OFCCP Seeks to Favorably Tweak Requirements to Encourage Contractors to Consider Functional Affirmative Action Plans

Has your organization ever considered switching from “establishment” AAPs to functional affirmative action plans (“FAAPs”)?  OFCCP wants contractors to consider moving to FAAPs and, in that spirit, is looking to make FAAPs more attractive by proposing new FAAP requirements that would lighten the burden for those who apply for, and those that already have, FAAP agreements with OFCCP.  OFCCP last modified the FAAP requirements in 2016 but the program was significantly changed in 2013 to its current structure.

Generally, covered federal contractors are required to have a written AAP for each “establishment” with 50 or more employees. This baseline requirement presumes a contractor’s personnel activity decisions and AAP compliance efforts are centered around a physical establishment. That’s not always the case. As the Agency acknowledges

an affirmative action program only covering employees in one building at a specific geographical location does not always reflect how business actually operates.

Rather, it may make better sense for some contractors to prepare AAPs for each of the company’s autonomously operating functional units.

For example, a contractor may have manufacturing, sales and marketing, corporate, and service delivery functions and sub-functions that span multiple locations, in different geographic regions. If those functions/sub-functions operate “autonomously,” and have “identifiable personnel practices or transactional activities specific to the functional or business unit (e.g., applicant flow, hires, promotions, compensation determinations, terminations, etc.) that are distinguishable from other parts of the contractor,” the contractor may seek OFCCP approval to prepare FAAPs according to those functions, as opposed to an establishment-based AAP.

To foster consideration of FAAPs, OFCCP is sweetening the pot by making the FAAP option more desirable and less burdensome. Among its new proposals, set forth in the proposed FAAP Directive and a Supporting Statement, OFCCP would loosen the rules in some notable respects:

  • Require contractors to renew a FAAP Agreement every five years, rather than the current three years, in order to reduce the burden on FAAP contractors;
  • Eliminate the requirement that FAAP contractors undergo at least one compliance evaluation during the term of their agreements. Apparently, this proposed revision means there is a possibility that a FAAP contractor could go without any FAAP audit during the entire five-year tenure of the FAAP agreement. This is interesting and sounds attractive but given the relatively low number of FAAP contractors (currently, 71 contractors, 1,932 FAAPs), we wouldn’t count on this; and,
  • Removal of the requirement that FAAP contractors provide OFCCP with an annual update regarding its FAAP structure. OFCCP would, however, retain the existing requirement that contractors provide OFCCP notice of significant changes to its FAAP structure within 60 days of the effective date of those changes.

Contractors interested in commenting on these and the other proposed changes may submit comments by November 13, 2018 according to the procedures set forth in OFCCP’s Federal Register notice.

For certain, there are positives and negatives to a FAAP structure as compared to a routine establishment-based AAP structure. Any contractor considering a move to FAAPs should carefully weigh the implications for its organization. As always, we are here to assist with any questions you may have.

 

Complimentary Webinar: What You Need to Know About OFCCP’s New Compensation Directive

It’s been a little more than two weeks since OFCCP released its new Compensation Directive.  While we don’t yet have answers to all of the questions surrounding the Directive, we do have thoughts about what will likely change, and what will not, for federal contractors during compliance reviews. Since OFCCP has just released another round of advance notice letters about upcoming audits, time is of the essence to wrap your arms around how the agency will be looking at your pay.

Join me and my colleague, Scott Pechaitis, at 2:00 Eastern on September 19th for a complimentary webinar, as we discuss the implications of the new Directive with one of our Lead Statisticians, Krystal Welland.  Hope you can join us!

Additional Information on OFCCP’s Latest Round of CSALs

As we reported last week, OFCCP has released a supplemental list of contractors who have been selected for audit by the Agency.  In addition to releasing information about the supplemental list of CSALs, OFCCP also published a new FAQ addressing requests for extensions and a supplement to its recently disclosed scheduling methodology.

Request for Extension FAQ

One of the items raised in the GAO review of OFCCP was the rate of untimely audit submissions by contractors.  While looking for alternative ways to ensure contractors prepare the required affirmative action plans, OFCCP has released a new FAQ addressing requests for extensions of time to respond to an OFCCP scheduling letter.   In the FAQ, OFCCP states it will provide a 30-day extension for the submission of supporting data in connection with contractors AAPs if two criteria are met.  The extension will be granted only if:

(1) the contractor requests the extension prior to the initial 30-day due date for the AAPs, and

(2) the contractor timely submits the basic EO 11246, Section 503 and VEVRA AAPs within the initial 30-day period after receiving the Scheduling Letter and Itemized Listing.

