Tag Archives: audit

OFCCP Sends New Round of Potential Audit Letters

The Office of Federal Contract Compliance Programs (“OFCCP”) recently sent Corporate Scheduling Announcement Letters (“CSALs”) to 2,500 federal contractor establishments warning of possible audits.  OFCCP sends CSALs to contractors’ specific establishments as a courtesy to let contractors know that certain locations have been identified for potential audit.  CSALs do not mean that the contractor has been selected for an audit, but rather put contractors on notice that their establishments may be audited.  The audit does not actually begin until the contractor receives the Scheduling Letter from OFCCP.

Most OFCCP audits for supply and service contractor establishments are based on the Federal Contractor Selection System (“FCSS”). The FCSS generally releases names of contractors for audits two times per fiscal year.  This latest round of CSALs marks the first release of the FY 2015.  According to OFCCP’s FAQ, 993 distinct companies and 25 industries are represented among the 2,500 establishments on the FY 2015 scheduling list.  This list includes 27 Corporate Management Compliance Evaluations where OFCCP investigates glass ceiling issues.  Contractors can confirm whether one or more of their establishments were mailed CSALs by faxing a written request on company letterhead to OFCCP’s Division of Program Operations at (202) 693-1305.

Because contractors receiving CSALs are scheduled for audits in most cases, contractors receiving these notices should start to review their compliance and prepare for a potential audit as soon as possible. This is particularly important in light of OFCCP’s new Scheduling Letter, which drastically expanded the data required to be submitted to OFCCP at the outset of an audit.  You can learn more about the new Scheduling Letter here.

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Filed under CSAL, Department of Labor, OFCCP, Office of Federal Contract Compliance Programs, Scheduling Letter

OFCCP Releases New Scheduling Letter and Itemized Listing

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.

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Filed under Affirmative Action Plan (AAP), Department of Labor, OFCCP, Office of Federal Contract Compliance Programs, Scheduling Letter

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.

Executive Order

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.

Compensation Memorandum

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.

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Filed under Compensation, Department of Labor, OFCCP

Cargill Agrees to Pay $2.2 Million to Settle Hiring Discrimination Charges By OFCCP

On January 22, 2014, the Office of Federal Contract Compliance Programs (“OFCCP”) announced that it was settling a case with Cargill Meat Solutions (“Cargill”) for $2.2 million relating to allegations of hiring discrimination based on race and gender.  The settlement stemmed from OFCCP’s investigation of multiple Cargill facilities between 2005 and 2009.  During these reviews, OFCCP alleged that Cargill’s hiring practices for production jobs at several of its facilities discriminated against 2,959 females, African-American, Hispanic, and Caucasian applicants.  OFCCP also allegedly found a number of record-keeping violations at Cargill.

In addition to paying $2,236,218 in back wages, Cargill also agreed to extend job offers to 354 former applicants who were rejected for positions and to undertake extensive self-monitoring measures to ensure full compliance with OFCCP’s laws.

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Filed under Department of Labor, Discrimination, OFCCP

Compliance Challenges for Federal Contractors During the Government Shutdown

The government shutdown announced yesterday is already making an impact on how companies comply with their obligations as federal contractors.  Congress’ failure to agree on a new budget for the 2014 Fiscal Year has resulted in a furlough of over 800,000 federal workers, temporary closing of numerous federal agencies, and suspension of many services federal contractors rely upon to fulfill their compliance obligations. 

E-Verify

Those effects are already being felt by contractors who use E-Verify.  E-Verify is the internet-based system that federal contractors must use to verify the employment eligibility of their new hires and employees.  The Department of Homeland Security (“DHS”), who oversee the E-Verify program, announced yesterday that E-Verify will be unavailable during the government shutdown.  This means that contractors will not be able to enroll in E-Verify, verify employment eligibility of any new hires or existing employees, or take any administrative actions relating to their E-Verify accounts. 

In addition, employees who receive Tentative Non-confirmations (“TNCs”), indicating that their employment eligibility could not be verified through the E-Verify system, will not be able to resolve those TNCs during the government shutdown.  The time for employees to resolve TNCs, however, will be extended by the days that the government is closed.  DHS has also warned that contractors cannot take any adverse action against an employee because of an E-Verify interim case status during the government shutdown.

Contractors will still need to timely and accurately complete I-9 forms for all new hires within three business days of hiring any employee.  Contractors must use the new I-9 form that was issued earlier this year. 

