Government Contractor Compliance & Regulatory Update

OFCCP Announces 2018 Veteran Hiring Benchmark

On March 30, 2018, the Office of Federal Contract Compliance Programs (“OFCCP”) released its 2018 Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRAA”) Benchmark. Effective March 31, 2018, the new benchmark is 6.4%, slightly lower than the previous year’s 6.7% benchmark. This is OFCCP’s fourth reduction of the benchmark, which has steadily declined since its inception in 2014.

The VEVRAA Benchmark is the figure which federal contractors must use to assess the effectiveness of their outreach programs for the hiring of veterans. Contractors may either use OFCCP’s national benchmark, or establish their own benchmark using applicable statistics and other metrics set forth in OFCCP’s regulations (41 CFR § 60-300.45(b)(2)).

OFCCP Announces New Compliance Evaluation Experience Survey

This week, the Office of Federal Contract Compliance Programs (“OFCCP”) announced that it will be sending a survey to federal contractors in an effort to “continue improving communication, transparency, and timeliness during [its] compliance evaluations.” OFCCP’s survey appears to be the latest effort by the agency to establish a more cooperative relationship with the government contractor community and address contractors’ concerns.

According to OFCCP, contractors who completed a compliance evaluation between October 1, 2012 and September 30, 2017 will be receiving the survey via email in the next two weeks. The survey, which can be completed anonymously, will collect information concerning contractors’ experiences during compliance evaluations. The survey will also allow contractors to provide suggestions to OFCCP for improving the compliance evaluation process.

OFCCP’s announcement emphasizes that it will not schedule a contractor for a compliance evaluation based on its participation in the survey. And, because the survey is anonymous, a contractor’s participation in the survey will not have an impact on any compliance evaluation that is already underway. Contractors with questions about the survey can email OFCCP at OFCCP-Customer-Exp-Survey@dol.gov.

Humana Settles Pay Bias Claims for $2.5 Million

Earlier this week, the Office of Federal Contract Compliance Programs (“OFCCP”) announced that it entered into a conciliation agreement with Humana Inc. (“Humana”) to resolve allegations that Humana paid hundreds of women at its Louisville, Kentucky headquarters less than their male coworkers.

OFCCP asserts that in 2011 and 2012, Humana paid 753 women in consulting, project manager, and manager positions less than similarly situated men.  Under the terms of the conciliation agreement, Humana will pay $2.5 million in back pay and interest.  Humana will also institute certain pay adjustments and review its compensation practices to ensure compliance going forward.

The Humana settlement reflects that, under the Trump Administration, OFCCP is continuing to focus on equal pay issues, specifically systemic pay discrimination.  As a result, it is more important than ever for contractors to undertake a privileged self-audit of their compensation and of policies that may contribute to compensation disparities, including hiring practices, training and promotion opportunities, and performance management.

OFCCP ISSUES FIRST DIRECTIVE UNDER TRUMP ADMINISTRATION

Since the beginning of the Trump Administration, federal contractors have been waiting to see what changes the new administration would make to the Office of Federal Contract Compliance Programs (“OFCCP”). Thus far, the greatest change has been more style than substance, with OFCCP officials expressing a desire to have a better relationship with the government contractor community.  Late last month, however, OFCCP issued its first new directive since President Trump took office.  In announcing the change, OFCCP stated that the new policy is part of a broader effort to “increase transparency of preliminary findings with federal contractors, and to achieve consistency across regional and district offices.”

OFCCP’s new Directive 2018-01 (the “Directive”) requires OFCCP offices to adopt a uniform approach to Predetermination Notices (“PDNs”) in compliance evaluations. Pursuant to the new PDN, published with the Directive, OFCCP will:  (1) inform the contractor of the agency’s preliminary findings of employment discrimination; and (2) provide the contractor with 15 days to rebut OFCCP’s preliminary findings.

Prior to the Directive, OFCCP reserved use of the PDN for systemic discrimination cases. OFCCP also afforded regional and district offices the discretion to issue a PDN prior to issuing a Notice of Violation (“NOV”).  Under the new Directive, regional and district offices are required to issue PDNs for preliminary findings identified during the course of compliance evaluations, regardless of whether system discrimination is found.  The Directive also provides increased oversight by OFCCP’s national office of potential violations before a final decision is made.  Going forward, the appropriate regional Office of the Solicitor must review all PDNs before they are submitted to OFCCP’s national office for a review and final decision.