To reiterate, the 30-day extension will be granted for supporting data only, not for what OFCCP considers the “basic” AAPs which “contractors are required to maintain and updated annually.”  The FAQ does not explain what constitutes a “basic” AAP.

The FAQ goes on to state failure to submit either the basic AAPs, or the supporting data timely, with the approved extension. “will result in an immediate Notice to Show Cause.”  It also highlights that

[a] procedural Notice to Show Cause for failure to submit AAPs and/or supporting data does not require OFCCP National Office approval.

Finally, the FAQ notes that the extension policy is applicable for reviews scheduled on after September 7, 2018.  Even though OFCCP states it will grant extensions for submissions, with the above caveats, it is also clear they expect contractors to comply with the reporting requirements in a timely fashion.

Scheduling Methodology Supplement

In connection with release of the supplemental CSAL list, and in an effort for continued transparency, OFCCP also released an explanation of the scheduling methodology for the supplemental list.  The impetus behind the supplemental CSAL list was to ensure “the agency’s district and area offices have a sufficient number of available establishments to schedule for compliance reviews until OFCCP releases a new scheduling list.”  According to the Agency, the supplemental list was taken from the “pool” of eligible establishments created from the FY 2018 scheduling methodology.  Establishments with contracts expiring on or before December 31, 2018 were removed from the list.  Notably, and consistent with what we’ve been seeing in the field, OFCCP prioritized establishments with higher employee counts.  OFCCP also applied criteria to regulate the number of establishments, and types of audits (FAAPs and CMCEs) assigned to the district offices.

OFCCP makes it clear this is a supplement to the FY 2018 scheduling list and that a new scheduling list is “expected in early 2019.”

BREAKING NEWS: OFCCP Issues New Round of CSALs

OFCCP has been busy, and they are not slowing down.  Today, OFCCP issued an additional 750 Corporate Scheduling Announcement Letters (CSALs) to federal contractors providing advance notification of compliance reviews, in order to make sure the district and area offices “have a sufficient number of available establishments to schedule for compliance reviews until OFCCP releases a new scheduling list.”

Consistent with the previous round of CSALs issued under the current administration, OFCCP states it will not start issuing actual scheduling letters for this “supplemental” CSAL list for at least 15 days.

As reported, the CSAL list includes:

  • 445 companies,
  • 69 CMCEs, and
  • 66 FAAP functional units

Notably, OFCCP states “universities were not included in this supplement due to currently available compliance workload.”

OFCCP further clarified

[n]o establishment that received a CSAL, concluded a review, or concluded progress report monitoring resulting from a conciliation agreement or consent decree, within the last five years, is included on this supplement.

Additionally, OFCCP reported that it limited scheduling to no more than ten (10) establishments of any parent company and no more than four (4) establishments of a single contractor in a single district office.

OFCCP’s New Compensation Directive – What Does it Really Mean For Contractors?

There’s been a lot of discussion in past days about OFCCP’s new Compensation Directive, which describes the Agency’s approach to investigating pay discrimination.  We’ve spent some time digging into the details of the directive.  We’ve previously shared our thoughts about the Directive’s commitment to transparency, and now, as promised, want to share our thoughts about the nuts and bolts of the Directive. In summary, while the Directive is certainly transparent and descriptive and contains clarifications, it is by no means the “windfall” for contractors as some may be reporting.

The Directive breaks down, in much appreciated detail, the Agency’s approach to (1) creation of pay groupings for analysis, including insights into how the Agency defines “similarly situated” and, (2) statistical modeling.

Pay Analysis Groups (PAGs) are Here to Stay

The contractor community was first introduced to PAGs when OFCCP released the now rescinded Directive 307 in 2013.  Since that time contractors have struggled to understand, and predict, how OFCCP groups their workforces for pay analyses.  In its new Directive, the Agency takes steps to provide insight into its grouping philosophy.  First, the Agency states directly that it “aligns its compensation compliance evaluation procedures with principles under Title VII.”  Specifically, with respect to groupings, the Directive states OFCCP defines similarly-situated employees as those who would be expected to be paid the same based on:

  • job similarity (e.g., tasks performed, skills required, effort, responsibility, working conditions and complexity); and
  • other objective factors such as minimum qualifications or certifications.

