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.
Tag Archives: compliance evaluation
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.
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.
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.”
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.
On February 26, 2013, the Office of Federal Contract Compliance Programs (“OFCCP”) announced a significant shift in its approach to analyzing contractors’ compensation decisions during audits. In the press release, OFCCP stated that it was rescinding its “Voluntary Guidelines” and “Compensation Standards” from 2006 because they “limited OFCCP’s ability to conduct full investigations and use every enforcement tool at its disposal to combat pay discrimination.” In its place, OFCCP issued Directive 307, which establishes many new practices and procedures OFCCP will follow when investigating contractors’ compensation practices during audits. The new procedures took effect on February 28, 2013.
On July 19, 2012, the Office of Federal Contract Compliance Programs (“OFCCP”) issued a press release announcing it entered a consent decree with Leprino Foods, Inc. (“Leprino”) relating to use of a pre-employment test that it determined had an adverse impact on minority job-applicants at the company’s Lemoore West facility. The positions for which Leprino was using the test were entry-level, on-call labor positions called WorkKeys. The OFCCP found that the test, which examined applicants’ abilities in mathematics and in locating information, was not job-related because these skills were not critical to the applicants’ job duties, which included inspecting products, monitoring equipment and maintaining sanitation at the facility. In the press release, Director Patricia Shiu warned that contractors “cannot create artificial barriers to employment that unfairly block any individual from competing for good jobs.”
On May 8, 2012, the Administrative Review Board for the Department of Labor (“ARB”) reversed a very favorable ruling for contractors, holding that the Office of Federal Contract Compliance Programs (“OFCCP”) could request data from contractors during desk audits concerning hiring, terminations and promotions after the period covered by OFCCP’s initial Scheduling Letter.