More than three years after the Office of Federal Contract Compliance Programs (“OFCCP”) sought approval for a new Scheduling Letter and Itemized Listing, OFCCP published a notice in the Federal Register on September 30, 2014 revealing that it had received Office of Management and Budget (“OMB”) approval. Yesterday, OFCCP announced that it would not schedule any supply and service compliance evaluations from October 1, 2014 to October 15, 2014 to allow contractors to “become acquainted with the new letter and itemized listing”, but it plans to start using the new Scheduling Letter and Itemized Listing for all audits scheduled after October 15, 2014.
Category Archives: Department of Labor
OFCCP Releases Proposed Rule Prohibiting Adverse Action Against Employees and Applicants Discussing Pay
On September 15, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) released its Notice of Proposed Rulemaking (“Proposed Rule”) implementing President Obama’s Executive Order 13665 (“EO 13665”) banning contractors from taking adverse action against employees and applicants who discuss their pay. When President Obama signed EO 13665 on April 8, 2014, he instructed OFCCP to issue a proposed rule prohibiting federal contractors from discharging or discriminating against employees or applicants who inquire about, discuss, or disclose their own compensation or compensation of other employees and applicants. In a Fact Sheet on the Proposed Rule, OFCCP stated that the purpose of the Proposed Rule is to narrow the pay gap disadvantaging women and minorities by allowing them to discuss their pay and know if they are “being underpaid compared to [their] peers.” OFCCP also believes the Proposed Rule would “reduc[e] pay discrimination and ensur[e] that qualified and productive employees receive fair compensation”, by enabling them to discuss their pay without fear of adverse action.
On August 6, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) released a Notice of Proposed Rulemaking requiring federal contractors and subcontractors with 100 or more employees to submit an annual equal pay report. This compensation data tool was published in response to President Obama’s April 8, 2014 Presidential Memorandum calling for proposed regulations to be published within 120 days.
The equal pay report will have a significant impact on federal contractors. According to OFCCP, the equal pay report will “enable OFCCP to direct its enforcement resources toward federal contractors whose summary data suggests potential pay violations, while reducing the likelihood of reviewing companies that are less likely to be out of compliance.” The proposed rule was officially published in the Federal Register on August 8, 2014. There is a 90-day public comment period with comments due by November 6, 2014.
Who Must File
The proposed rule applies to prime contractors and first tier subcontractors (and construction subcontractors of any tier) who are required to file EEO-1 Reports, have more than 100 employees, and have a federal contract, subcontract, or purchase order amounting to $50,000 or more lasting for at least 30 days (including modifications).
OFCCP is also considering covering postsecondary academic institutions that file the IPEDS report with the Department of Education.
Requirements of Equal Pay Report
The NPRM contemplates requiring covered federal contractors to submit an equal pay report that includes the following information:
- Total number of workers within each EEO-1 job category by race/ethnicity and sex;
- Total W-2 wages for all workers in each EEO-1 job category broken down by race/ethnicity and gender; and
- Total hours worked for all employees in each EEO-1 category by race/ethnicity and gender.
No individual employee pay data will be required.
OFCCP plans to design a web-based portal for covered contractors to report and maintain compensation information. OFCCP indicates that the webportal would be protected by applicable government IT security standards where contractors key in their data electronically or upload their forms into the system using the standard formats provided by OFCCP.
Data May be Basis for Audit Not Sanctions
Data from the proposed equal pay report would not in itself result in any sanction or adverse action against the contractor for compensation discrimination, according to OFCCP. However, OFCCP will use the information to prioritize contractors for compliance evaluations. If OFCCP selects a contractor for a compliance evaluation, that review would cover compensation data beyond what is in the contractor’s equal pay report and would involve a more specific and detailed data request that are typical in an OFCCP compliance evaluation.
OFCCP is also considering publishing aggregate information based on pay data collected from the equal pay report, but the data will not be specific to any particular contractor. The data could include ranges or averages by industry, labor market, or other groupings.
OFCCP is proposing an annual reporting window of January 1 to March 31. The data in this report would be based on W-2 earnings for the prior calendar year (Jan. 1- Dec 31) for all employees included in the contractor’s EEO-1 report for that year, which will generally align with the time period covered under a contractor’s W-2 filings.
The practice of OFCCP using the equal pay report to target its enforcement efforts could potentially eliminate OFCCP’s current random audit selection process and replace it with a targeted selection process. Despite the potential constitutional concerns, contractors should strongly consider conducting proactive pay equity analyses now, so that any areas of concern can be addressed before data is reported to OFCCP. This should include a total compensation analysis since contractors will need to report total compensation (i.e., all wages contained in the Form W-2) rather than just base salary.