While the Directive states it is

 OFCCP’s objective to use PAGs that mirror a contractor’s compensation system,

the Directive also provides OFCCP the latitude to disregard the contractor’s structure if  (1) OFCCP determines the structure is not “reasonable,” (2) cannot “verify the structure as reflected in the contractor compensation policies” and (3) “the analytical groupings are of insufficient size to “conduct a meaningful system statistical analysis.” In an important footnote to the Directive OFCCP expands on these caveats (and its latitude) to say

[t]here is no bright-line rule, and professionals may disagree, about what constitutes sufficient size for a meaningful systemic statistical analysis of an employer’s compensation system.  In its preliminary analysis, OFCCP generally seeks to evaluate groups containing employees under a similar pay system performing broadly similar job functions, regardless of group size.

(emphasis added).  The Directive further clarifies that OFCCP may “broaden or narrow” its preliminary PAGs based on information received during the review.  In the absence of information about a contractor’s compensation system, the Directive states “OFCCP will conduct its preliminary desk audit using either EEO-1 or AAP job groups” where OFCCP will control for “sub-groupings, functions, units or titles, as appropriate. Thus, while it’s goal is to use mirror contractor compensation systems, the Directive certainly contemplates, as a default, OFCCP developing large, and broad, groupings for analysis.

OFCCP’s Statistical Methodology and Modeling

After discussing the development of pay groups, the Directive moves on to detail the principles OFCCP will use to analyze the groupings. Utilizing technical terminology, OFCCP lays out how it will analyze pay, the variables it may use to build its regression model for the purposes of analyzing pay, and how it may treat those variables in the model.  The principles the Agency will apply include:

  • Separately analyzing base and total compensation
  • Transforming salary to the natural log (which will help account for different pay distributions within a pay group)
  • Controlling for time variables separately (e.g. analyzing time in job separate from time in company)
  • Considering squaring tenure variables (which will allow the model to take into consideration the natural growth, and eventual stagnation, of earning potential)
  • Considering education and performance ratings
  • Considering combining categories of variables to better capture pay differentials (e.g. analyzing the impact of PhD and Master degree requirements together versus lesser education requirement instead of analyzing the impact of each degree separately)

Again, while the transparency is welcomed, and overdue, the Directive does not require the Agency to utilize the principles or build its model in a specific way.  Thus, the Agency will continue to have the latitude and autonomy to develop its methodology on a case-by-case basis.  What remains to be seen is how much input OFCCP will allow contractors in this process and how much transparency the Agency will give into the methods and modeling it concludes are appropriate.

OFCCP to Recognize Innovative Contractors and Establish Peer Mentoring Program

The third of the three Directives OFCCP issued last Friday, Directive 2018-06 “Contractor Recognition Program” announces a program by which OFCCP will recognize contractors with “high-quality and high-performing compliance programs and initiatives.” Recognition is one of the four themes Acting Director Leen has spoken about recently and such programs are not a new concept in the Agency – some of you may recall OFCCP’s previous EVE Award program.   The Agency’s new Directive, however, describes a program having much more potential than a simple recognition program.

While the Directive is short on specific details for the program, it shows OFCCP is looking for creative and more effective ways to encourage voluntary compliance and further the core principles of affirmative action.  In furtherance of the Agency’s efforts to efficiently and effectively “expand its compliance reach,” the heart of the Directive is the idea that contractors can, and should, learn from one another regarding effective AAP efforts.  The program would advance OFCCP’s compliance assistance efforts by identifying contractors with “innovative programs” driving “demonstrable results” that “could be taught or incorporated into contractor peer mentoring programs.”

OFCCP believes contractors would be supportive of a compliance assistance model that includes a peer-to-peer mentoring type component because OFCCP found contractor believe

other businesses best understand their compliance barriers and challenges.

The program will not simply recognize compliant contractors “but would be for contractors that are innovative thought leaders among their peers for achieving diverse and inclusive workplaces.”  OFCCP would take the first step of identifying and approving “implementable best or model contractor practices,” and presumably establish a foundation and framework for a mentoring program through which contractors could expand and build upon the successes of their peers.

Collaboration is also central to this proposed program in another aspect.  Rather than working alone, OFCCP promises to work directly with other federal entities, such as “the Women’s Bureau, the Office of Disability Employment Policy, and other Department of Labor components as appropriate.”

