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NELI experts: OFCCP implementing “thoughtful” plan to justify audit practices

October 15th, 2012  |  Cynthia L. Hackerott

Although there has been a “tremendous silence” from the OFCCP in the past six months on policy, there has been a “tremendous noise” from the agency on audits recently, John C. Fox, a former OFCCP official and current president of Fox, Wang & Morgan P.C. in San Jose, California, told the audience at the National Employment Law Institute’s (NELI) Thirtieth Annual Affirmative Action Briefing in Chicago, Illinois. Fox, who chaired the briefing, said that the OFCCP’s many pending policy initiatives are on hold, due in part to election year political concerns, but the agency is moving forward with a “very thoughtful and very integrated long range plan” for conducting audits.  In addition to Fox’s insights on the agency’s recent audit activity, David A. Copus, a shareholder of Ogletree Deakins in the Morristown, New Jersey office, provided a legal primer on the scope of the OFCCP’s investigative authority.

CSALs to be published on OFCCP website. An upcoming change to the OFCCP’s audit practice regarding Corporate Scheduling Announcement Letters (CSALs) is a subject of concern in the contractor community, Fox noted. Since August 2004, the OFCCP has used CSALs to provide contractors advance notification of compliance reviews. In past practice, the letter was provided to the corporate headquarters of federal contractors with two or more establishments identified for possible compliance evaluations during that scheduling cycle (approximately a six month period). However, with the round of CSALs issued in May 2012, the OFCCP began the practice of also sending letters to contractors with only one establishment slated for audit; in such cases, the CSAL was sent to that specific establishment location, rather than the contractor’s corporate headquarters.

On August 30, 2012, Thomas M. Dowd, the OFCCP’s Director of the Division of Program Operations announced, via a live remote broadcast to attendees at the Industry Liaison Group National Conference in Kona, Hawaii, that the OFCCP plans to publish all CSALs on the agency’s website beginning in 2013. Contractors are concerned about this change because they fear harassment from community service groups and unions once all audit notices are publicly posted on the OFCCP’s website, Fox said.

FCCM.  An example of a policy announcement that is currently on hold is the public release of the OFCCP’s revisions to its Federal Contract Compliance Manual (FCCM). OFCCP Director Patricia Shiu had previously announced that the revised FCCM would be issued by the Fall of 2011, but the latest word from the agency is that the FCCM will be released by the end of this year. Fox reported, however, that Director Shiu told him that the revised FCCM has been on her desk since December 2011. Moreover, even though the revised FCCM has not yet been released to the public, OFCCP compliance officers are implementing the revised manual in the field now, he said.

Limits on OFCCP’s audit authority. The OFCCP’s standard practice for a conducting a compliance review begins with a desk audit in which the agency sends the contractor its standard scheduling letter seeking the contractor’s written Affirmative Action Program (AAP) and supporting documentation. If the desk audit reveals “indicators” of potential discrimination, the OFCCP may then dispatch a compliance officer to conduct an on-site review of the contractor’s establishment. If the contractor refuses to submit to a compliance evaluation, the OFCCP may bring an enforcement action.

There are two primary constraints on the OFCCP’s investigative authority — the Fourth Amendment to the U.S. Constitution and the Paperwork Reduction Act, Copus explained. The OFCCP’s own regulations and internal directives and policies do not impose any practical constraints on agency, Copus said, noting that courts have rejected contractor arguments along those lines.

Fourth Amendment — off-site or on-site? Under the Fourth Amendment, there is a “clear distinction” between on-site or off-site demands, Copus pointed out. The legal standard for subpoenas applies to off-site investigations and the legal standard for warrants applies to on-site investigations. The seminal case regarding off-site investigations is the U.S. Supreme Court’s 1946 decision in Oklahoma Press Pub Co v Walling, where the Court ruled on a Labor Department demand of documents for an off-site review in an FLSA case. The Court held that a government agency can obtain any document for off-site review as long as: (1) the agency has the authority to conduct the investigation; (2) the demand for documents is specific; and (3) the documents demanded are relevant to compliance. All three of these elements are met in the OFCCP’s standard off-site desk audit demands, Copus said, adding that “the scheduling letter is not vague,” but rather “horribly specific and burdensome.” To defeat an off-site demand, the burden is on the contractor to prove that the OFCCP’s demand is in bad-faith or otherwise abusive. Challenging off-site production of documents is a losing battle for contractors, according to Copus.