Contractors should also be wary of potential confidentiality issues. Although OFCCP attempted to allay contractors’ confidentiality fears, the data, much like EEO-1 reports, could be turned over to private plaintiff’s attorneys for use in civil litigation. OFCCP believes that the Freedom of Information Act (“FOIA”) would exempt the disclosure of contractor data if it can be shown that (1) the contractor is still in business (2) the data is confidential and sensitive, and (3) the release of data would subject the contractor to commercial harm. For now, it is unclear whether these exemptions would actually shield contractors’ pay data in all cases.
On July 31, 2014, President Obama signed the Fair Pay and Safe Workplaces Executive Order (“Executive Order”) that requires contractors to (1) disclose recent violations of various workplace laws before being awarded federal contracts; (2) provide wage notifications to employees and notify independent contractors of their non-employee status; and (3) barring contractors from requiring employees to sign pre-dispute arbitration agreements. This is slated to take effect for new contractors in 2016.
Background on Executive Order
According to a Fact Sheet released with the Executive Order, the purpose of this executive action is to “crack down” on federal contractors by ensuring that companies with a history of employee rights violations do not receive federal contracts. The White House indicated that the “goal of the process created by the Executive Order is to help more contractors come into compliance with workplace protections, not to deny contracts to contractors.” The Obama Administration also believes that the Executive Order will “promote efficiency in federal contracting” by removing “companies with workplace violations” that are “more likely to encounter performance problems.”
The Executive Order comes on the heels of a series of presidential actions geared towards implementing the Obama Administration’s “Year of Action” agenda in light of the stalemate in Congress. As recent as two weeks ago, President Obama signed an executive order making it illegal for federal contractors to discriminate on the basis of sexual orientation or gender identity.
The Executive Order will apply to all federal contracts for goods and services, including construction contracts, where the estimated value of the contract exceeds $500,000. It also requires prime contractors to flow down this requirement to all subcontracts that are not for commercially available off-the-shelf items where the estimated value of the subcontract is over $500,000.
Requirements of Executive Order
Disclosure of Labor Law Violations
As part of the solicitation process for covered contracts, contractors will be required to disclose whether they have any violations of certain federal and state discrimination, wage and hour, leave, and safety laws in the three years prior to bidding on the solicitation. Specifically, the Executive Order requires contractors to disclose violations of the following labor laws:
- The Fair Labor Standards Act (“FLSA”);
- The Occupational Safety and Health Act;
- The National Labor Relations Act;
- The Davis-Bacon Act;
- The Service Contract Act;
- Executive Order 11246;
- Section 503 of the Rehabilitation Act;
- The Vietnam Era Veterans Readjustment Assistance Act;
- The Family and Medical Leave Act;
- Title VII of the Civil Rights Act;
- Americans with Disabilities Act;
- The Age Discrimination in Employment Act;
- Executive Order 13658 (establishing minimum wages for contractors); and
- Equivalent state laws, as defined by the Department of Labor guidance.
Violations of these laws includes “any administrative merits determination, arbitral award or decision, or civil judgment” rendered against the contractor in the three years prior to the solicitation.
As part of this disclosure, contractors will have an opportunity to disclose to the contracting officer any “steps taken to correct the violations” or “improve compliance” with these laws, including any agreements the contractor has entered with a federal or state enforcement agency. If the contractor is awarded a contract covered by the Executive Order, the contractor must provide updated disclosures to the contracting officer every six months for the duration of the contract.
Notification of Wages
Contractors will now be required to provide all individuals performing work on the contract a notification “concerning the individual’s hours worked, overtime hours, pay, and any additions made to or deductions made from pay.” This notification must be provided to employees in each pay period. Contractors will not have to include hours worked in the notification for employees who are exempt from the overtime requirements under FLSA or similar state laws if the contractor has previously informed the employee that they are exempt from overtime.
Independent Contractor Notification
The Executive Order requires contractors to provide written notification to individuals they are treating as independent contractors who perform work on contracts covered by the Executive Order. No details have been provided on what information must be included in this disclosure.
No Mandatory Arbitration Agreements
Contractors being awarded contracts with an estimated value of $1 million will no longer be able to require employees or independent contractors to enter pre-dispute arbitration agreements requiring them to arbitrate claims under Title VII of the Civil Rights Act or any tort related to or arising out of sexual assault or sexual harassment claims. This does not apply if:
- The employee voluntarily consents to the arbitration agreement after a dispute has arisen between the employee and the contractor;
- The contract is for commercial items or commercially off-the-shelf items;
- The arbitration agreement was entered prior to the contractor bidding on a contract covered by the Executive Order.