The Directive, which goes into effect immediately, will serve as an interim guidance until OFCCP amends its Federal Contract Compliance Manual.

Directive 2018-01 is a welcome development and the first concrete sign that OFCCP wants to do more than just talk about improving its relationship with the government contractor community. Many contractors have faced circumstances where, after months of silence, OFCCP suddenly issues an NOV during a compliance evaluation.  Because the contractor was not contacted before the issuance of the NOV, the NOV can be based on incorrect findings or assumptions that could have been corrected with additional input from the contractor.  However, once an NOV is issued, OFCCP is often reluctant to reconsider the findings in them.  The Directive provides a mechanism to facilitate the exchange of information and potentially avoid erroneous NOVs.  The fact that PDNs will be subject to regional and national-level review before issuance is a positive sign that the Directive will also improve consistency in enforcement actions across the agency’s regions.

We will continue to monitor and report on developments.

Proskauer Publishes Article on Federal Tax Bill’s #MeToo Provision

Connie Bertram and Emilie Adams published an article in the February issue of OFCCP Digest titled “Federal Tax Bill Offers a Nod to the #MeToo Movement.”  The article focuses on a provision in the recently-passed Tax Cuts and Jobs Act that addresses corporate settlements involving claims of sexual harassment and abuse.  The provision prohibits companies from deducting settlement payments to employees for such claims – and attorneys’ fees and costs incurred in defending those claims – if the settlement is subject to a nondisclosure agreement.  As discussed in more detail in the article, however, the provision is already raising a number of significant questions and practical concerns that will likely affect the way most employers approach settlement agreements with current or former employees going forward.

Trump Administration Proposes Cuts To OFCCP Budget

On February 12, 2018, the Trump Administration released its proposed fiscal year 2019 budget. As it did last year, the budget proposes significant cuts to the funds allocated to OFCCP.

The proposed budget allocates to OFCCP just over $91 million, a decrease of nearly $12.7 million (or 12.5%). The budget also seeks to cut OFCCP’s headcount by 75 full-time equivalents – a reduction of more than 14% from fiscal year 2018.

According to the Administration, its request for reduced OFCCP funds will enable OFCCP to: (1) streamline its desk audit procedures; (2) focus on high-impact systemic compliance evaluations; (3) expand contractor compliance assistance to promote voluntary compliance with nondiscrimination and equal employment opportunity requirements; and (4) modernize the agency’s operational model by, among other things, staffing OFCCP regional offices in closer proportion to the number of contractor establishments in those regions, and establishing Skilled Regional Centers of Excellence. Notably, the proposed budget is silent on a previous proposal to merge OFCCP and the Equal Employment Opportunity Commission. The merger proposal was rejected by Congress last year and appears to be tabled indefinitely at this time.

As always, the President’s proposed budget is just that – a proposal – for Congress to consider as it negotiates and prepares its appropriation bills. We will continue to monitor and report significant developments in the budget process.

2017 EEO-1 Reports Now Available For Submission

Yesterday, the 2017 EEO-1 Survey became available.  Government contractors or subcontractors with 50 or more employees and a contract/subcontract of $50,000 or more must file EEO-1 reports by March 31, 2018.  Please read our post on Law and the Workplace for more details on this year’s reporting requirements.

POTENTIAL GOVERNMENT SHUTDOWN – What Every Government Contractor Needs To Know

Once again, a government shutdown seems inevitable.  During previous government shutdowns, government agencies and departments issued stop-work orders, grinding work on government projects and contracts to a halt.  Contractors were then faced with the difficult task of remaining in compliance with their obligations to their employees while work and funding for those contracts has ceased.

Contractors have been asking for input regarding how to handle employees impacted by the anticipated federal shutdown.  Although the discussion below is not comprehensive, it discusses many of the most significant employment-related issues.

