Administrative Judge Ruling Expands OFCCP’s Authority To Collect Compensation Information During A Desk Audit

On February 28, 2011, Administrative Law Judge Daniel A. Sarno, Jr. greatly expanded OFCCP’s authority by holding in OFCCP v. United Space Alliance, LLC, 2011-OFC-00002 (ALJ, Feb. 28, 2011) that OFCCP can collect supplemental compensation beyond the initial 11 item scheduling letter during the desk audit.

Background

Since the late 1990s, OFCCP has been authorized to collect generalized compensation data from contractors through item 11 in its standard scheduling letter.  Over the last several years, after receiving contractors’ responses to item 11 in the scheduling letter, OFCCP has been sending out follow-up 12-16 point letters requesting contractors provide additional compensation data, such as time in position/grade, educational data, bonus and commissions.  Many in the contractor community have believed that OFCCP did not have the authority to request this information because it was not authorized by the Office of Management and Budget (“OMB”) in accordance with the Paperwork Reduction Act (“PRA”).  The PRA is designed to minimize the burden on contractors by limiting what documents and information the governmental agencies can collect.  OMB must evaluate each federal agency’s request for additional information from contractors to determine if it imposes an unreasonable burden on contractors’ resources.

One of the primary focuses of the United Space Alliance decision was on whether OFCCP had authority to collect additional compensation information beyond the standard scheduling letter during the desk audit.

Factual Background of United Space Alliance

United Space Alliance’s (“USA”) Cape Canaveral, Florida facility was selected by OFCCP for a compliance evaluation, and USA received the standard 11 item scheduling letter.  USA submitted data in response to OFCCP’s request, including “annualized compensation data.”  After receiving the information, OFCCP conducted two compensation tests.  It conducted a threshold indicator test, which did not indicate any pay disparities, and it conducted a pattern analysis and a 30 and 5 test, which showed indicators of discrimination.  OFCCP sent USA a 15-item letter requesting additional compensation information.  USA conducted its own analysis of its compensation data and determined that there were no indicators of discrimination.  Because there were no indicators of discrimination under its test, USA refused to submit the additional compensation information to OFCCP. 

OFCCP then scheduled USA for an onsite review to assess not only USA’s compliance with Executive Order 11246, but also for possible violations of Rehabilitation Act and the Vietnam Era Veterans’ Readjustment Assistance Act (“VEVRAA”).  USA refused to submit to the onsite review arguing that OFCCP lacked authority under the “reasonable suspicion” standards in the Fourth Amendment to seek additional information during the desk audit or pursue an onsite review.  OFCCP filed an administrative complaint seeking access to USA’s Cape Canaveral facility.

The Decision

On review, USA argued that OFCCP violated the PRA by sending a 15-point letter requesting additional compensation information.  The ALJ reasoned that the PRA does not apply to collection of information during an administrative audit involving “an agency against specific individuals or entities.”  The ALJ concluded that the request did not violate the strictures of the PRA because it was an individualized investigation of USA at the point it issued the 15-point letter requesting additional compensation data.   Moreover, the ALJ found that “OFCCP reasonably requested additional information to be used to continue the desk audit.”

USA also argued that OFCCP did not have sufficient indicators of discrimination to warrant further review of its compensation information.  USA essentially argued that OFCCP was bound to accept its threshold test that showed no indicators of discrimination and that the threshold test was superior to the pattern analysis and the 30 and 5 test under which OFCCP found indicators of discrimination.  The ALJ disagreed and concluded, “it was quite reasonable” for OFCCP to use more than one method to find indicators of discrimination. 

The ALJ also rejected USA’s argument that OFCCP failed to comply with the Administrative Procedures Act by failing to adhere to a Frequently Asked Question (“FAQ”) posted on OFCCP’s website concerning how it would analyze compensation information.  The ALJ ruled that FAQs are not legally binding since they were not published in the Federal Register and they are “a mere policy statement intended to provide the OFCCP and the regulated community with guidance.”

The ALJ, however, accepted USA’s argument that OFCCP did not have reasonable suspicion of a violation of the Executive Order sufficient to ask for an onsite compliance review under the Rehabilitation Act and VEVRAA.  The ALJ found that OFCCP had specifically stated that its onsite compliance review “was merely to acquired data and/or documents which related to possible violations of the Executive Order.”  OFCCP’s letter to USA related to the onsite noted that the investigation would be expanded to cover potential violations of the Rehabilitation Act and VEVRAA.  The ALJ rejected OFCCP’s authority to review USA’s compliance with the Rehabilitation Act and VEVRAA because it “made no attempt to show that expanding its requested on-site compliance review beyond acquiring data and/or documentation related to possible violations of the Executive Order.  Nor do I find such an extension to be reasonable or limited in scope.”

Practical Implications

Because the ALJ gave OFCCP authority to request additional compensation data beyond the standard scheduling letter during the desk audit (if there are indicators of discrimination in the contractor’s submission), contractors will now likely be required to turn over much more detailed compensation information to OFCCP.  We have previously confirmed that OFCCP is using a 2% or $2,000 tipping point test where any similarly situated group of employees that show either a 2% or $2,000 difference in compensation for females and minorities provide OFCCP indicators of discrimination sufficient to send the follow-up letter compensation letters.  Nearly all contractors’ submissions to the standard scheduling letter will fail the new 2% or $2,00 trigger test, which means that nearly all contractors should expect to receive the 12-16 point follow up letter requesting additional compensation data.  As a result, contractors should proactively audit their compensation practices prior to being scheduled for audits.

One of the most significant aspects of the ruling is the ALJ’s determination that OFCCP is limited during the onsite review to investigating only those violations or indicators of discrimination that it notified the contractor of during the desk audit phase.  As a result, before allowing OFCCP to come on-site, contractors should request OFCCP provide them with a list of the reasons, including indicators of discrimination, why OFCCP is coming onsite and what areas OFCCP intends to investigate. Contractors can use this lists to guide and limit the scope of OFCCP’s authority during in the onsite review.

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2 Comments

Filed under Compensation, OFCCP

2 responses to “Administrative Judge Ruling Expands OFCCP’s Authority To Collect Compensation Information During A Desk Audit

  1. Pingback: Federal District Court Hears Oral Argument in United Space Alliance, LLC v. Solis, et al | Federal Contractor Compliance Watch

  2. Pingback: Federal Court Requires United Space Alliance to Provide OFCCP with Data | Federal Contractor Compliance Watch

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