to engage in recruitment efforts and enter into linkage agreements with several disability-focused employment sources, many of which are specifically listed by OFCCP.

Second, several proposed changes seek to regulate how contractors communicate their affirmative action requirements. Specifically, the proposal:

• Requires that contractors disseminate their affirmative action policies in their internal policy manuals and discuss their policies at employee orientation and training programs;
• Provides that contractors must issue notices of worker rights under section 503 in accessible formats for those working offsite (i.e., electronically-accessible postings) as well as for those with visual impairments;
• Mandates that contractors review their personnel processes on an annual basis (increased from the prior obligation that they do so “periodically”), and outlines certain specific steps that the contractor must take, at a minimum, in the review of its personnel processes. In addition, the proposal stipulates that contractors must document personnel actions taken with regard to individuals with disabilities “to provide greater transparency between the contractor, its applicants/employees, and OFCCP as to the reasons for their personnel actions”; and
• Requires the contractor to meet with and/or otherwise send notification of its AAP obligations to third parties with whom it does business, such as union officials and subcontractors.

Third, the proposal revises contractor data collection and reporting requirements, ostensibly to enable the contractor to better assess its affirmative action efforts. As stated in the proposal, “this includes collecting data on referrals and applicants so contractors know how many individuals with disabilities they are reaching.” Specifically, the proposed regulations require the contractor to document and update annually the following calculations: (1) for referral data, the total number of referrals from applicable employment service delivery systems and from groups and organizations with which the contractor has a linkage agreement; (2) for applicant data, the total number of applicants for employment, the number of applicants who are known to be individuals with disabilities, and the “applicant ratio” of known applicants with disabilities to total applicants; (3) for hiring data, the total number of job openings, the number of jobs filled, the number of known individuals with disabilities hired, and the “hiring ratio” of hires with known disabilities to total hires; and (4) the total number of job openings, the number of jobs that are filled, and the “job fill ratio” of job openings to job openings filled.

The proposal also would require employers to track training programs and promotional opportunities for which applicants and employees with a disability were considered. Contractors will be required to prepare a statement of the reason as well as a description of any accommodation considered when it rejects an individual with disability for employment, promotion, or training. Contractors likewise will need to make a record describing any accommodation that makes possible the selection of an individual with a disability for hire, promotion, or training.

The agency also is considering the inclusion of a reporting requirement, and invites public comment on this option. Under this proposal, contractors would be required to annually provide OFCCP with a report containing the measurements and computations described above, and include the percentage of applicants, new hires, and total workforce for each EEO-1 category.

Notably, the proposed rule requires that contractors invite all applicants to voluntarily self-identify as individuals with disabilities whenever the applicant applies for or is considered for employment, in addition to post-offer. The contractor must use “the language and manner prescribed by the Director and published on the OFCCP Web site” for this purpose, and the Agency has invited comment on proposed text. Under the proposal, the contractor also would be required to annually survey employees, in an anonymous manner, whether he or she believes themselves to be an individual with a disability.

Another new section requires the contractor to develop and implement written procedures for processing requests for reasonable accommodation to be included as part of its affirmative action program.

OFCCP also is proposing to set a hiring goal for individuals with disabilities, based on the most recent 2009 American Community Survey (ACS) disability data for the “civilian labor force” and the “civilian population.” Specifically, the proposed rule states that the utilization goal for employment of individuals with disabilities is 7% for each job group in the contractor’s workforce. OFCCP also is considering the option of including within the 7% goal for individuals with disabilities a sub-goal of 2% for individuals with certain particularly severe disabilities. The agency is seeking comment as to whether there are alternative approaches for setting a utilization goal, particularly approaches to setting ranges that recognize that in some geographic areas and some occupations, there may be fewer people with disabilities.

Finally, the proposal revises the manner in which OFCCP conducts its compliance reviews. These changes “include a greater emphasis on identifying electronic data that OFCCP can review, greater flexibility in where reviews take place, and a new procedure allowing for a pre-award compliance review.”

A more detailed analysis of this proposed rule will be forthcoming.

Comments on this proposal must be received within 60 days of the proposed rule’s publication in the Federal Register. All comments must contain the regulatory identification number (RIN) 1250-AA02, and may be submitted electronically through the federal eRulemaking portal, via facsimile to: (202) 693-1304 (for comments of six pages or less); or by mail to: Debra A. Carr, Director, Division of Policy, Planning, and Program Development, Office of Federal Contract Compliance Programs, Room C-3325, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

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Among other changes, the revised MOU adds new paragraphs (1 & 10) that outline how information should be shared between agencies. Generally, paragraph one explains that the:

EEOC and OFCCP shall share any information relating to the employment policies and/or practices of employers holding government contracts or subcontracts that supports the enforcement mandates of each agency as well as their joint enforcement efforts. Such information shall include, but is not limited to, affirmative action programs, annual employment reports, complaints, charges, investigative files, and compliance evaluation reports and files.

