Fed Cracking Down on Discrimination by Federal Contractors

A federal government contractor watchdog agency announced it was changing case management procedures, signaling more aggressive and broader enforcement of anti-discrimination laws.

The Office of Federal Contract Compliance Programs—the Department of Labor division responsible for ensuring federal contractors' compliance with Equal Employment Opportunity laws—announced in December that it was discontinuing its Active Case Management procedures that have been in practice since 2003. That's bad news for government contractors that are accused of discriminatory practices, since the purpose of the ACM was to focus the agency on larger cases.

On a practical level, the change means government contractors will face an increasingly aggressive enforcement environment, resulting from a higher-than-usual number of investigations into discrimination claims by the agency.

“We're seeing renewed vigor from the OFCCP right now and a more aggressive agency than it has been in the past. The OFCCP wants the flexibility to go after alleged discrimination and not be tied down to a particular process,” says Rebecca Springer, counsel at law firm Crowell & Moring.

The intent of the ACM procedures was to focus the agency's resources on identifying and addressing cases of systemic discrimination—those involving 10 or more victims—to use its resources in a more efficient manner. Under an expedited desk audit process, OFCCP would quickly close cases where the initial investigation showed no indications of systemic discrimination.

In a statement announcing its discontinuation, Patricia Shiu, director of the OFCCP, said the ACM process is no longer practical. "While ACM has identified a number of systemic cases since its implementation, it has also caused OFCCP to narrow the focus of its enforcement efforts and has eroded OFCCP's enforcement authority," she said.

The change provides OFCCP greater discretion in evaluating cases and allows it to pursue investigations of individual cases of discrimination, not just those that indicate systemic discrimination by federal contractors. Ultimately, that will translate into an increase in the number and intensity of on-site audits that contractors are going to have to prepare for.

“The audits that we are seeing have much more detailed document requests, are much more intense, and require a much deeper level and broader level of response from the contractor,” says Valerie Hoffman, a partner of law firm Seyfarth Shaw. “Consequently, audits are taking more time and more resources than ever before.”

Springer agrees. “I've seen many more instances of the OFCCP asking for additional data in instances that never would have warranted further follow-up in previous years,” she says. “They're clearly getting more aggressive and digging deeper in the audits that they're doing, trying to identify problem areas.”

If companies have the resource bandwidth, they should be doing their own mock audits ahead of time, says Hoffman.

Changes to Pay Practices

The discontinuation of ACM procedures is part of a broader series of changes instituted by the OFCCP to strengthen its enforcement efforts. On Jan. 3 the agency issued a proposed rule to rescind its interpretive standards for systemic compensation discrimination and voluntary guidelines for self-evaluation of pay practices for federal contractors and sub-contractors, which were issued in 2006.

“Employers are adrift right now without any good understanding of what methodology the OFCCP is using to evaluate their compensation practices.”

—Valerie Hoffman,

Partner,

Seyfarth Shaw

According to the OFCCP, the interpretive standards set forth investigation procedures that were too rigid. The OFCCP expressed particular concern over the limitation that it cannot issue a violation notice to contractors unless it has both anecdotal and statistical evidence of alleged pay inequities.

As a result, the agency is proposing to do away with its use of multiple regression analysis to identify pay discrimination, which entails comparing multiple variables—such as years of work experience, education, past performance, race, and gender—to compensation. The OFCCP claims that these obligations are overly restrictive and “undermine OFCCP's ability to vigorously investigate and identify compensation discrimination.”

Some attorneys are concerned that the OFCCP hasn't given any additional guidance as to what measures they will use instead. “Consequently, employers are adrift right now without any good understanding of what methodology the OFCCP is using to evaluate their compensation practices,” says Hoffman.

OFCCP Director Shiu stressed that the agency is looking to develop a new compensation data collection tool, and that it will be seeking public comment on what it should look like, following issuance of a proposed rule expected to be published in February. Additionally, the OFCCP is working very closely with the Equal Employment Opportunity Commission and the Department of Justice to improve collaboration among the three agencies, she said.

OFCCP PROPOSAL

The following excerpt explains the OFCCP's proposal to rescind the standards and the voluntary federal contractor guidelines:

Proposal:

OFCCP proposes to rescind the Standards and the Voluntary Guidelines in their entirety. OFCCP believes it is unnecessary to issue new Federal Register notices articulating its interpretations of Title VII principles related to compensation discrimination. OFCCP will continue to follow Title VII principles in investigating and analyzing compensation discrimination and in interpreting regulations related to compensation discrimination. The agency is proposing to normalize its treatment of those cases with other types of OFCCP discrimination investigations. Once rescinded, nothing in the Standards or the Voluntary Guidelines or their preambles could be relied upon as a statement of OFCCP's

interpretation of Title VII principles or OFCCP regulations.