Wage and Hour Considerations

During a shutdown, non-essential government employees are typically furloughed and the federal government need not be concerned with wage and hour legal issues.  Government contractors, on the other hand, must remain mindful of obligations under both federal and state wage and hour laws.  For example, a government contractor that begins a furlough mid-week may consider not paying its employees for the days during that week the employees are on furlough.  However, doing so for employees exempt from overtime under federal and state laws could place their exempt status in jeopardy.

Generally, to be exempt from overtime under the federal Fair Labor Standards Act (“FLSA”), an employee must be paid on a salary basis of at least $455 per week, regardless of the amount of work performed.  Accordingly, while an employer can withhold payment for any full week in which the employee does not work, it cannot do so for any part of a week in which the employee does not work due to a furlough without jeopardizing exempt status.

During previous shutdowns, some government contractors mitigated various wage issues by requiring exempt employees to use vacation pay or paid time off leave (“PTO”) to cover compensation for non-working days during partial furlough weeks.  Although this practice complies with the FLSA’s exemption requirements, contractors must still ensure that they do not run afoul of state wage and hour laws.  For example, some states require employers to comply with their own published leave policies.  Therefore, in such states, employers should review their paid time off policies and applicable laws before mandating the use of vacation time or PTO.

Contractors should instruct employees not to perform any work while on furlough.  If an exempt employee performs work during the week (such as checking and responding to emails), he or she must be paid his or her salary for the entire week.  If a non-exempt employee performs work, he or she must be paid for all work performed.  For this reason, employers should clearly communicate to supervisors and employees that work may not be performed while they are on furlough.  During past shutdowns, some contractors confiscated company-issued smartphones and computing devices to ensure no work was performed.

Another approach contractors have considered during previous shutdowns is requiring exempt employees to work a reduced workweek.  Contractors considering this approach must be mindful of the salary basis implications.  That being said, in limited circumstances it may be permissible to adopt a reduced work-hours program during a period of economic hardship.  The Department of Labor has stated in various opinion letters that “a fixed reduction in salary effective during a period when a company operates a shortened workweek due to economic conditions would be a bona fide reduction not designed to circumvent the salary basis payment. Therefore the exemption would remain in effect as long as the employee receives the minimum salary required by the regulations and meets all the other requirements for the exemption.”  Opinion Letter FLSA2009-18.

Before instituting such a change, however, employers must consider a number of issues, including:  (1) any contractual obligations to employees; (2) state and local notice requirements for changes in compensation; (3) requirements for foreign workers on work authorizations (discussed below) and (4) compliance with other requirements for overtime exemptions (including state requirements).

The WARN Act

The looming government shutdown also brings with it the prospect of furloughing large numbers of employees.  These potential furloughs may implicate the federal Worker Adjustment and Retraining Notification (“WARN”) Act and its state equivalents.  The WARN Act requires, with some exceptions, that employers provide 60 days’ notice to employees affected by a “plant closing” or “mass layoff.”  However, depending on what a government contractor plans to do in response to the shutdown, the WARN Act may not apply.

Historically, some contractors have furloughed workers on suspended projects until they are resumed.  The WARN Act only applies if there is an “employment loss,” which is defined as: (1) an employment termination; (2) a layoff exceeding six months; or (3) a reduction in an employee’s hours of work of more than 50 percent in each month of a six-month period.  Because it is not anticipated that a government shutdown will exceed six months, for most government contractors the WARN Act will not apply.  In the unlikely event that the government shutdown continues for more than four months, contractors will have to consider whether to provide the notices required under the WARN Act.

However, even if the WARN Act does not apply to a government contractor’s furlough program, contractors should be aware that analogous state laws may be triggered by their furloughs.

E-Verify

Government contractors are required to utilize the Internet-based employment verification system called E-Verify to confirm the employment eligibility of their new hires and current employees.  The website, which is administered by the Department of Homeland Security, has historically been unavailable during government shutdowns.

If this is the case again, government contractors should complete I-9 paperwork in an accurate and timely fashion while E-Verify is unavailable.  In addition, if an employee has received a “Tentative Non-Confirmation” notice from E-Verify, he or she likely will not be able to resolve the issue during the shutdown.  If that is the case, the deadline for responding to the Tentative Non-Confirmation will likely be extended for the duration of the shutdown.  During this period, the employer should not take any adverse action against the employee as a result of the notice.