OFCCP has not provided a timeline for the development of this program so stayed tuned to this page for further updates as OFCCP makes them available.

New OFCCP Initiative to Ensure Contractors Timely Prepare and Update AAPs

As we announced Friday, OFCCP has issued three new Directives in furtherance of its efforts to make the Agency more transparent and efficient.  New Directive 2018-07Affirmative Action Program Verification Initiative,” is aimed at expanding OFCCP’s enforcement reach and was previewed by Acting Director Leen at last month’s ILG National Conference.

 As we like to say, we can’t predict when OFCCP will select a contractor’s establishment for audit, and OFCCP likes it that way because it keeps contractors on their toes in anticipation of an audit.  But, the Agency is

concerned many federal contractors are not fulfilling their legal duty to develop and maintain AAPs

and instead playing the odds they won’t get audited. 

According to the General Accounting Office (“GAO”) in its September 2016 report roughly 85 percent of contractor establishments do not submit a written AAP within 30 days of receiving a scheduling letter.  OFCCP cited this statistic in the Directive to suggest some contractors are not preparing AAPs until OFCCP selects them for audit.  Because, in the words of the Directive, there is “a small likelihood of discovery” if a contractor does not timely prepare AAPs, OFCCP needs to bring additional compliance pressure to bear on these contractors.      

While the Directive is short on details, the initiative “squarely addresses this barrier to achieving comprehensive compliance by establishing a program for verification of compliance by all contractors with AAP obligations.”

 This verification would

initially take the form of OFCCP review of a certification, followed by potential compliance checks, and could later take the form of annual submission of AAPs to OFCCP for review.

 In order to facilitate the possible submission of AAPs, OFCCP will in the coming months be working on, “development of information technology to collect and facilitate review of AAPs provided by federal contractors.”  The Directive notes OFCCP is reviewing “whether there is an existing certification made as part of the procurement process that would be sufficient to allow OFCCP to implement the program without requiring a separate certification directly to OFCCP.”

Will the certification program have teeth?  According to the Directive, yes, because a contractor’s failure to certify compliance will be incorporated into the methodology for neutrally selecting contractors for audit “so that entities that have not developed and maintained AAPs are more likely to be scheduled.”  

 OFCCP says it will flesh out the details as well as “prepare a public outreach and education campaign on this initiative.”  We’ll report back with additional details as they become available.  In the meantime, we continue to suggest staying on top of timely preparing (and implementing) your AAPs.

 

New Compensation Directive Promises Transparency

By Laura A. Mitchell, Elizabeth P. Hernandez, and Suzanne Donnelly Corwin

Late last week OFCCP released a new Directive detailing the Agency’s approach to investigating pay discrimination.  Directive 2018-05 applies to all OFCCP reviews scheduled on or after August 24, 2018, and to open reviews to the extent “they do not conflict with OFCCP guidance or procedures existing prior to the effective date.”

Over the coming days we will break down the different components of the Directive including a review of the Directive’s details as to the development of “similarly situated” pay groupings and the Agency’s stated statistical methodology for analyzing compensation disparities.

Before digging into the details, we wanted to take a minute to highlight how the Directive reflects the Agency’s current commitment to transparency.   The “transparency” elements in the Directive are consistent with one of the four themes articulated recently by OFCCP Acting Director Craig Leen.

The first stated objective of the Directive is to

further clarify and provide additional transparency to contractors about OFCCP’s approach to conducting compensation evaluations.

In addition to providing a detailed explanation of its pay grouping and statistical methodology, the Directive requires, at the conclusion of a desk audit, that OFCCP provide the contractor with a written explanation describing the “general nature of any preliminary compensation disparities that warrant further information requests or onsite review.”

More importantly, and more substantively, the Directive requires that, when discrimination findings exists, OFCCP attach to a Pre-Determination Notice (PDN)

 the individual-level data necessary for the contractor to replicate the PAGs and regression results.

It remains to be seen how the transparency aspect of the new Directive will be implemented in compliance reviews. For example, will OFCCP be providing information sufficient for contractors to actually replicate OFCCP’s analysis (e.g. how the regression model was developed), or just provide detail around PAG development and the results of the regression analysis?

Per the Directive, OFCCP is committed to facilitating “transparency, consistency and resolution of discrimination findings through conciliation.”  Knowing whether OFCCP is “bucketing” variables or “squaring” time factors, which OFCCP disclosed may be part of their methodology, will impact contractors’ ability to replicate the results of the regression analysis.  A contractor’s ability to actually replicate the Agency’s analysis is an important piece of the conciliation process.   Thus, OFCCP’s level of transparency can have a material impact on the success of resolution.

