Government Contractor Compliance & Regulatory Update

OFCCP Will Not Use EEO-1 Component 2 Data In Audits

On November 22, 2019, OFCCP announced it will not “request, accept, or use” EEO-1 Component 2 pay and hours worked data from government contractors in connection with audits (or otherwise).

OFCCP explained that it will not request or use the data because it is “collected in a format that is highly aggregated” and, therefore, is “too broad to provide much utility” to OFCCP. Additionally, OFCCP stated that analyzing EEO-1 Component 2 data would place an unnecessary financial burden on the agency’s limited resources. Finally, OFCCP stated that it is not necessary for the agency to receive EEO-1 Component 2 data because it already “receives up-to-date, employee-level pay data from contractors that are selected for compliance evaluations.” OFCCP will, however, continue to receive EEO-1 Component 1 data, which provides an aggregated snapshot of an employer’s workforce, broken down by race and sex.

OFCCP’s announcement is not surprising. In its proposed revisions to its audit scheduling letters, OFCCP indicated it would seek only EEO-1 Component 1 data. In addition, as OFCCP notes in its announcement, the data it receives from contractors during audits is far more useful for determining pay discrimination issues than the data provided in the EEO-1 Component 2. Indeed, the utility of the EEO-1 Component 2 data has been questioned widely, including by the EEOC.

Although the burden of producing EEO-1 Component 2 reports is minimal, OFCCP’s announcement is welcome news for contractors as OFCCP has made clear that not only will it not request the information, it will not use it. Accordingly, although contractors still must concern themselves with the analysis OFCCP will apply to the robust, employee-level data they must submit during audits, they do not have to worry about OFCCP using the EEO-1 Component 2 data, with all of its limitations, to reach pay discrimination conclusions.

 

OFCCP Directive: Audits Will Investigate Discrimination Against Spouses Of Protected Veterans

On November 8, 2019, just before Veterans Day, OFCCP issued Directive (2020-01) (the “Directive”), which addresses “Spouses of Protected Veterans.”  Its latest directive is the first of FY2020 and follows up on the agency’s supplemental CSAL identifying contractors selected for VEVRAA Focused Reviews.

The Directive observes that spouses of protected veterans are protected by OFCCP regulations, and directs OFCCP compliance officers to investigate potential discrimination against such individuals during onsite investigations.

Specifically, compliance officers will, among other things:

  • offer Human Resources staff and managers compliance assistance by providing a sample nondiscrimination policy;
  • ensure “the contractor understands its obligation not to discriminate against qualified individuals whom the contractor knows to be spouses or other associates of a protected veteran”; and
  • ask employees interviewed during onsite investigations if they are or have coworkers who are spouses of protected veterans, and request “any observations they have concerning the treatment of spouses of protected veterans.”

Key Takeaway:

Contractors are advised to review and update, if necessary, their nondiscrimination policies to ensure they prohibit discrimination against protected veterans as well as their spouses and others associated with protected veterans.  OFCCP has provided sample policy language contractors may wish to adopt or use to modify their existing policies:

It is [Federal Contractor, Inc.’s] policy not to discriminate because of a person’s relationship or association with a protected veteran. This includes spouses and other family members. Also, [Federal Contractor, Inc.] will safeguard the fair and equitable treatment of protected veteran spouses and family members with regard to all employment actions and prohibit harassment of applicants and employees because of their relationship or association with a protected veteran.

Contractors selected for any compliance evaluation, but particularly VEVRAA Focused Reviews, should be prepared for compliance officers to investigate potential discrimination of protected veterans’ spouses when conducting onsite visits.

OFCCP Issues Supplemental CSAL – Were You Selected For A New VEVRAA Focused Review?

On November 8, 2019, OFCCP released its Corporate Scheduling Announcement List (“CSAL”) Supplement.  The list identifies 500 establishments selected for the new VEVRAA focused review compliance evaluation.  In 2018, OFCCP announced that it would be conducting focused reviews during which it would target its analysis on contractors’ compliance with  Executive Order 11246 (the “EO”) (equal employment opportunity regardless of race, color, religion, sex, sexual orientation, gender identity, or national origin); Section 503 of the Rehabilitation Act (“Section 503”) (equal employment for individuals with disabilities), or the Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRAA”) (equal employment for protected veterans).