OFCCP Closed for Business

Contractors who have open audits with OFCCP may also experience difficulties due to the government shutdown.  OFCCP has announced that it will be completely closed during the shutdown because it has been declared as part of the “non-essential” government staff.  Contractors who have recently received a scheduling letter or who have an open OFCCP audit with a pending request will need to carefully consider whether they should respond to OFCCP’s during the shutdown. 

We recommend that contractors conduct “business as usual” and timely submit all submissions in order to ensure full compliance.  Contractors should acknowledge the government shutdown in their submissions and request OFCCP contact them after it resumes normal operations.  There may be situations, however, where contractors are concerned about submitting materials by mail to OFCCP that contain confidential and sensitive information since there is no staff at OFCCP to receive the submission.  In that situation, contractors should consider e-mailing the compliance officer to inform him or her that the contractor will send the submission once the government shutdown is over.

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Filed under E-Verify, OFCCP

OFCCP Continues to Overhaul Its Investigatory Platform with the Release of the New Federal Contractor Compliance Manual

Late last week, OFCCP released the much anticipated update to the Federal Contractor Compliance Manual (“FCCM”).  The FCCM provides the procedural framework compliance officers use when auditing federal contractors and subcontractors.  The last version of the FCCM was published in the late 1980s, and OFCCP has been hinting over the last couple of years that it would be releasing a new FCCM.

The new 500-plus page FCCM includes the same basic structure as the previous version, but adds a new section for reviews of functional affirmative action plans.  The FCCM has also been updated to reflect OFCCP’s current policies and procedures regarding investigating contractor’s practices for compliance and the remedies it will pursue if violations are uncovered.  For example, the new FCCM contains new procedures for compliance officers to use when conducting adverse impact analyses, reviews of compensation, and calculating back pay awards for discrimination.

The new FCCM covers the following topics:

  • Desk audits of contractors’ compliance with OFCCP’s laws;
  • Onsite reviews of contractors’ establishments;
  • Compliance reviews of construction contractors;
  • Procedures for conducting Corporate Management Compliance Evaluations;
  • Compliance reviews of FAAPs;
  • Investigations of individual and class complaints;
  • Designing remedies for employment discrimination violations; and
  • Procedures for resolving violations during compliance evaluations.

The FCCM also contains a glossary of key words and phrases and includes examples of model forms, letters, and worksheets compliance officers can use during compliance evaluations. 

OFCCP was quick to note that the revised FCCM is nonbinding and is “subject to change without public notice.”  OFCCP released the new FCCM internally to its compliance officers earlier this summer, so many of them are prepared to implement the new procedures in the FCCM.  OFCCP also held a public webinar explaining the updated FCCM on August 27, 2013 and will be making the slides and recording from the webinar available on its website.

We anticipate that with the official release of the FCCM, contractors will notice a change in the posture of audits.  For the last several years, OFCCP has been overhauling its entire investigatory platform “piece-by-piece,” including revamping how it investigates contractors’ compensation systems.  The new FCCM is yet another signal that OFCCP will be conducting more intensive and far-reaching reviews of contractors’ practices.

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Filed under Affirmative Action Plan (AAP), Compensation, Department of Labor, Discrimination, OFCCP

OFCCP Signals Its Continuing Aggressive Enforcement Posture with a New Directive on Calculating Back Pay

On July 22, 2013, the Office of Federal Contract Compliance Programs (“OFCCP” or the “Agency”) released Directive 310 to provide guidance on how the Agency will calculate back pay in discrimination cases.  This new Directive is just one in a string of directives OFCCP has released over the last several years revealing the Agency’s aggressive posture for ferreting out discriminatory practices during audits. 

Back Pay under the New Directive

Back pay is generally awarded to an individual or class of individuals whenever there is a finding that discrimination resulted in loss of compensation or benefits to that individual or class of individuals.  According to the new Directive, OFCCP will be using two models to calculate back pay: the formula and individual relief models.  The Agency will have complete discretion on which model to apply to a particular discrimination charge.

Formula Relief Method

OFCCP will generally use the formula relief model whenever it is “unrealistic to attempt to compute individual losses with accuracy.”  Generally, this will be used whenever there is alleged discrimination against a class of five or more individuals.  In formula relief cases, OFCCP will include individuals in a class based on them being similarly-situated to one another even if there is no “evidence they were specifically discriminated against.” 