Each agency will have up to 60 days to appoint a Coordination Advocate who will be charged with facilitating any information transfers.

Revised paragraph 6 of the MOU further clarifies the responsibilities of the Compliance Coordination Committees at the agencies’ headquarters and field offices, such as meeting at least biannually to review enforcement priorities and potential litigation.

Another edited paragraph (7) explains what happens when a complaint contains discrimination claims that fall under both agencies’ purview. In such situations, the MOU states that the OFCCP is to act as the EEOC’s agent “for the purposes of receiving the Title VII component of all complaints/charges.” Therefore, all complaints of employment discrimination filed with the OFCCP that implicate Title VII (i.e., are charges of employment discrimination based on race, color, religion, sex, national origin or retaliation) are to be considered dual-filed under Title VII. The date the complaint is filed with the OFCCP will be considered the date the charge is filed with the EEOC for statute of limitations purposes. Similarly, a complaint that is transferred to the EEOC from the OFCCP because the allegations of discrimination implicate an employer that is not a federal contractor subject to OFCCP jurisdiction will be considered filed as of the date it was received by the OFCCP.

Along the same lines, the new paragraph (8) codifies what happens when a complaint is instead misfiled with the EEOC:

When EEOC receives a complaint not within its purview, but over which it believes OFCCP has jurisdiction, it will refer the complaint to OFCCP. In determining the timeliness of such complaint, the date the matter is received by EEOC shall be deemed the date it is received by OFCCP.

In both situations, if a complaint is misfiled, the claim’s statute of limitations will not be jeopardized by the filing mistake.

Finally, the introduction of the MOU emphasizes that the procedures outlined in the new MOU are limited to the exchange of information regarding discrimination complaints other than those that are disability-related. Such complaints are governed by a separate joint disability regulation issued in 1992.
 

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The OFCCP first announced the proposed changes in May 2011, which promptly came under fire from various contractors, industry organizations and associations, as the amendments would significantly impact how federal contractors maintain their records and respond to audit scheduling letters. After reviewing comments submitted in response to this announcement, the OFCCP has made some alterations to these documents, although much remains substantively unchanged from the OFCCP’s initial proposed revisions.

As discussed in the OFCCP’s Supporting Statement (pdf) submitted to the OMB, the majority of comments made in response to the proposed changes focused on the request in the Itemized Listing for compensation data, contractor employment activity, and leave policies, as well as “anticipated adjustments that contractors may need to make to their human resources information systems.” By and large, the OFCCP determined that “the benefits associated with receiving improved data from contractors and the net reduction of 1.34 hours in the total burden hours spent by contractors in supplying OFCCP with that data are the ‘best most innovative and least burdensome tasks for achieving regulatory ends.’” The agency also claimed that “societal benefits result from finalizing the proposed changes to the Scheduling Letter and Itemized Listing.”

The OFCCP did, however, take certain comments into consideration, and made a few minor adjustments to the aforementioned documents. These changes are as follows:

• Leave Policy. Item 8 on the revised Itemized Listing seeks copies of employment leave policies including, but not limited to, policies related to implementing the Family Medical Leave Act (FMLA), pregnancy leave, and accommodations for religious observances and practices. In the absence of these policies, the OFCCP initially proposed that it would accept a contractor’s employee handbook or manual. In response to comments that this would be unduly burdensome, the OFCCP has revised Item 8 to allow contractors to submit only the relevant pages of the manual or handbook (including the front cover of the manual or handbook, the Table of Contents, and those pages with the leave policies) in lieu of the entire manual/handbook itself.
• Employment Activity. Despite several comments informing the OFCCP that the proposed changes to Item 11 in the listing – which seeks information on contractor employment activity such as applicants, hires, promotions, and terminations by job group and by job title, as well as by sex and each of the five racial/ethnic categories – are extremely burdensome as well as unnecessary, the agency is sticking with much of its initial proposed revisions. The only change the agency has agreed to make relates to its request that the information sought in Item 11(a) through 11(c) in the Itemized Listing be provided for “at least the first six months of the current [Affirmative Action Plan] year.” The OFCCP clarifies that if the contractor is six months or more into its current AAP year when it receives the itemized listing, it must provide the information only for the first six months of the current AAP year.
• Compensation Data. The OFCCP has made only minor changes to its initial revisions to Item 12 on the Listing, which seeks compensation data for all employees. The agency has revised this item to include a disclosure/confidentiality statement in light of privacy concerns. In addition, the OFCCP is clarifying that it would prefer, but will not mandate, that compensation information be provided in a single electronic file.