OFCCP has already commenced Section 503 focused reviews, but this is the first time the agency has scheduled VEVRAA focused reviews.  In its November 8, 2019 announcement, OFCCP also shared that it has created a VEVRAA focused review webpage “[t]o help contractors prepare for the upcoming reviews.”  The agency touts the resource as providing “best practices, protected veteran resources, answers to frequently asked questions, and other compliance assistance resources.”

Contractors are advised to review the Supplemental CSAL (available online) to see if they have been selected for a VEVRAA Focused Review and, if so, review the current and proposed VEVRAA Focused Review scheduling letters to prepare for their upcoming compliance evaluation, and consult with counsel as necessary.

OFCCP Sets New Record For Bias Settlements In FY19

Any illusions that OFCCP would disappear during the Trump Administration should have already been put to rest with the nearly non-stop activity of the agency since 2017.  But to the extent there was any remaining doubt, a recent report about the monetary recoveries secured by the agency should put that to rest.

As OFCCP announced, in the recently completed fiscal year, the agency set a new record for monetary recoveries:  over $40 million, obliterating its prior record of $24 million in FY17.  This haul came primarily through settlement agreements with government contractors to resolve allegations of pay and hiring discrimination.

OFCCP may appear to be a more contractor-friendly agency than it was during the Obama Administration due to its initiatives aimed at increasing transparency and fairness, but that should not lull contractors into a false sense of complacency.  The agency has also made significant changes to the way it does business, making it more effective and expanding its reach.

Government contractors that continue to ignore their OFCCP compliance obligations hoping they will not be audited are playing a game where the odds of losing have increased dramatically, as have the financial and public relations consequences.  All government contractors should review their practices and policies to ensure compliance, and consult with experts to ensure they are aware of the latest developments and enforcement trends in order to avoid being part of OFCCP’s recovery tally for FY20.

OFCCP Proposes Changes to the Self-Identification of Disability Form

On October 3, 2019 OFCCP submitted a request to the Office of Management and Budget for approval of proposed changes to its Voluntary Self-Identification of Disability Form.  OFCCP explained that it had proposed the changes “in an effort to increase the response rate on the form.”

The proposed changes include:

  • Removing the reasonable accommodation notice;
  • Expanding the language under the “Why are you being asked to complete this form” section;
  • Revising and alphabetizing the disability example list, including:
    • Adding autoimmune disorders, depression/anxiety, cardiovascular/heart disease, and gastrointestinal disorders to the list;
    • Adding broad categories of disability, such as “psychiatric conditions”, to consolidate previously individually listed disabilities like bipolar disorder and major depression.

OFCCP explains that it removed the reasonable accommodation notice because it was “not necessary to the information collection and created confusion among applicants and employees who thought that completing the form automatically referred them for a reasonable accommodation.” OFCCP described its other changes to the form as “softening the tone…to make the language more positive.”

The proposed voluntary self-identification form can be found here. The current disability self-identification form, which does not expire until January 2020, can be found here. Contractors may submit comments on the proposed changes through December 2, 2019.

Contractors have continually struggled with low response rates to disability self-identification forms, so any effort to encourage higher response rates is welcome.  Even so, it is hard to see how these modest changes will, on their own, have much of an impact on response rates.

GAO Report Assesses OFCCP Progress and Indicates Annual AAP Collection Not Far Off

The Government Accountability Office (GAO) recently released a report (the “2019 Report”) evaluating the Office of Federal Contract Compliance Program’s (OFCCP) implementation of the GAO’s 2016 and 2017 recommendations for improving oversight of contractor compliance. The 2019 Report concludes that OFCCP has implemented only 4 of the GAO’s 11 recommended changes.