Flow Downs to Subcontractors
Prime contracts must flow down:
- The requirements to disclose labor law violations for any subcontract of $500,000 or more (except for contracts for commercially available off-the-shelf items)
- The requirement to provide employees with wage notifications and independent contractors notification of their status in all subcontracts of $500,000 or more (except for contracts for commercially available off-the-shelf items); and
- The requirement prohibiting certain pre-dispute arbitration agreements for subcontracts with an estimated value exceeding $1 million.
In addition, prime contractors must represent to the contracting officer that:
- The prime contractor will require each subcontractor to disclose labor law violations to it and update this information every six months; and
- Before awarding the subcontract, the prime contractor will consider the disclosures submitted to it by the subcontractor to determine whether the subcontractor is “a responsible source that has a satisfactory record of integrity and business ethics”.
If violations of labor laws are brought to the attention of the prime contractor, the prime contractor must consider whether “action is necessary”, including whether to award the subcontract or taking remedial measures if the subcontract is already awarded.
Determination of Violations
Before awarding contracts of $500,000 or more, contracting officers are required to consider these disclosures to determine whether the contractor “is a responsible source that has a satisfactory record of integrity and business ethics.” The Executive Order has instructed the FAR Council, in consultation with the Department of Labor and other agencies, to issue regulations that provide guidance on what labor law violations “demonstrate a lack of integrity or business ethics” because they are “serious, repeated, willful, or pervasive violations.”
Although contractors will have to wait until the final regulations are issued to understand what types of labor law violations the government may block them from receiving contracts, the Executive Order provides the following guidance:
- A “single violation of law may not necessarily give rise to a determination of lack of responsibility”, but it will depend on the “nature” of the violation.
- To the extent existing standards under those labor laws do not provide guidance on the types of violations that are considered “serious, repeated, willful, or pervasive violations”, the government will use the following standards:
- Violations are “serious” based on, among other considerations: (1) the number of employees affected; (2) the degree of risk posed or actual harm done by the violation to the well-being of the worker; (3) the amount of damages incurred or fines or penalties assessed for the violation;
- Violations are “repeated” if the contractor has “had one or more additional violations of the same or a substantially similar requirement in the past three years”;
- Violations are “willful” if the contractor “knew of, showed reckless disregard for, or acted with plain indifference” to whether it was in compliance with these labor laws; and
- Violations will be considered “pervasive” by comparing the “number of violations” of these labor laws in relation to the size of the contractor.
Contracting officers must give consideration to “any remedial measures or mitigating factors”, such as any corrective actions taken by the contractor. The Executive Order also instructs contracting officers to send information to the “agency suspending or debarring official” as appropriate for serious violations.
The federal government will be developing a website for contractors to report information required by the Executive Order as well as other federal contractor reporting requirements.
The Executive Order will be implemented on all covered contracts in stages on a “prioritized basis” starting in 2016.
The Office of Federal Contract Compliance Programs (“OFCCP”) plans to issue proposed rules implementing President Obama’s recent executive actions on the compensation practices of federal contractors. As we reported last month, President Obama took two executive actions to further his pay equity agenda: (1) he signed Executive Order 13665 prohibiting federal contractors from discriminating and retaliating against employees or applicants for discussing their compensation with one another; and (2) he issued a memorandum (“Memorandum”) directing OFCCP to publish regulations requiring federal contractors and subcontractors to submit pay data by race and gender for their employees.
According to the Department of Labor’s spring 2014 regulatory agenda, OFCCP intends to publish its proposed rules on the Memorandum in August 2014 and the proposed rules under EO 13665 in September 2014. OFCCP also revealed that it was pushing back dates for two key regulatory changes, presumably to accommodate the presidential mandate for OFCCP to publish rules on EO 13665 and the Memorandum. In its 2014 regulatory agenda for the year, OFCCP indicated that it would be issuing proposed rules on its regulations for construction contractors in April 2014 and on its Sex Discrimination Guidelines in May 2014. Now, OFCCP has announced that it will not be issuing the proposed updates to the Sex Discrimination Guidelines until September 2014 and moved the date for the proposed overhaul of its regulations for construction contractors until January 2015.