Foreign Workers

A government shutdown can have major implications for foreign workers working in the United States on visas.  When employers sponsor foreign workers under H-1B, H-2B and E-3 visas, they are required to pay the rate set forth in the labor condition applications certified by the Department of Labor.

Given that the government contractor’s only alternative to paying furloughed foreign workers is to terminate their employment – resulting in the employees having to leave the United States – the employer is faced with two undesirable options:  pay the furloughed foreign workers even though they are not paying their American counterparts, or terminate them and lose the knowledge and expertise that will be needed once work resumes on the contract.  The option the government contractor chooses is ultimately a business decision that should be made after analyzing the specific legal requirements.

Benefits Issues

If a government shutdown lasts longer than anticipated, there may also be certain benefits implications for furloughed employees.  First, reduction in employees’ hours may cause some employees to lose coverage under the terms of the employer’s COBRA-covered health plans.  In this case, employers are required to send out qualifying event notices to impacted employees.  The employees and dependents must be offered the ability to continue coverage under these plans during the period of the furlough (up to the maximum COBRA continuation period) at their own expense.  If a furloughed employee is later terminated, the termination generally will not be considered a second qualifying event that would entitle the employee to an extension of the COBRA continuation period.

Unemployment Benefits

Government contractors should also be aware that furloughing their employees may make the employee eligible for unemployment benefits.  Contractors should consult their state laws to determine the impact of furloughs on unemployment benefits.

Conclusion

A government shutdown would require many government contractors to make difficult choices.  If there is a government shut-down, government contractors should consult with employment counsel familiar with government contracting requirements to ensure that short-term solutions to the shutdown do not result in costly legal liabilities.

Proskauer Publishes Article on State Salary History Bans

Connie Bertram and Emilie Adams published an article in the November/December issue of OFCCP Digest titled “States and Localities Step into the Breach on Pay Equity: New and Proposed Prohibitions on the Disclosure of Salary History.” The article focuses on recent laws passed by states and localities prohibiting employers from asking job applicants about their compensation histories in making and negotiating salary offers. The California law also requires employers to provide salary ranges upon request. As discussed in more detail in the article, the laws seek to prevent employers from inadvertently perpetuating historical pay disparities between male and female workers. Connie and Emilie’s article also provides a number of helpful “do’s and don’ts” for employers to keep in mind, including proactive recruiting and hiring practices employers can adopt now to ensure compliance with salary history bans and avoid future liability.

You can find an updated version of the article here.

You can find Proskauer’s previous posts on the various state and local salary history bans that have passed (or nearly passed), including those passed (or nearly passed) in Massachusetts, New York City, San Francisco, Oregon, California, and Illinois, on Proskauer’s Law and the Workplace blog.

OFCCP Settles Hiring Discrimination Case with LandCare USA, LLC

The Austin, Texas location of LandCare USA, LLC (the “Company”), a company providing landscaping services, recently entered into a conciliation agreement with the Office of Federal Contractor Compliance Programs (“OFCCP”) to settle claims that the Company had discriminated in its hiring of females, and non-Hispanic applicants in its Laborer job group.  The Company has agreed to pay $100,000 in back pay to 361 affected class members and also to offer employment to 45 eligible class members of whom 12 are white, 15 are black and 9 are female.

Notably, the Company is no longer a covered federal contractor or subcontractor.  To address this fact, certain of the terms of the conciliation agreement only apply if the Company becomes a covered contractor again in the future.  For example, the conciliation agreement states that if the Company becomes a covered contractor the Company will revise its hiring policies, practices and procedures for the Laborer position.

This is the second conciliation agreement that the Company has entered into with the OFCCP in recent months.  In October, the Las Vegas, Nevada location of the Company entered into a conciliation agreement with OFCCP.  In that agreement, it agreed to pay $161,899 in backpay for alleged discrimination against non-Hispanic applicants for the Laborer Non-Driver position.  The Company also agreed to offer employment to eligible class members until 29 class members were hired into the Laborer Non-Driver positions.

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