The key findings and recommendations in the GAO’s 2019 Report are described below, but perhaps the most interesting aspect of the 2019 Report is its revelation of OFCCP’s plan to require the annual submission of contractors’ affirmative action programs (“AAPs”). GAO had previously found that many (or even most) contractors were not preparing their annual AAPs, and recommended OFCCP develop a “mechanism” to monitor federal contractors’ compliance with the AAP requirements “on a regular basis.”

The 2019 Report reveals that OFCCP is about to do just that.  According to the report, OFCCP is creating an online portal through which contractors can submit their AAPs annually. In addition, OFCCP is reportedly developing an information collection request to have the Office of Management and Budget (OMB) approve the annual collection of contractor AAPs.

We have been warning contractors for some time that OFCCP expects AAP compliance and will have little tolerance for contractors who they find have failed to comply. It now appears that soon OFCCP will not have to audit a contractor to learn if it has prepared an AAP; it will know by virtue of whether the contractor has submitted its AAP to the agency via a web portal. Moreover, based on prior statements, and GAO criticisms, OFCCP will likely use these AAP submissions (or the absence of such submissions) to target contractors for compliance evaluations.

We will continue to monitor this development and share any news when it breaks.

OFCCP Fully Implemented Three of the GAO’s 2016 Recommendations

The 2019 Report states that OFCCP has fully implemented the GAO’s 2016 recommendations concerning: (1) “the risk geographic imbalances in compliance evaluation assignments;” (2) “outreach and compliance assistance efforts and [] options for improving information provided to federal contractors;” and (3) “[the clarity of] existing contractor guidance.” According to the report “no further action [is] needed” to address these areas.

OFCCP Has Failed to Fully Implement Four of the GAO’s 2016 Recommendations

1. Changing the Contractor Scheduling List to Focus on Contractors With Greatest Risk of Non-Compliance

The 2019 Report notes that while OFCCP has taken steps to implement the Voluntary Enterprise-Wide Review Program (VERP), and a new scheduling list methodology, these steps may be inadequate to ensure compliance efforts target the contractors most at risk for non-compliance. The 2019 Report observed that OFCCP’s new methodology’s heavy reliance on previously utilized neutral selection factors may impede its ability to prioritize the highest risk contractors in compliance evaluations. Similarly, the 2019 Report stated that VERP would likely “do little” to identify contractors most likely to violate nondiscrimination requirements “without overwhelming volunteer participation.” The 2019 Report recommended that OFCCP “[e]nsure the process for developing the scheduling list is not weighted by prior scheduling list factors” in order to fully implement the 2016 recommendations.

  1. Developing a Mechanism to Regularly Monitor AAPs

While the 2019 Report found that OFCCP had not fully implemented this recommendation, it also revealed that the OFCCP is on the verge of implementing an online portal through which contractors can submit their AAPs. The 2019 Report states that OFCCP “anticipates delivery of the portal by the close of fiscal year 2019.” The report also revealed that OFCCP is developing an information collection request for the annual collection of contractor AAPs and “anticipates that OMB approval will be timely to align with completion of the AAP portal.” The 2019 Report recommends OFCCP obtain OMB approval and launch the new AAP portal for public use.

  1. Providing Timely, Uniform, and Continuing Training to Staff

The 2019 Report indicates that OFCCP’s recent attempts to standardize its training and evaluation process have not fully implemented GAO’s 2016 recommendation. The 2019 Report notes that OFCCP retained an expert consultant in 2018 and fully implemented an action plan to “address any program gaps” in 2019. The 2019 Report observed that OFCCP was “developing a learning management system that will allow new compliance officers easy access to training soon after [] hiring.” The 2019 Report recommends implementing the new system in order to fully comply with GAO’s 2016 recommendations.

OFCCP Fully Implemented Only One of GAO’s Five 2017 Recommendations

The GAO made five additional recommendations to OFCCP in November 2017. The 2019 Report finds OFCCP has fully implemented its recommendations to “take steps toward requiring contractors to disaggregate demographic data for the purpose of setting placement goals in [] AAP[s]”. The 2019 Report concluded that OFCCP fully implemented this recommendation “by providing guidance to contractors regarding the option to include more specific goals in their AAPs.”