Comments on this new round of changes must be submitted by October 28, 2011, and submitted to: Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for the Department of Labor, Office of Federal Contract Compliance Programs (OFCCP), Office of Management and Budget, Room 10235, Washington, DC 20503. 

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Many chat participants questioned Shiu about the OFCCP’s intent to create a new compensation data collection tool, although she was able to provide few concrete answers. The OFCCP’s regulatory agenda states that it is in the initial stages of developing this “new strategic compensation data collection tool that will effectively identify contractors that are likely to violate” Executive Order 11246, which prohibits discrimination in federal contracting. Shiu told one chat participant that the advance notice of proposed rulemaking (ANPRM) on this initiative “is in the final stages of review and we expect to publish it within the next few weeks.” Upon further questioning, Shiu explained that the ANPRM would consist of “a series of questions seeking comment on various aspects of a possible tool.” Shiu stated that the OFCCP has no plans to reissue the old Equal Opportunity (EO) Survey, and that the proposal under development would focus on the collection of compensation data, although the “OFCCP’s experience with the EO Survey and public comments in response to the current rulemaking will inform development of the compensation data collection tool.”

Another topic of interest during the chat was the agency’s plan to proceed with its proposed rule revising the regulations implementing the nondiscrimination and affirmative action provisions of the Vietnam Era Veterans Readjustment Assistance Act. Shiu anticipated that the agency would publish a final rule on this issue in the spring of 2012. In response to one inquiry, Shiu explained that the agency had no intent to withdraw the proposed rule, but was “actively seeking the specialized knowledge and input of all interested parties. OFCCP welcomes these various perspectives and believes that they will assist us in developing a Final Rule that achieves the goal of increasing employment opportunities for protected veterans while not creating undue burdens for contractors.” Littler Mendelson submitted its own comments (pdf) on this proposed rule on July 11.

Others inquired about the OFCCP’s plan to issue a proposed rule that would amend its sex discrimination guidelines. During the chat, Shiu claimed that the agency’s efforts to update the guidelines “are focused on stating clearly the existing principles applicable to a contractor’s obligation not to discriminate in their employment policies and practices because of sex, and to formally align contractors’ obligations regarding sex discrimination.” When one participant asked why the agency saw a need to revisit the guidelines on sex discrimination, Shiu responded:

The guidance in part 60-20 is more than 30 years old. We need sex discrimination regulations that reflect the current state of the law in this area. Employer policies and practices and the nature and extent of women’s participation in the labor force have also changed significantly since the guidelines were put in place. OFCCP is proposing in this NPRM to create sex discrimination regulations that reflect these changed conditions.

An example of an outdated policy is the guidelines’ provision on pensions. According to Shiu, the existing guidance says that it is not discriminatory for contractors to provide either equal contributions to employee’s pension funds or provide contributions that result in equal benefits upon retirement. In light of an opinion by the Supreme Court, however, which held that it is impermissible to require employees of one sex to make larger contributions than the other in order to receive the same monthly benefits, “the greater cost of providing a pension to members of one sex is not a defense to failing to provide benefits equally to members of both sexes.”

Others inquired about the OFCCP’s plans to issue a proposal that would require federal contractors and subcontractors to conduct more substantive analyses of recruitment and placement of disabled workers and to revise their recordkeeping requirements under Section 503 of the Rehabilitation Act, and another that would “strengthen and enhance the effectiveness of the affirmative action program requirements for federal and federally assisted construction contractors and subcontractors, particularly in the area of recruitment and job training.” Shiu was not able to provide much detail about these proposals as they have not yet been published.

As for compliance guidance, Shiu noted that the OFCCP will publish its updated Federal Contractor Compliance Manual (FCCM) – which serves as a “how to” guide for OFCCP’s compliance officers – sometime in the fall. According to Shiu, the FCCM “should reasonably ensure quality and consistency by creating uniformity in investigative procedures nationwide and providing transparency as to how we conduct compliance evaluations and complaint investigations.” As for compliance investigations themselves, Shiu mentioned that investigations based on individual complaints are twice as likely to result in a finding of violation than those conducted based on the agency’s neutral scheduling process. In response to a question about any recent compliance review trends, Shiu stated that “one trend that OFCCP has observed is that when it identifies major violations, contractors have failed to implement internal, self-audit procedures and failed to implement corrective actions. This has resulted in the agency finding record keeping violations relating to personnel activity and compensation.”