President Obama Takes Executive Action Reinforcing the Regulatory Agenda on Investigating Federal Contractors’ Compensation Practices
In recognition of National Pay Equity Day, President Obama took two executive actions on April 8, 2014 to continue his pay equity agenda: (1) President Obama signed Executive Order on Non-Retaliation for Disclosure of Compensation Information (“Executive Order”) amending Executive Order 11246 to prohibit federal contractors from discriminating or retaliating against employees or applicants for discussing their compensation with one another; and (2) President Obama issued a memorandum directing the Department of Labor (“DOL”) to publish regulations requiring federal contractors and subcontractors to submit pay data, by race and gender, for their employees (“Compensation Memorandum”). These executive actions, along with President Obama’s Executive Order to increase the minimum wage for employees working on federal contracts, mark another significant step in this Administration’s push for increasing enforcement and oversight over federal contractors’ compensation practices.
The Executive Order mandates that federal contractors cannot “discharge or in any manner discriminate against” employees and applicants who have “inquired about, discussed, or disclosed” their own or another employee’s or applicant’s compensation information. The Executive Order explains that the reason for this change is that it will “enhance the ability of Federal contractors and their employees to detect and remediate unlawful discriminatory practices, which will contribute to a more efficient market in Federal contracting.”
The Executive Order excludes from this protection unauthorized disclosures by employees who learn of the compensation information as part of their essential job functions (e.g., HR and compensation managers) unless (1) they are disclosing compensation information to someone who already has access to that information; or (2) they are disclosing that in response to a formal complaint or charge in furtherance of an investigation. DOL will be required to issue regulations implementing this requirement by September 15, 2014.
The Compensation Memorandum is premised on a claim that the pay gap between men and women is a direct result of a “lack of sufficiently robust and reliable data on employee compensation.” It directs DOL to propose regulations requiring federal contractors and subcontractors to submit data on the compensation paid to their employees, including data by sex and race.
When creating the proposed regulations, the Executive Order instructs DOL to consider:
- “maximiz[ing] efficiency and effectiveness” by focusing efforts on contractors where the reported data shows pay violations;
- using the data to “encourage greater voluntary compliance” with compensation laws by federal contractors and “analyz[ing] industry trends”;
- minimizing the burden on federal contractors, particularly small businesses; and
- “avoid[ing] new record-keeping requirements” by relying on “existing reporting frameworks to collect the summary data.”
Despite DOL’s announcement in its current regulatory agenda that OFCCP planned to publish a Notice of Proposed Rulemaking (“NPRM”) on the compensation data collection tool in January 2014, no proposal has yet been published. The Presidential Memorandum will expedite the publication of NPRM because it directs the DOL to propose regulations by August 6, 2014.
Impact on Federal Contractors
The Executive Order prohibiting discrimination and retaliation against employees and applicants does not change much for federal contractors. Sections 7 and 8 of the National Labor Relations Act already provide employees and applicants the right to discuss their compensation information.
The effect of the Compensation Memorandum’s requirement that contractors to disclose their compensation information could be significant, but the precise impact will depend on the details of the regulations. As of now, it is unclear whether OFCCP will develop new or additional compensation reporting requirements and how OFCCP will use the compensation tool to store and analyze compensation data.
We expect OFCCP to continue to ratchet-up its investigation of contractors’ compensation information during audits. This means that contractors should be vigilant about reviewing their compensation practices now and proactively addressing pay disparities before an audit. Now is the time for contractors to consider undertaking pay equity studies and reviews of their compensation policies and practices under the protection of the attorney-client privilege.
On February 19, 2014, OFCCP published a correction to its notice seeking comments on its form for individuals to file discrimination and retaliation complaints. The complaint form, which is designated as Form CC-4, requests information from individuals making complaints of discrimination and retaliation against federal contractors and subcontractors, including whether the complainant believes the contractor has discriminated or retaliated against others. OFCCP has shown an increasing interest in pursuing individual complaints of discrimination and retaliation over the last few years, and these proposed changes suggests that it plans to continue the trend.
The original notice published in the Federal Register on February 5, 2014 provided a slightly revised version of the Form CC-4 and sought comments on:
- Whether the proposed collection of information is useful or necessary for OFCCP to perform its functions;
- Whether OFCCP accurately estimated the burden of collecting this information;
- Whether any improvements needed to be made to the quality, utility and clarity of the information requested in the form; and
- How to minimize the burden on those who are completing the form, such as permitting electronic submissions.
In the correction notice, OFCCP made several revisions to its notice and proposed complaint form, including:
- Revising the statement in the notice that incorrectly indicated that the proposed complaint form was currently available on OFCCP’s website; and
- Updating several fields that were left blank in the proposed complaint form, including the three fields located in the left-hand column and the third and bottom rows of the form.
Interested parties will still have until April 7, 2014 to submit comments on the proposed complaint form.