The GAO pointedly notes “[t]he agency has not taken action to fully implement our other four recommendations that focus on improving oversight.”

Four 2017 Recommendations for OFCCP to Address

  1. Analyze Internal Process Data From Closed Evaluations to Better Understand Cause of Delays in Compliance Evaluations

In 2017, the GAO found “OFCCP did not analyze data on closed evaluations to understand the root causes of delays in its compliance review process that may be straining its resources and inhibiting OFCCP’s efforts to identify potential discrimination.” The 2019 Report notes OFCCP had concluded that procedures outlined in its Active Case Enforcement Directive (DIR 2011-01) caused delays, but criticized OFCCP insofar as it failed to show “this conclusion resulted from the recommended analysis of internal process data from closed evaluations.” The 2019 Report indicates OFCCP officials are continuing to study the causes of delays and potential policies to address them, but does not comment on the effectiveness of the agency’s efforts. The 2019 Report states that OFCCP needs to “[d]emonstrate…internal policy changes are addressing the root causes of delays based on data analysis of actual evaluations” to fully comply with GAO’s 2017 recommendation.

  1. Assess the Methods Used to Consider Industry Disparities in Compliance

In 2017, the GAO questioned the accuracy of OFCCP’s methodology for identifying disparities by industry. The 2019 Report states OFCCP contends that it is “exploring the use of U.S. Census Bureau and administrative data to refine its selection process to focus on industries with a greater likelihood of noncompliance.” The GAO notes that OFCCP’s newly implemented scheduling methodology – which incorporates industries with the highest violation rates as a factor – should be further refined by OFCCP after it completes the most recent cycle of compliance evaluations.

  1. Evaluate Establishment-Based Approach to Compliance Reviews

The 2019 Report found OFCCP had submitted revisions to its process for selecting contractors for compliance reviews to the OMB in June 2019. The 2019 Report did not specify the changes OFCCP had made to its process. The GAO recommends the OFCCP obtain approval for its revisions to fully comply with its 2017 recommendation.

  1. Evaluate the Functional Affirmative Action Program

In 2017, the GAO recommended OFCCP evaluate the Functional Affirmative Action Program (FAAP) insofar as it could be a useful alternative to establishment-based Affirmative Action Programs. The 2019 Report indicates that OFCCP had taken steps to encourage contractors to use the FAAP program, but notes that “few contractors participate in this program and the agency has not conducted an evaluation of it.” The GAO observed “[e]valuating the FAAP could help OFCCP improve its ability to achieve its objectives and may provide broader insight for OFCCP’s overall enforcement approach.”

OFCCP’s Second Opinion Letter: Contractors Can Seek Advance Approval of PAGs, But…

On July 22, 2019, OFCCP issued its second published opinion letter addressing whether “contractors can work with OFCCP to develop a PAG [Pay Analysis Grouping] structure that OFCCP would accept as valid for use in future OFCCP audits.” PAGs are groupings of what should be similarly-situated employees or positions used by OFCCP for compensation analysis purposes. OFCCP will compare employees within PAGs to determine whether there are statistical indicators of discrimination. For obvious reasons, the individuals included or excluded from a particular PAG can impact the outcome of a compensation analysis. In many cases, a contractor’s own PAGs will show no indicators of discrimination, but the same data when examined using OFCCP’s PAGs will lead to different results. As such, it appears the entity that submitted the inquiry sought a method to obtain advance notice of the PAG structure OFCCP would find acceptable so that it could analyze its compensation practices using the same approach and avoid an “audit surprise.”

In the letter, OFCCP responded to the inquiry stating that “contractors [have] the opportunity to submit their PAG structure for review and to receive feedback from OFCCP, which OFCCP would take into account in future compliance evaluations.” It does not say how or to whom such submissions should be made.