Shiu also answered a number of questions related to various non-regulatory initiatives the OFCCP has instituted in recent months. Notably, in May 2011, the OFCCP announced its intent to revise the forms it uses to collect information in connection with compliance reviews of non-construction supply and service contractors and subcontractors. These changes, if implemented, would substantially impact federal contractors in their record retention practices and in their responses to audit scheduling letters. As discussed during the chat, the agency is in the process of reviewing the comments it has received in response to these proposed changes, and will make any necessary revisions by the end of July. Littler Mendelson submitted its own comments (pdf) to this proposal this week. 

In February, the agency issued a directive outlining the new Active Case Enforcement (ACE) procedures for conducting supply and service compliance evaluations. The agency had issued an earlier directive rescinding its Active Case Management (ACM) procedures. As Shiu explained during the chat:

there are several major differences between [ACE] and [ACM]. Under ACE, OFCCP is using all of the compliance evaluation investigative methodologies specified in the regulations (i.e., compliance review, offsite review of records, compliance check and focused review), whereas under ACM, only the compliance review method was used. Under ACM, a full desk audit was only conducted where there were indicators of discrimination or in every 50th review. ACE procedures require a full desk audit in every compliance evaluation. Additionally, ACM procedures focused on identifying cases where there were 10 or more affected class members, whereas ACE does not have a minimum affected class member threshold.

Other recent OFCCP initiatives include another directive issued last month that updates the application and approval procedures for Functional Affirmative Action Program (FAAP) Agreements. In January, the agency issued guidance for health care providers and insurers to enable them to assess whether they are subject to OFCCP requirements.

Additionally, in response to a question about the agency’s stated goal to help combat worker misclassification, Shiu claimed that it is “an important issue for the OFCCP” and that “as part of the Secretary’s department-wide ‘Plan Prevent and Protect’ initiative, we are working with other DOL agencies on this misclassification issue,” although she provided no specifics.

A transcript of the web chat can be found here.

The Directive, which supersedes the prior one issued in 2002, outlines the criteria a contractor must meet to be eligible to implement a functional AAP, the elements that must be included in a functional AAP, the basic principles of functional AAP agreements, and the procedures for requesting, modifying, updating, reviewing or terminating a functional AAP agreement. In addition, the Directive includes examples of how an establishment-based and functional AAP could be developed, and checklists of documentation that must be submitted as part of the application and approval process.

According to the agency, significant changes instituted in this Directive include the requirement that a contractor obtain prior written approval by the OFCCP director before developing FAAP agreements, which eliminates the prior process allowing for automatic approval if the OFCCP failed to act upon the request within 120 days. Other changes of note include decreasing the expiration date for each agreement from five to three years, at which point a renewal will have to be approved, and providing for possible compliance audits if the contractor fails to submit the required annual updates to their agreements.

A contractor with an approved functional AAP must have had at least two functional units undergo a compliance evaluation during the three year term of the agreement to be eligible for a renewal of the FAAP agreement. If the contractor has only one FAAP, that FAAP will be selected for a compliance review during the three-year term of the FAAP.

Additional guidance on the updated FAAP can be found here.

In the event part 60-250 is not rescinded, the OFCCP has drafted proposed changes to mirror those it makes to part 60-300. The following are some highlights of the proposed regulatory revisions that would apply to both sections:

Definitions

• With respect to who constitutes a “protected veteran,” the proposal provides definitions for (1) special disabled veterans; (2) veterans of the Vietnam era; (3) veterans who served on active duty in the Armed Forces during a war or in a campaign or expedition for which a campaign badge has been authorized; and (4) recently separated veterans.