Contractors have more substantive protections against on-site investigations. For on-site demands, the seminal case is the Supreme Court’s 1978 ruling in Marshall v Barlow’s Inc. In that case, the Court found that OSHA’s demand for entry onto a facility for safety inspection violated the Fourth Amendment because OSHA failed to justify its demand. There are only two acceptable justifications for an on-site demand, the Court ruled: (1) “probable cause,” meaning specific evidence of an existing violation of the law; or (2) a neutral selection plan. Thus, when the OFCCP makes a demand for onsite access or on-site production of documents or witnesses, they must have probable cause or have selected the facility for on-site review based on a neutral targeting system. It appears the OFCCP would assert that “indicators” of potential discrimination found from the analysis of documents submitted during the desk audit (off-site) phase of a compliance evaluation would equate to the “probable cause” necessary to justify an on-site investigation, Copus and Fox agreed. “It seems chaotic,” Copus said, referring to the OFCCP’s approach to audits, but “they definitely have a plan” and “’indicators’ are part of the plan.”

Under Barlow’s, the OFCCP’s on-site investigation cannot go beyond scope of probable cause i.e. the “indicators” identified by the agency. “Here, finally, is a battle you can win!” Copus enthused. He emphasized that it is important for contractors to get the OFCCP to define precisely what “indicators” the agency has identified before it conducts an on-site investigation and that contractors should not allow the OFCCP access beyond the scope of those indicators.

However, there is erroneous precedent, based on the Fifth Circuit’s 1981 decision in United States v Mississippi Power & Light Co and it progeny, providing that the OFCCP must have a neutral targeting system to select a contractor for a desk audit. These decisions are “just plainly wrong,” Copus said, noting that in Mississippi Power & Light, the Fifth Circuit did not make the critical distinction between an off-site and an on-site demand.

In contrast, the federal district court in D.C. got it right in November of last year in United Space Alliance, LLC v Solis, Copus stated. The court ruled against United Space Alliance, LLC in the contractor’s attempt to seek relief from an April 11, 2011, order of the DOL’s Administrative Review Board (ARB) adopting an earlier ALJ order requiring the contractor to submit to the OFCCP additional data for analyses beyond that which the contractor had submitted in response to the OFCCP’s standard scheduling letter. That decision, issued by the “highly respected” Chief Judge of the D.C. Circuit, Royce Lamberth, “handed the OFCCP a blank check” because the demand at issue was off-site, Copus explained. Rejecting Mississippi Power & Light, Judge Lamberth held that Barlow’s did not apply to the issue of targeting (i.e. selection for audit) and the desk audit requests because an on-site demand was not involved; rather, Oklahoma Press applied.

Like Fox, Copus believes that the OFCCP has a “master plan” regarding audits. Part of that plan, according to Copus, is that the Labor Department’s Solicitors’ Office now knows that they can rely on Oklahoma Press  to justify desk audit/off-site investigation demands under the Fourth Amendment.

Paperwork Reduction Act — specific or general? Even if an OFCCP investigation meets Fourth Amendment standards, the OFCCP may still be constrained by the Paperwork Reduction Act (PRA), Copus said. The PRA requires that requests for information using identical questions posed to, or reporting or recordkeeping requirements imposed on, ten or more members of the public be approved by the Office of Management and Budget (OMB).