But, such a determination would be of little value to a contractor. The opinion letter makes clear that even if a contractor submits its PAG structure for review and receives the OFCCP’s blessing, OFCCP

is unable to conclusively agree that it will rely upon specific, predetermined PAGs in all future compliance evaluations as there may have been material changes to factors considered by OFCCP in its initial evaluation of the contractor’s PAGs. OFCCP must conduct its analyses based on the contractor’s pay systems, functions, and workforce organization as they exist or existed during the period under review, and thus if those have materially changed since OFCCP’s prior review, OFCCP will need to make a new determination as to whether the PAGs are appropriate.

In other words, where a contractor has submitted its PAGs to OFCCP for review and receives OFCCP’s approval of its PAGs, OFCCP will not be bound by its feedback in a subsequent compliance evaluation.

In light of this warning, it is unclear what benefit a contractor would receive from voluntarily submitting PAGs to OFCCP for its review. As such, perhaps the most useful aspect of the opinion letter are the statements it makes concerning Directive 2018-05 and its approach to pay analysis generally. For example, the statement that OFCCP should take into account “any compensation policy or practice that has a disparate impact on a protected group but is job-related and consistent with business necessity,” and that “Directive 2018-05 require[s] OFCCP to attempt to design its compensation analysis based on the contractor’s compensation hierarchy and job structure.” Of course, this letter must be read through the lens of Directive 2019-03 – which created OFCCP’s opinion letter initiative. Specifically, while opinion letters “provide guidance on the application of OFCCP regulations to fact-specific situations” they “do not establish any legally enforceable rights or obligations.”

We encourage our readers to stay informed of OFCCP’s opinion letters. We will continue to report on note-worthy opinion letters as they become available.

OFCCP Publishes New Compliance Assistance Guides

When OFCCP issued its “Town Hall Action Plan ” in May 2018, it stated its commitment to “review and enhance contractor compliance assistance materials.” In furtherance of this commitment, on August 2, 2019, OFCCP announced the publication of a number of new compliance assistance guides for contractors. These new resources are:

    • Posting and Notices Requirements Guide – a guide  focusing on posting and notice requirements for federal contractors. The document is a resource providing contractors with guidance about the information they must include in subcontracts and purchase orders, job advertisements, in the workplace, and to unions, as well as checklists for supply and service and construction contractors to help them manage these requirements. The document helpfully identifies the various contract value thresholds which trigger different notice and posting requirements. Contractors should be aware that this document appears focused solely on OFCCP posting and notice requirements, and that their contracts likely contain other posting requirements not covered by this document.
    • Recordkeeping Guides – OFCCP has created three recordkeeping charts, providing contractors with at-a-glance reference materials regarding their recordkeeping obligations under Executive Order 11246 (race and sex), Section 503 (individuals with disabilities), and VEVRAA (protected veterans). The documents show not only the records that must be maintained, but also the length of time they must be retained.
    • Applicant Tracking Guide and FAQs  – These resources provide basic information regarding the OFCCP’s complex rules regarding how to classify, track and retain information concerning applicants.
    • What Federal Contractors Can Expect – a republication providing contractors with “the general expectations that often guide interactions between federal contractors and OFCCP,” which we wrote about in August 2018.
    • OFCCP At a Glance – a brochure providing an overview of the agency.

OFCCP’s website also indicates OFCCP is working on technical assistance guides for supply and service and construction contractors.

The new materials reflect a tangible step by OFCCP to fulfill one of its Town Hall Action Plan commitments. Contractors should find the materials helpful for answering basic compliance questions.

Proskauer Attends National Industry Liaison Group’s Annual Conference

The National Industry Liaison Group (“NILG”) is holding its annual conference in Milwaukee, Wisconsin this week. The NILG is an employer organization focused on improving interactions with OFCCP and educating its members on OFCCP compliance and diversity issues. Its annual conference brings together hundreds of HR and in-house legal professionals from government contractors, as well as officials from OFCCP and the EEOC. OFCCP Director Craig Leen is attending the conference and is scheduled to address the conference twice.