EO Clause

• The proposal adds additional language to the equal opportunity (EO) clause that must be included in all covered federal contracts and subcontracts. The new language clarifies the contractor’s responsibility to “list” jobs in the context of mandatory listing requirements. These listing requirements obligate the contractor to list all employment openings for the duration of the contract with an “appropriate employment service delivery system,” often referred to in the regulations as simply an “employment service.” As discussed in the proposal, in order to satisfy the listing requirement, “the contractor must provide job vacancy information to the appropriate employment service in the manner that the employment service requires in order to include the job in their database so that they may provide priority referral of veterans.” (emphasis in original)
• With respect to the specific information the contractor must provide to state employment services in each state where the contractor has establishments, the proposal requires the contractor to provide the following information on an annual basis: (1) its status as a federal contractor; (2) the contact information for the contractor hiring official at each location in the state; and (3) its request for priority referrals of protected veterans for job openings at all its locations within the state.
• The proposal adds a new paragraph to the EO clause requiring the contractor to maintain records, on an annual basis, of the total number of referrals it receives from state employment services, the number of priority referrals of protected veterans it receives, and the ratio of protected veteran referrals to total referrals. These records must be maintained for 5 years.
• The EO clause would also be revised to clarify that a contractor’s duty to provide notices of employee rights and contractor obligations must be provided in a manner that is accessible and understandable to persons with disabilities.
• With respect to employees who do not work at a physical location of the contractor, the EO clause would be revised to state that a contractor will satisfy its posting obligations by posting such notices in an electronic format, provided that the contractor provides computers that can access the electronic posting to such employees, or the contractor has actual knowledge that such employees are otherwise able to access the electronically posted notices.

Prohibited Discrimination

• The proposal includes a new clause qualifying that an individual who rejects a reasonable accommodation made by the contractor may still be considered a qualified disabled veteran if the individual subsequently provides and/or pays for a reasonable accommodation.

Affirmative Action Program

• To take telecommuting and flextime employees into consideration, the proposal includes a provision explaining that “in instances where the contractor has employees who do not work at the contractor’s physical establishment, the contractor shall inform these employees about the availability of the affirmative action program by means other than a posting at its establishment.”
• The proposed regulations make “significant, substantive changes” to the contractor’s obligations and the process through which applicants are invited to self-identify as veterans. According to the OFCCP, “these changes are proposed in order to collect enhanced data pertaining to protected veterans, which will allow the contractor and OFCCP to identify and monitor the contractor’s employment practices with respect to protected veterans.” The proposed change would require the contractor to invite all applicants to self-identify as a “protected veteran” prior to the offer of employment. In response to concerns that requiring the contractor to invite applicants to self-identify as a protected veteran would violate the ADA’s general prohibition against pre-offer disability-related inquiries because some protected veterans will be special disabled veterans, the OFCCP states that: “This concern is misplaced, as the ADA and Section 503 regulations permit the contractor to conduct a pre-offer inquiry into disability status if it is ‘made pursuant to a Federal, state or local law requiring affirmative action for individuals with disabilities.”
• With respect to a contractor’s affirmative action policy, the proposed rule requires that the contractor must review its personnel processes at least annually to ensure that its obligations are being met. The OFCCP contends that the current rule’s requirement that the contractor review these standards “periodically” is vague and subject to confusion. The proposal mandates that contractors take certain specific steps, at a minimum, as part of this review process. These steps are those currently outlined in Appendix C to the regulation. Such steps include: (1) identifying the vacancies and training programs for which protected veteran applicants and employees were considered; (2), providing a statement of reasons explaining the circumstances for rejecting protected veterans for vacancies and training programs and a description of considered accommodations; and (3) describing the nature and type of accommodations for special disabled veterans who were selected for hire, promotion, or training programs.
• According to the agency, “perhaps the most significant substantive changes in the proposed rule address the scope of the contractor’s recruitment efforts and the dissemination of its affirmative action policies.” For example, the proposal would require a contractor to engage in a minimum number of outreach and recruitment efforts, as outlined in the revised regulations. Among other efforts, the contractor would be required to enter into linkage agreements and establish ongoing relationships with the Local Veterans’ Employment Representative in the local employment service office nearest the contractor’s establishment and at least one of several other listed organizations and agencies for purposes of recruitment and developing training opportunities. In addition, the contractor would be required to consult the Employer Resources section of the National Resource Directory, an online database. The proposed rule would require the contractor, on an annual basis, to review the outreach and recruitment efforts it has undertaken over the previous twelve months and evaluate their effectiveness in identifying and recruiting qualified protected veterans, and document its review.
• The proposal would mandate certain practices for employers to communicate affirmative action obligations to employees.
• The proposed regulation would require that the contractor maintain several quantitative measurements and comparisons regarding protected veterans who have been referred by state employment services, have applied for positions with the contractor, and/or have been hired by the contractor.
• The proposed regulation would also “require for the first time that the contractor establish annual hiring benchmarks, expressed as the percentage of total hires who are protected veterans that the contractor seeks to hire in the following year.”