Stay tuned in the coming days as we continue to raise these types of questions and provide analysis on the latest OFCCP directives.

 

BREAKING NEWS: OFCCP Issues New Compensation Directive and Other Directives

It’s here!  OFCCP has finally issued its long-awaited, much-anticipated, new compensation directive.  The Directive explicitly replaces the controversial Directive 307 and sets out the Agency’s current approach, and commitment to transparency, with respect to pay equity analyses.

Directive 2018-05: Analysis of Contractor Compensation Practices During a Compliance Evaluation outlines “standard procedures for reviewing contractor compensation practices during a compliance evaluation.”  The eight-page Directive explains the agency’s methodology for creating Pay Analysis Groups, details its statistical methodology and modeling, including a listing of the variables it will control for in its regression models.  The Directive also sets out OFCCP’s process for providing contractors with information regarding its conclusions.

OFCCP also released two additional directives, Directive 2018-06: Contractor Recognition Program and Directive 2018-07: Affirmative Action Program Verification Initiative.

We are in the process of digesting the Directives and will follow up soon with detailed analysis and insights.

OFCCP Issues Directive Regarding Religious Freedom

As we reported last week, in light of three Supreme Court cases addressing religious freedoms, OFCCP has issued a new Directive 2018-3 and a press release regarding “religion-exercising” organizations and individuals. The Directive cites three recent Supreme Court cases as well as Executive Orders issued by President Trump. With respect to the court cases, the Directive notes:

Recent court decisions have addressed the broad freedoms and anti-discrimination protections that must be afforded religion-exercising organizations and individuals under the United States Constitution and federal law.

The Directive also acknowledges

 recent Executive Orders have similarly reminded the federal government of its duty to protect religious exercise – and not to impede it.

The Directive notes federal contractors and subcontractors have non –discrimination obligations as set forth in Executive Order 11246, which include prohibitions on discrimination on the basis of religion as well as sexual orientation and gender identity. The Directive also reiterates a religious exemption contained in the Order that exempts certain contractors and sub-contractors from compliance with this section of the Executive Order. The religious exemption is limited to “a religious corporation, association, educational institution, or society, with respect to the employment of individuals of a particular religion to perform work connected with the carrying on of such [entity’s] activities.” 41 C.F.R. § 60-1.5(a)(5).

The Directive neither overturns President Obama’s Executive Order, which expanded Executive Order 11246 and its regulations to cover “sexual orientation” or “gender identity,” nor directly expands the religious exemption in the Order and regulations. Additionally, EEOC has taken the position that Title VII offers protection on the basis of gender identity and sexual orientation.

However, the Directive states it “supersedes” the Frequently Asked Questions regarding the religious freedom exemption to the extent they are inconsistent with these Supreme Court cases and President Trump’s Executive Orders. Thus, the Directive essentially modifies the FAQ guidance and instructs OFCCP to account for these legal developments in its enforcement and other efforts. Specifically, the Directive states OFCCP staff “should bear in mind” that:

  • They “cannot act in a manner that passes judgment upon or presupposes the illegitimacy of religious beliefs and practices” and must “proceed in a manner neutral toward and tolerant of … religious beliefs.”
  • They cannot “condition the availability of [opportunities] upon a recipient’s willingness to surrender his [or her] religiously impelled status.”
  • “[A] federal regulation’s restriction on the activities of a for-profit closely held corporation must comply with [the Religious Freedom Restoration Act].”
  • They must permit “faith-based and community organizations, to the fullest opportunity permitted by law, to compete on a level playing field for … [Federal] contracts.”6
  • They must respect the right of “religious people and institutions … to practice their faith without fear of discrimination or retaliation by the Federal Government.”

What Does This Mean for Contractors?

It would seem contractors are caught in a difficult situation. However, it’s important to keep in mind OFCCP’s FAQs and Directives are guidance documents that do not have the same authority as Executive Orders or the regulations.  The Directive states that OFCCP may pursue regulatory modifications to implement these cases. Until then, contractors should continue to comply with the regulations prohibiting discrimination on the basis of “sexual orientation” and “gender identity” as they have been, unless the contractor has a specific need to apply the principles of these Supreme Court cases to a particular situation.

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