Tag Archives: compliance review

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

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

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

OFCCP Significantly Overhauls Its Compensation Standards

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.

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Filed under Compensation, Department of Labor, OFCCP

Administrative Review Board Finds That Participation in TRICARE Did Not Subject Florida Hospital to OFCCP’s Jurisdiction

On October 19, 2012, the Department of Labor’s Administrative Review Board (“ARB”) found in OFCCP v. Florida Hospital of Orlando that the OFCCP did not have jurisdiction over a federal contractor based solely on its participation in TRICARE. The ARB, however, left open whether other healthcare contractors participating in TRICARE would be subject to OFCCP’s jurisdiction.

Background

TRICARE is a program sponsored by the Department of Defense (“DoD”) that pays for medical benefits for active and retired military personnel and their families. There are three prime contractors that administer the TRICARE program. These three contractors enter into subcontracts with hospitals and medical providers to provide medical care and supplies to TRICARE participants. Florida Hospital held a subcontract with one of the TRICARE prime contractors.

In August 2007, OFCCP scheduled Florida Hospital’s Orlando establishment for a compliance review. Florida Hospital refused to submit to OFCCP’s compliance review, asserting that it was not subject to OFCCP’s jurisdiction. OFCCP initiated enforcement proceedings arguing that Florida Hospital’s participation in TRICARE subjected it to OFCCP jurisdiction.

On October 18, 2010, an Administrative Law Judge (“ALJ”) found that Florida Hospital was a federal subcontractor because it assumed the performance of the TRICARE prime contractor’s obligation to the federal government. The ALJ also rejected Florida Hospital’s argument that TRICARE payments did not subject it to OFCCP’s jurisdiction because it was federal financial assistance. Florida Hospital appealed the decision to the ARB.

While the decision was pending appeal, on December 31, 2011, the National Defense Authorization Action for Fiscal Year 2012 (“NDAA”) was signed into law. The NDAA expressly stated that medical providers who participated in TRICARE were exempt from OFCCP’s jurisdiction.

ARB’s Decision

The ARB reviewed the NDAA exemption and held that OFCCP lacked jurisdiction over Florida Hospital because it met the specific language in the NDAA exemption. The ARB, however, found that the exemption was narrow and would only exempt TRICARE contractors that require establishment and management of a network of providers. The ARB indicated that it would review OFCCP’s jurisdiction over other TRICARE subcontractors on a “case by case” basis.

Because the ARB has left open the possibility that some TRICARE subcontractors may be covered by OFCCP’s jurisdiction, healthcare contractors must closely scrutinize their participation in TRICARE to see if they are subject to OFCCP’s jurisdiction.

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Filed under Department of Labor, OFCCP

OFCCP Sanctions Contractor for Pre-Employment Test that Adversely Impacted Minorities

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.”

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Filed under Department of Labor, Discrimination, Executive Order, OFCCP, Uncategorized