If the Standards are rescinded, OFCCP will reinstitute the practice of exercising its discretion to develop compensation discrimination investigation procedures in the same manner it develops other investigation procedures. OFCCP will continually refine those procedures to ensure that they are as effective and efficient as possible. OFCCP will develop and issue compensation investigation procedures in the same manner as procedures for investigating other forms of discrimination, for example through the FCCM, directives and staff guidance materials.

… OFCCP has found that contractors rarely use the analytical procedure suggested in the Voluntary Guidelines for conducting the compensation analyses required by section 60–2.17(b)(3). In the few instances when contractors have conducted their compensation analysis in the manner suggested in the Voluntary Guidelines, the coordination procedures of the Voluntary Guidelines have not proved to be an efficient method for verifying that the contractor's compensation system is not discriminatory. The agency has

concluded that the Voluntary Guidelines have not proved to be either an effective vehicle for providing guidance about how to conduct the analyses required by section 60–2.17(b)(3) or an effective incentive for contractors to conduct the analysis in

the manner described in the Voluntary Guidelines.

In the absence of the Voluntary Guidelines, contractors will still be obligated to conduct self-evaluations of compensation practices as required by 41 CFR 60–2.17(b)(3). OFCCP will

continue to provide any needed compliance assistance on section 60–2.17(b)(3) through various means, including Webinars and the Web site distribution of Frequently Asked Questions as appropriate, rather than through the issuance of a Federal Register notice.

OFCCP invites any interested party to comment on the proposal to rescind the Standards and the Voluntary

Guidelines. Comments must be received on

or before March 4, 2011.

TO SUBMIT COMMENTS:

Identify by number 1250–ZNE, by any of the following methods:

Federal eRulemaking Portal. Follow the instructions for submitting comments.

Fax: (202) 693–1304 (for comments

of 6 pages or fewer).

Mail: Director, Division of Policy,

Planning, and Program Development,

Office of Federal Contract Compliance

Programs,

Room N3422

200 Constitution Avenue, NW.

Washington, DC 20210

Source

Labor Department Proposed Rule (Jan. 3, 2010).

For the time being, the OFCCP will develop and issue compensation investigation procedures in the same manner as procedures for investigating other forms of discrimination, such as through instructions for compliance officers in conducting audits contained in the OFCCP Federal Contract Compliance Manual, directives, and other staff guidance material.

In addition to compensation discrimination standards, the OFCCP also faulted the Voluntary Guidelines used by contractors to conduct self-analyses of their pay practices. The agency claims contractors have rarely used these procedures, and that the analytical model established by the guidelines is also too rigid.

If the voluntary guidelines are rescinded, contractors will still be required to conduct self-evaluations of compensation practices. The OFCCP will continue to provide any needed compliance assistance through various means, including Webinars and Website distribution of FAQs as appropriate.

Comments regarding the rescission of the compensation standards and voluntary guidelines must be received by March 4.

Additional Changes

But, wait, there's more …

Federal contractors also will be required to pay closer attention to their hiring and recruitment practices related to veterans and individuals with disabilities. Two additional proposed rules are being prepared that are intended to strengthen affirmative-action requirements in the area of recruitment and job training.

The first proposed rule, expected to be issued this month, would revise the regulations implementing the non-discrimination and affirmative action provisions of the Vietnam Era Veterans' Readjustment Assistance Act. The rule would require federal contractors and sub-contractors to conduct more substantive analyses of recruitment and placement actions taken with respect to veterans and would require the use of numerical targets to measure the effectiveness of affirmative-action efforts.

Another proposed rule, expected to be published in the Federal Register by August, would revise Section 503 of the Rehabilitation Act of 1973. That rule would require federal contractors and sub-contractors to increase linkages and conduct more substantive analyses of recruitment and placement actions of individuals with disabilities.

Recruitment of veterans and those with disabilities is a requirements that's always been on the books, “but not one that has been a focus of the agency in past years, and now we're seeing that most audits include a request to provide that sort of information,” says Springer.

Contractors can better prepare for an audit by ensuring they are fully documenting their applicant hiring process. “You need to have really good documentation of your recruitment process, not only who applies, but how people move through that process,” advises Springer.

This means paying special attention to hires, promotions, and terminations, so that they know going into an audit what their vulnerabilities may be and are prepared to explain if they do find discrimination in hiring, says Springer.