In United Space Alliance, LLC, the contractor argued that the OFCCP’s request for employee specific data beyond that required by the OMB approved standard scheduling letter violated the PRA because it was based on an investigation standard (used to determine “indicators” of compensation bias) applied in OFCCP desk audits throughout the county. But the court disagreed. The PRA was not applicable because prior OMB approval is required only for general investigations of a category of companies; prior OMB approval is not necessary for investigations of specific companies. Because the OFCCP’s request was based upon “indicators” of potential discrimination specific to United Space Alliance, it was a PRA-exempt investigation of a specific company, the court concluded. The United Space Alliance decision will likely carry the day regarding targeting and offsite demands, Copus asserted.

Standardized requests not based on “indicators” probably need prior OMB approval, he noted, but this issue has not yet been tested in the courts. In sum, contractors should be able to challenge, based on the PRA, standardized off-site or on-site investigation demands not based on “indicators” of potential discrimination.

U.S. Security Associates, Inc. Fox also discussed two recent groundbreaking cases. First, on September 17, 2012, a DOL administrative law judge dismissed, for lack of subject matter jurisdiction, a federal contractor’s administrative complaint against the OFCCP, seeking a declaratory judgment that the agency violated the contractor’s Fourth Amendment rights by subjecting it to numerous audits without probable cause (thereby violating Barlow’s). The ALJ ruled that the applicable regulations allow the Labor Department’s Office of Administrative Law Judges (OALJ) jurisdiction over complaints filed only by the OFCCP through the Labor Department’s Office of the Solicitor and that the regulations do not expressly authorize the initiation of a hearing before the OALJ by the filing an administrative complaint or other motion for relief by a contractor or subcontractor.

This case, U.S. Security Associates, Inc v OFCCP (ALJ Case No 2012 OFC-4), is unprecedented because no contractor has ever previously initiated a suit against the OFCCP, Fox noted. He added that, on October 1, 2012, U.S. Security Associates appealed the ALJ’s decision to the ARB.

Monsanto settlement. Second, on July 26, 2012, a Labor Department ALJ approved a consent decree to settle OFCCP allegations that agricultural products producer/distributer Monsanto Corporation violated Executive Order 11246 when it used a selection process that discriminated against female applicants for entry level operator-mechanic-engineer (O-M-E) positions at its production plant in Soda Springs, Idaho (ALJ Case No 2012-OFC-5). Monsanto, while denying the allegations and asserting that the rejected applicants were lacking in qualifications, nevertheless agreed to implement a training program and engage in specified good faith efforts designed to remove barriers to employing female O-M-Es.

This settlement is the “most important thing the OFCCP has done in the past 25 years,” Fox observed. The consent decree is the first ever settlement in the history of the Solicitor’s Office to not include any backpay payment to resolve an OFCCP claim of unlawful discrimination, he noted. Rather, in the “highest and best tradition of affirmative action,” Monsanto has committed to create availability where there is very little by creating and sponsoring a paid apprentice training program, he pointed out. Fox believes this settlement will be the “future model” because many employers are leaving jobs unfilled due to the lack of vocational schools and training among jobseekers.

Fox, president, founder and senior partner of Fox, Wang & Morgan P.C., represents companies and tries cases in state and federal courts that involve primarily individual trade secret claims, employment contract disputes, wage-hour and employment discrimination class actions, wrongful termination, corporate investigations, and the use of statistics in employment matters. Fox previously served as Executive Assistant to the Director of the OFCCP, where he was responsible for all enforcement and policy matters.

Copus, who has more than 35 years of litigation and counseling experience, regularly represents employers in OFCCP matters, including hundreds of standard OFCCP compliance evaluations and “glass ceiling” audits. He began his legal career in 1969 at the Equal Employment Opportunity Commission (EEOC), where for many years he headed the National Programs Division. Since 1977, he has been in private practice representing employers, and he is currently in the Morristown, New Jersey office of Ogletree Deakins.

NELI’s Thirtieth Annual Affirmative Action Briefing was held in Chicago on October 4-5, 2012. For more information on NELI, including its publications and future programs, call (303) 861-5600 or go to NELI’s website at: www.neli.org.