OFCCP will use either the shortfall method or the averaging method for calculating the appropriate amount of back pay in formula relief cases.  The shortfall method will be employed in instances where the number of individuals in the class exceeds the number of job opportunities, such as in hiring or promotion situations.  OFCCP will determine the back pay award under the shortfall method by calculating the “difference between the actual number of persons in the non-favored group that were selected” for the employment opportunity and “the number expected to have been selected” for that opportunity. 

For example, XYZ Contractor has 20 software engineer openings.  100 qualified individuals apply for those 20 vacancies, and 50 of the applicants are male and 50 of the applicants are female.  XYZ Contractor hires 19 males and only 1 female.  OFCCP determines that the selections were the result of discrimination and that each female lost $100,000 in back pay earnings.  Using the shortfall method, OFCCP will calculate back pay as follows:

  • Expected number of hires: 10 males, 10 females
  • Actual number of hires: 19 males, 1 female
  • Shortfall: 9 (10 expected female hires minus 1 actual hire)
  • Monetary relief: $900,000 (9 females times $100,000 in back pay)

OFCCP will use the averaging method in compensation discrimination or glass ceiling cases.  Under this method, OFCCP will determine the back pay amount by the average or typical difference in pay between the favored and non-favored group.  For example, the OFCCP will compare the average salary of men to the average salary of women in a given position.  The difference between the salary disparities is the back pay to be awarded to each female in the class.  OFCCP indicated that it would use regression models and other tools to calculate the average or typical estimate of pay disparities for the total class.

Individual Relief Method

OFCCP will use the individual relief model when the class size is small (e.g., five members or less), the duration of the liability period is short (e.g., less than six months), and there is sufficient documentation to trace the lost earnings for each class member.  The Agency will calculate back pay using the individual relief method by tracing the pay history of the favored individuals and comparing it to the lost pay and benefits of the alleged victim(s).

Period of Back Pay

Back pay can be collected from the time when the discriminatory act occurred or two years prior to the date of the scheduling later, whichever occurs later, to the date when the “discriminatory action(s) is ended by the contractor or stopped as a result of a signed Conciliation Agreement, Consent Decree, or Final Court/Administrative Order.”  This means that a company could be liable for back pay even if it no longer holds any federal contracts if the discriminatory act occurred at the time when the company was a federal contractor.

Interest and Taxes

Contractors saddled with back pay awards will also have to pay interest and taxes related to those awards.  Interest on back pay is calculated at the IRS underpayment rate and is compounded quarterly.  Contractors are also responsible for paying their share of taxes on the settlement amount and providing tax withholding and reporting in accordance with IRS laws.

Other Forms of Monetary and Non-Monetary Relief

In addition to back pay, OFCCP warned that contractors can be subject to various other forms of monetary and nonmonetary relief if their practices are determined to be discriminatory.  According to the new Directive, other forms of monetary relief include “front pay or salary adjustments,” and nonmonetary relief can include “preferential hiring, preferential promotions, special training programs, reasonable accommodation, systemic injunctive relief, and EEO counseling for supervisors.”

Implications

The new Directive sends a strong signal that OFCCP intends to continue aggressively pursuing monetary penalties against contractors whenever contractors’ practices reveal potential indicators of discrimination.  Over the last several years, OFCCP has issued a string of initiatives focused on the Agency conducting in-depth audits of contractors’ practices to ferret out potential discrimination or compliance violations.  Most recently, OFCCP issued a directive in February announcing that it will be intensely reviewing contractors’ compensation practices during audits. 

As a result of these initiatives, it is imperative for contractors to analyze their selection and compensation practices to make certain they are free of indicators of discrimination.  If contractors uncover indicators of discrimination during their internal assessments, they should immediately take action to eliminate the discriminatory practices or procedures or thoroughly document the legitimate, nondiscriminatory reasons explaining those indicators.

In addition, it is yet to be seen whether compliance officers at OFCCP will consistently adhere to these methodologies.  Compliance officers at OFCCP will sometimes demand back pay for all qualified applicants who were not hired even if there are more applicants than openings.  In essence, OFCCP is seeking back pay for individuals even though there was no way for all of the applicants to have been selected, which is inconsistent with any of the methodologies outlined in the new Directive.

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Filed under Department of Labor, OFCCP