The proposed revisions to the regulations also includes three appendices: (A) Guidelines On A Contractor’s Duty To Provide Reasonable Accommodation; (B) a sample Invitation to Self-Identify; and (C) Review of Personnel Processes.

Comments on this proposal are due within 60 days of its publication in the Federal Register, which is scheduled for April 26, 2011. All comments must include the identification number: 1250-AA00, and may be submitted electronically through the federal eRulemaking portal, via facsimile to: (202) 693-1304 (for comments of six pages or less), or by mail to: Debra A. Carr, Director, Division of Policy, Planning, and Program Development, Office of Federal Contract Compliance Programs, Room C-3325, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

For more information on this proposal, see Littler’s ASAP: OFCCP Issues Proposed Regulations Requiring Significantly Broader Veterans Affirmative Action Obligations for Federal Contractors and Subcontractors by Joshua Roffman and Alissa Horvitz.

In the meantime, Shiu explained that if the compensation data voluntary guidelines are rescinded, contractors will still be obliged to conduct self-evaluations of compensation practices. If the compensation standards are rescinded, Shiu said the OFCCP will establish investigation procedures similar to those used for investigations of other types of discrimination. According to Shiu, the OFCCP will use “Title VII principles” when conducting investigations of compensation discrimination. She did not elaborate on what constitutes such principles.

Another area of discussion focused on the OFCCP’s intent to issue a proposed rule by July 2011 that would amend the construction contractor affirmative action regulations. According to Shiu, the agency is “seriously considering amending the construction regulations to remove outdated regulatory provisions and propose new methods for establishing affirmative action goals that reflect the realities of the labor market and employment practices in the construction industry today.” Such a proposal would focus on recruitment and job training.

Shiu also answered questions with regard to the agency’s plan to issue a proposed rule by August 2011 on the affirmative action and nondiscrimination obligations of contractors and subcontractors under Section 503 of the Rehabilitation Act. Specifically, Shiu said the NPRM will propose that federal contractors and subcontractors increase linkages and conduct more substantive analyses of recruitment and placement actions taken under Section 503.

The OFCCP’s regulatory agenda also includes plans to issue a proposed rule this month to revise regulations addressing the recruitment and placement of veterans under the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA).

Other highlights of the chat include the following:

• The OFCCP hopes to release new guidance on the Functional Affirmative Action Plan (FAAP) within the next 60 days.
• Shiu said that the OFCCP will not reissue the old Equal Opportunity (EO) Survey, but is instead focusing on the development of a new compensation data collection tool.
• At this time, there are no anticipated changes to the scheduling letter, although there could be changes based on public response to the compensation data tool ANPRM.
• In response to whether the OFCCP intends to continue issuing Corporate Scheduling Announcement Letters (CSAL), which the OFCCP provides to companies with two or more establishments on its neutral scheduling list, Shiu indicated that this practice will continue during FY 2011, with the next round to be sent in the Spring.
• With respect to the OFCCP’s involvement with the new Office of Women and Minority Inclusion established by the Dodd-Frank financial reform bill, Shiu stated that the OFCCP has held introductory meetings with several of the agencies involved and “anticipates ongoing communication, coordination, and collaboration to ensure consistency in approaches and avoid duplication of efforts.”

Executive order 11246 requires federal contractors and subcontractors to provide equal employment opportunity through affirmative action and nondiscrimination, including compensation nondiscrimination. The OFCCP is charged with auditing and enforcing this nondiscrimination requirement and issuing related compliance materials. In 2006, the agency issued the two aforementioned documents. The Standards, according to background material included in the rescission notice, “set forth a new, rigid procedure for investigating and analyzing systemic compensation discrimination cases.” Under the Standards, the OFCCP cannot issue a notice of violation (NOV) to the contractor unless it also has anecdotal evidence to support the agency’s statistical analysis of alleged pay inequities. In addition, the Standards require the agency to use multiple regression analysis to identify compensation discrimination. Both of these obligations, the OFCCP claims, are overly restrictive and “undermine OFCCP’s ability to vigorously investigate and identify compensation discrimination.”

The OFCCP finds fault with the Voluntary Guidelines as well. Such guidelines establish procedures contractors may use to conduct the required self-analysis of their pay practices. Contractors whose self-evaluation “reasonably meets” the Voluntary Guidelines’ procedures are deemed to be in compliance. The agency claims, however, that contractors have rarely used the these procedures, and that the analytical model established by the guidelines is too rigid.

