Federal contractors should be aware that the Office of Federal Contract Compliance Programs (OFCCP) recently issued a much anticipated directive impacting certain affirmative action programs. The new directive, which became effective on June 14, 2011, outlines the procedures for developing and maintaining a “Functional Affirmative Action Program” (FAAP).  The directive ends OFCCP’s year-long moratorium on processing contractor requests to develop or renew FAAP agreements.

FAAPs are affirmative action programs covering a particular business function or business unit rather than covering a particular establishment or worksite. For example, covered contractors may develop an FAAP for all marketing associates across multiple offices in different states, instead of having to create affirmative action programs for each individual establishment where those associates work. Unlike establishment-based programs, covered contractors cannot implement FAAPs without first obtaining OFCCP approval and then entering into an agreement with the Agency.
 

The new directive makes what OFCCP considers to be “significant changes” to the FAAP approval and agreement processes. Under the directive, a contractor must obtain prior written approval from OFCCP before developing an FAAP. This terminates OFCCP’s past practice of allowing for automatic approval if the Agency failed to act on a contractor’s FAAP request within 120 days.

The directive also sets forth contractor eligibility requirements. Each business function or unit must meet the following criteria to be considered eligible for an FAAP:

• Currently exist and operate autonomously;
• Have personnel practices or transactional activities (e.g., hires, promotions, terminations, compensation decisions) that are distinguishable from other parts of the contractor’s organization;
• Include at least 50 employees;
• Have its own managing official; and
• Have the ability to track and maintain its own personnel activity.

In addition, FAAP agreements will now expire after three years, rather than five, and contractors could face compliance audits if they fail to submit an annual FAAP update.

In terms of practical guidance, the directive outlines the elements that must be included in an FAAP, the basic principles of FAAP agreements, and the procedures for requesting, modifying, updating, renewing, or terminating such agreements. Attachments to the directive provide a checklist of documents that must be submitted during the approval process and examples of how contractors may develop either an establishment-based affirmative action program or the alternative FAAP. OFCCP has also published a list of Frequently Asked Questions regarding FAAPs on its website.

Employers considering the use of FAAPs should carefully review the obligations and requirements imposed by the new directive. At the same time, employers with existing FAAPs should review the directive for guidance on renewing, modifying, or terminating such agreements.
 

Documentation of employment activities and workplace investigations is critical for all employers. Federal contractors subject to affirmative action compliance audits by the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) must be particularly diligent. The existence or absence of appropriate documentation during an OFCCP compliance audit often dictates the length and ultimate result of the audit.

Some of the records that are essential to the successful completion of an affirmative action audit are:

• proof of listing all non-executive vacancies with the local office of the Department of Labor;
• copies of outreach letters/e-mails to organizations showing efforts to attract qualified minorities, women, individuals with disabilities, and veterans;
• applicant tracking data, identifying race, gender, position applied for, and disposition of all “applicants;”
• identification by race and gender of hires, promotions, transfers, demotions, and terminations;
• annual adverse impact analyses of personnel activities, including applicant/hires, promotions, transfers, demotions, and terminations;
•  annual analysis of compensation for potential disparities due to race and/or gender; and
• copies of EEO-1 and VETS-100 filings for the prior three years.

 

An employer that has not sufficiently documented its hiring and other personnel decisions can face serious problems during an audit, where it has the burden of explaining why particular decisions were made. If the employer does not have a system of recording and maintaining information about its hiring and other personnel decisions, it will be very difficult to recreate the decision-making process during the audit.

Not only must a federal contractor ensure that all personnel activity is documented in order to successfully navigate an audit, it must also take steps to maintain the documentation on a longer term basis. While OFCCP regulations require covered employers to maintain all applicable records for a minimum of two years, many federal and state record retention laws exceed that requirement. Federal and state statutes of limitations on bringing employment claims may also counsel in favor of retaining records for longer than the two year period required by OFCCP.

One record OFCCP will not review during new audits is the I-9 Form used by employers to verify the identity and U.S. employment eligibility of hired individuals. OFCCP Director Patricia Shiu recently announced that OFCCP will no longer inspect employers’ I-9 Forms during on-site compliance reviews. Director Shiu indicated that a new directive pertaining to I-9 inspections would soon be issued.
 

As all federal contractors and subcontractors should know, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP), is the federal agency charged with enforcing the non-discrimination and affirmative action obligations imposed on federal contractors and subcontractors by Executive Order 11246 (E.O. 11246). Although OFCCP’s ability to pursue a more ambitious agenda under the Obama administration has recently been hampered by budget issues, the Agency has been far from dormant. Its recent activity should serve as a warning to federal contractors that they may face a more aggressive Agency once the budget issues are straightened out. Some of OFCCP’s most recent activity is described below.

Settlements In Hiring Discrimination Cases

As reported in BNA’s Daily Labor Report, this month alone, OFCCP has announced the approval of three consent decrees which settled allegations of discrimination in hiring. In all three matters, the case was generated not by the filing of an individual complaint of discrimination, but by an OFCCP compliance audit which uncovered apparent statistical evidence of discrimination. On October 7, 2010, OFCCP announced that it had entered into a consent decree with one of the nation’s largest Coca-Cola bottlers. The litigation arose out of an OFCCP compliance audit of the employer’s Charlotte facility, during which OFCCP concluded there was evidence of a statistically significant adverse impact on minority applicants for sales support positions. The employer agreed to pay a class of African-American and Hispanic applicants $495,000.