Proskauer, as always, is in attendance at this year’s conference. On July 30, Proskauer partner Guy Brenner spoke on a panel with S&P Global’s Senior Manager of EEO Compliance, Cherise Robinson, and Resolution Economics Partner Rick Holt. The panel discussed what contractors can do when they are notified via the CSAL process that they have been selected for a compliance evaluation. The panelists provided tips and insights from the in-house diversity professional, outside counsel, and labor economist perspectives to the conference participants. On July 31, Guy Brenner and Rick Holt will be presenting on a panel entitled “Stark Implications of the OFCCP’s 2018 Compensation Directive – A Case Study,” in which they will discuss the practical impact of the compensation directive and what contractors need to know to minimize the risk of an OFCCP compensation audit.

OFCCP news often breaks at the NILG conference, so if anything newsworthy happens we will be sure to share it with our readers. Stay tuned. (And if you are at the conference, look out for Guy and say hello!)

 

 

 

 


Rick Holt, Cherise Robinson and Guy Brenner at the NILG Conference.

OFCCP Revises Proposed Audit Scheduling Letters

Quick Hit: On June 28, 2019 The Office of Management and Budget (“OMB”) published notice that “OFCCP seeks to revise the letters used to schedule compliance evaluations.” As we previously reported, OFCCP proposed changes to its audit scheduling letters in April 2019 and accepted public comments through June 11, 2019. In light of the comments it received, OFCCP has revised its proposed letters and reduced some of the new requirements included in its April 2019 proposal.

Key Takeaway: Although OFCCP has revised some of the changes it proposed to the audit scheduling letters in April 2019, the revised scheduling letters still contain additional reporting burdens for contractors. The new proposed letters still need to be approved by OMB before they are implemented.

Below are some of the proposed changes that have been removed by the latest revisions, and some of the proposed changes that remain.

Proposed changes that have been removed:

  • Sub-minority data: OFCCP’s latest revisions remove requests for sub-minority data including: (i) sub-minority goal calculations; (ii) sub-minority utilization and availability; and (iii) sub-minority placement by group.
  • Analysis of the contractor’s compensation systems: The latest revisions dispense with the proposed requirement for contractors to submit the results of their most recent compensation system analysis.
  • Candidates in the promotion pool: OFCCP is no longer seeking data concerning the pool of candidates from which promotions were selected. Instead, OFCCP’s latest revisions seek the percentage of minority and female employees in the job group from which employees were promoted.
  • Termination data. The latest revisions delete OFCCP’s request for data distinguishing between voluntary and involuntary terminations.
  • Data on AAP plans beyond six months: OFCCP has removed its request for additional data on AAP plans when a contractor receives an audit letter more than six months into an AAP plan year. The April proposed changes would have required contractors to submit data for every completed month of an AAP plan year if a scheduling letter was received more than six months into the year. The latest revisions only require a contractor to submit data on the first six months of the AAP plan when a compliance evaluation scheduling letter is received later than six months into the AAP plan year – consistent with the current requirement.
  • Required electronic submission: OFCCP has removed its April proposal requiring contractors submit responses to a compliance check letter in electronic format. Contractors are now expected to either make the materials available for onsite review or, alternatively, submit the requested materials to OFCCP within 30 days of receiving a Compliance Check scheduling letter.

Proposed changes that remain:

  • Job posting: Contractors are still required to provide examples of job advertisements in response to a Compliance Check scheduling letter.
  • Subcontractor information: OFCCP’s latest revisions still require contractors to submit information concerning certain subcontractors.
  • EEO-1 reporting: The latest revisions require contractors to submit copies, for the last three years, of Component 1 of their EEO-1 reports. It appears that OFCCP will not require submission of Component 2 reports.
  • Audit and reporting system compliance documentation: OFCCP reinserted the requirement that contractors submit documentation of their actions to comply with audit and reporting systems, which was removed in the changes proposed in April 2019.

The deadline to submit comments to OMB concerning the new proposed letters is July 29, 2019. We will continue to monitor this developing story and provide updates as warranted.

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