If the Standards are rescinded, the OFCCP says that it will “reinstitute the practice of exercising its discretion to develop compensation discrimination investigation procedures in the same manner it develops other investigation procedures.” If the Voluntary Guidelines are rescinded, the OFCCP advises that contractors will still be required to conduct self-evaluations of their compensation practices.

This proposed rescission follows other recent changes instituted by the OFCCP to strengthen its enforcement efforts.

Comments on the proposed rescission must be made within 60 days of the publication of the notice in the Federal Register, which is scheduled for January 3, 2011. All comments must contain the identification number: 1250-ZNE, and be submitted in one of the following ways: through the federal eRulemaking Portal, via facsimile: (202) 693-1304 (for comments of 6 pages or fewer), or by mail to: Director, Division of Policy, Planning, and Program Development, Office of Federal Contract Compliance Programs, Room N3422, 200 Constitution Avenue, N.W., Washington, D.C. 20210.

Photo credit: borisyankov

As a result of this directive, employers can expect more thorough desk audits and onsite evaluations, practices in keeping with the DOL’s move toward stronger enforcement in recent months.

The OFCCP has been implementing several changes of late. Last month, the agency announced (pdf) it would no longer conduct I-9 compliance inspections during the course of an onsite investigation, which it had done under a long-standing Memorandum of Understanding between the DOL and the U.S. Department of Homeland Security’s Immigrations and Customs Enforcement (ICE).

The agency also recently filed with the Office of Management and Budget (OMB) its proposal to rescind its compensation and voluntary guideline standards. The notice to the OMB: Interpreting Nondiscrimination Requirements of Executive Order 11246 With Respect to Systemic Compensation Discrimination and Voluntary Guidelines for Self-Evaluation seeks to rescind its compensation standards, which outline methods for the agency to evaluate contractors’ and subcontractors’ compensation practices; and its voluntary guidelines, which provide contractors with methods of compensation system self-evaluation as a means to remaining in compliance with OFCCP compensation regulations. While details about this rescission have yet to be published in the Federal Register, the fact that the notice has been filed indicates that the OFCCP has taken the initial steps to make significant changes to the agency’s compliance practices.

Photo credit: borisyankov

According to the FAQs, Ricci does not change a contractor’s affirmative action obligations, nor its obligation to comply with Uniform Guidelines on Employee Selection Procedures (UGESP) when using a test as part of its selection process. If such a test shows that it would have a disparate impact on a protected class, then the test must be validated for the job at issue. Additionally, the contractor is required to investigate alternative selection procedures that would have a lesser impact on the particular race, ethnic group, or gender.

The FAQs also explain that “to comply with its nondiscrimination obligations, a contractor must examine its tests and other selection procedures to identify whether there are any problem areas in terms of adverse impact on a particular race, ethnic group, or gender, and to prevent prohibited discrimination from occurring.” The OFCCP advises that contractors that are proactive in assessing their testing procedures are “more likely to avoid problems and successfully defend against any claim of disparate impact.” The OFCCP also suggests that it may be permissible to “pre-test” the use of an actual test by determine whether there is adverse impact. So long as results are not disclosed to candidates or hiring officials, the company can adjust the test or seek reasonable alternatives before using the procedure to make actual selection decisions.

As for how the OFCCP will address an allegation of discrimination, the FAQs explain that the agency will use established complaint procedures to investigate any class complaint from applicants or employees who believe that they were discriminated against when a contractor refused to use the results of a selection procedure. Additionally, “[w]here the contractor defends its action by asserting that using the selection procedure could result in liability for an unlawful adverse impact based on race, ethnicity, or gender, OFCCP will evaluate whether, as prescribed by Ricci, there is a strong basis in evidence for the contractor's claim.”

Given Shiu’s past focus on family leave and discrimination, it is likely that she will be a strong advocate for gender pay equity issues. Particularly relevant to her position at the OFCCP is the pending Paycheck Fairness Act (H.R. 12, S. 182), which was passed in the House and has been placed on the Senate calendar. This bill would, among other things, reinstate the OFCCP’s discarded Equal Opportunity Survey, which the agency used to gather certain employment information from federal contractors and subcontractors related to the their Affirmative Action Programs, personnel activity and compensation. This bill would also add additional investigative methodologies for the OFCCP to use in performing compensation analysis. Thus, it can be expected that Shiu will be a strong proponent for this bill’s passage. 

Shiu’s job will also entail hiring and training a number of new OFCCP compliance officers. The DOL’s budget provides the OFCCP with a considerable boost in funding this year for the hiring and training of more than 200 new compliance officers. Moreover, there are many current vacancies within the OFCCP, which has caused a tremendous audit backlog.