In a consent decree filed with the United States Department of Labor’s Office of Administrative Law Judges on October 20, OFCCP and a Texas employer settled allegations of sex discrimination in hiring which arose out of an OFCCP compliance evaluation at one of the employer’s California facilities. The employer agreed to pay $167,000 to members of a class of female applicants, to hire some of the applicants and to provide future compliance reports to OFCCP. The very next day, OFCCP announced that it had entered into a $570,000 settlement with a subsidiary of Tyson Foods in another hiring discrimination case. That case was also generated by an OFCCP compliance audit which uncovered a statistically significant adverse impact in hiring which disfavored white and African-American applicants and favored Hispanic applicants.

All three settlements serve as timely reminders of the benefits federal contractors can obtain by following the hiring practices prescribed in their affirmative action plans, properly tracking applicant flow data, and analyzing that data regularly to determine whether the hiring practices are generating any potential adverse impact. Failure to do so creates the risk of potential liability even without the filing of a complaint by an applicant, if OFCCP conducts a routine compliance audit.

OFCCP Jurisdiction Over Health Care Providers

In an unrelated development also reported in the Daily Labor Report, OFCCP continues to assert jurisdiction over health care providers that provide services to federal employees pursuant to a government contract or subcontract. On October 18, a Department of Labor Administrative Law Judge found that a Florida hospital which provides medical services to active and retired military personnel, pursuant to a contract with another federal contractor administering a health care plan for those individuals, was a federal subcontractor covered by E.O 11246, and was subject to OFCCP’s jurisdiction. The Administrative Law Judge relied on a case decided last year, which held that University of Pittsburgh Medical Center branches are federal subcontractors because they have a contract with the federal Office of Personnel Management to provide health care services to federal employees. That ruling is currently being challenged in United States District Court.
 

A new regulation issued jointly by several federal agencies requires many federal contractors to disclose first-tier subcontract awards of $25,000 or more and to disclose the compensation paid to their top five executives. The new regulation was published in the Federal Register on July 8, 2010 and became effective on that date. The regulation was issued by the Department of Defense, the General Services Administration, and the National Aeronautics and Space Administration and implements the Federal Funding Accountability and Transparency Act (“FFATA”). The FFATA’s provisions state that it was enacted to reduce “wasteful and unnecessary spending” by requiring the federal government to “establish a free, public, on-line database containing full disclosure of all federal contract award information.”

The new regulation requires prime contractors to report first-tier subcontract awards of $25,000 or more at http://www.fsrs.gov. The regulation also requires contractors to report, at http://www.ccr.gov, the name and total compensation of each of the contractor’s five most highly compensated executives for the contractor’s preceding completed fiscal year in which the awards were made, and to make a similar report for subcontractors at http://www.fsrs.gov. The required information reported by federal contractors will be made available to the public.
 

Contractors and subcontractors are exempt from the reporting requirements contained in the regulation if their gross income is less than $300,000. The disclosure of compensation paid to the top five executives will be required only if the contractor or subcontractor receives at least 80 percent of its annual gross revenue and $25 million from federal awards, and if senior executives do not already publicly report compensation information.

The preamble to the new regulation acknowledges that it “may have a significant economic impact on a substantial number of small entities.” To address this burden, the reporting obligation will be phased in. Until September 30, 2010, new subcontracts must be reported only on prime contracts worth more than $20 million. From October 1, 2010 to February 28, 2011, reporting will be required for prime contracts worth more than $550,000. As of March 1, 2011, reporting will be required for all subcontracts at the $25,000 or greater threshold.
 

The United States Department of Labor (“USDOL”) recently published a final rule in the Federal Register, which requires covered federal contractors and subcontractors to inform employees of their rights under the National Labor Relations Act (“NLRA").  The final rule is effective June 21, 2010, and the corresponding regulations will be codified at 29 C.F.R. Part 471.

Under the final rule, federal agencies must include a clause in contracts for “personal property” and “non-personal services” requiring certain contractors and subcontractors with which they do business to post specific notices informing employees of their NLRA rights. This new posting requirement does not apply to prime contracts under the Simplified Acquisition Threshold of $100,000 or to subcontracts below $10,000. Additional exemptions are also set forth in the final rule.
 

The final rule implements Executive Order (“E.O.”) 13496, which President Obama signed on January 30, 2009.  E.O. 13496 repealed a previous notice requirement, known as the “Beck Poster,” and prescribed new notice requirements which are codified in the final rule. In contrast to the former Beck Poster (which informed employees of their right to not join a union and to opt out of paying a portion of their union dues used for non-representational activities), the new rule requires that employees be informed, among other things, of their rights to organize and bargain collectively and to engage in other protected concerted activity under the NLRA. In addition, the notice must provide examples of illegal employer conduct and information on where employees may file complaints with the National Labor Relations Board.

The final rule also specifies that covered entities must post the new notice in “conspicuous places in and about the contractor’s plants and offices so that the notice is prominent and readily seen by employees.” Conspicuous placement includes, but may not be limited to, areas where contractors and subcontractors post other employee notices regarding terms and conditions of employment. The notice must also be posted where covered employees “engage in activities relating to the performance of the contract.” Contractors and subcontractors who post employee notices electronically must post the new notice in the same manner, subject to specific electronic posting requirements. Electronic posts cannot be used as a substitute for physical posting. USDOL has published on its website a copy of the new NLRA poster and an accompanying “Fact Sheet.”