It is unclear at this point whether Shiu will face Senate confirmation. Assuming she starts her job as the OFCCP director in September when Congress resumes, her position as a deputy assistant secretary of labor will not require a Senate vote. However, in November the Employment Standards Administration (ESA) – the umbrella agency within the DOL that encompasses the OFCCP along with three other DOL subagencies – will be abolished. At this point, the leaders of the OFCCP will report directly to the Secretary of Labor. If Shiu’s position changes to that of an assistant secretary, a formal Senate confirmation process could be in order.
 

Under Executive Order 11246, section 503 of the Rehabilitation Act (RA), and section 402 of the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA), federal contractors and subcontractors are required to prepare affirmative action plans for women, minorities, individuals with disabilities, and covered veterans. Federal contractors and subcontractors also are prohibited from discriminating on the basis of race, color, religion, sex, national origin, disability and veteran status. The OFCCP has the authority to conduct audits of federal contractors and subcontractors to ensure compliance with these federal laws. When the OFCCP attempted to schedule compliance reviews of the hospitals at issue and requested copies of their affirmative action plans and other compliance documents, the hospitals denied these requests. They argued, among other things, that they were not subcontractors as they had never agreed to become government subcontractors and thus had no notice that the OFCCP considered them as such. The hospitals also argued that the UPMC’s contract with OPM specifically excluded hospitals, and that their contracts with UPMC did not include an equal opportunity clause as required by Executive Order 11246. The hospitals also pointed to Department of Labor precedent that held that hospitals that provide medical coverage through an insurance company’s arrangement with the federal government were not federal subcontractors because the medical coverage was not necessary to the performance of the insurance company's direct federal contract, which was to provide insurance, not medical services, to federal employees.

The ALJ found, and the ARB agreed, however, that such clauses were incorporated into the hospital’s contract by operation of law, and thus the hospitals were bound by them. Additionally, even though the UPMC’s contract with the OPM specifically excluded “providers of direct medical services and supplies” from its definition of “subcontractor,” the hospitals were still to be considered subcontractors, as the parties could not, “by contract invalidate the equal opportunity provisions of the three laws” in question. In addition, the ARB declined to use the definition of “subcontractor” from the Federal Acquisition Regulation (FAR) – which would have excluded hospitals – as it conflicts with the DOL’s regulations. This is consistent with previous interpretations of OFCCP jurisdiction and the applicability of the affirmative action requirements of Executive Order 11246, the RA, and the VEVRAA, as amended. This decision reinforces that relying on contract language does not necessarily insulate an organization from OFCCP jurisdiction.

The greater significance of the ARB’s decisions is that it suggests that hospitals and medical providers with 50 or more employees that provide medical care of $50,000 or more to a federal employee through insurers or HMOs may be subject to OFCCP jurisdiction. The ARB distinguished this case from an earlier 2003 decision in which it held that a hospital that provided medical coverage to federal employees through insurance rather than as part of an HMO was not a federal subcontractor. OFCCP v. Bridgeport Hospital, ARB No. 00-034 (Jan. 31, 2003). The ARB distinguished the two cases by pointing to the fact that these hospitals provided medical care through an HMO rather than through an insurance arrangement. In Bridgeport Hospital, the prime contract was to insure medical coverage for federal employees. The ARB held that the hospital was not a subcontractor because it did not perform work necessary to the performance of the prime contract to insure federal employees. In the UPMC case, the ARB made a distinction between an HMO and an insurance arrangement. The prime contract with an HMO is to provide medical services to the federal employees. Accordingly, the hospital was performing work necessary to the performance of the HMO’s federal contract.

This contrived distinction suggests that eventually any hospital or medical practice with 50 or more employees that provides $50,000 or more in medical services to a federal employee will likely be subject to OFCCP jurisdiction. OFCCP very likely will challenge the distinction between working under an HMO as opposed to an insurance arrangement. Moreover, most hospitals or medical providers likely would provide medical services to federal employees under both HMO and private insurance arrangements, in addition to other types of medical plans. As most hospitals do not make distinctions in what type of coverage they accept from federal employees, the practical effect of this new decision is to find OFCCP jurisdiction over any hospital or medical practice that provides care to any federal employee valued at $50,000 or greater. Hospitals and medical providers should assume that OFCCP will take the position that the UPMC and Bridgeport Hospital decisions are inconsistent and that Bridgeport Hospital was effectively reversed by UPMC.
 

Joshua S. Roffman and Alissa A. Horvitz contributed to this entry.