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NELI experts discuss current OFCCP audit practices and pending regulatory initiatives; nationwide clearinghouse for supplemental compensation data requests announced

April 17th, 2013  |  Cynthia L. Hackerott

The OFCCP has thrown away its entire scheme for audit selection, OFCCP expert John C. Fox stated during an OFCCP update webinar presented on April 11, 2012, by the National Employment Law Institute (NELI). Although the law regarding audits has not changed, the process and way the OFCCP selects contractors for audit is entirely different. These policy initiatives are reflected in the latest round of Corporate Scheduling Announcement Letters (CSALs), which were sent out by the OFCCP on March 27, 2013. The CSAL provides advance notification of compliance reviews and is intended to facilitate the contractor’s production of materials and information should that contractor receive a scheduling letter and be selected for an evaluation. Audits are no longer routine or random, rather, the OFCCP is selecting contractors for auditing by industry, with the health care industry being a primary focus and manufacturing a distant second, Fox reported.

Renowned employment law expert David A. Copus joined Fox in the presentation. Copus and Fox both noted that long and contentious audits have been the trend during the current administration and that contractors are continuing to report that the OFCCP is “bullying” them during audits.  Moreover, the cost to defend even non-problematic audits is skyrocketing, according to Fox. The OFCCP is conducting fewer audits, but these audits are more directed to a single company and the agency is delving deeper and spending a lot more time on each audit.   

Pending regulatory proposals on veterans and workers with disabilities. Whether the OFCCP’s pending proposed regulatory revisions regarding workers with disabilities (76 FR 77056-77105) and protected veterans (76 FR 23358-23425) will be finalized is hard to tell, Fox said. The OFCCP has been largely criticized for failing to understand the enormous cost and time burdens of the new record-keeping and other requirements contained in these proposals.

The timing for publishing any finalized regulations will depend on several factors including when and whether the Senate confirms the President’s pending nomination of Thomas Perez (currently head of the Justice Department’s Civil Rights Division) to replace Hilda Solis as the Secretary of Labor. Moreover, if the Republicans gain control of the Senate in the November 2014 mid-term elections, any pending regulations not finalized by January 2015 aren’t likely to advance.

Construction regulations. In its regulatory agenda, the OFCCP states that it plans to revise the regulations in 41 CFR Parts 60-1 and 60-4 implementing the affirmative action requirements of Executive Order 11246 that are applicable to federal and federally assisted construction contractors. The current regulations provide that the OFCCP issue goals and timetables for the utilization of minorities and women based on appropriate workforce, demographic or other relevant data. However, the existing minority goals for construction were issued in a 1980 based on 1970 Census data, the most current data available at the time. The goals for the utilization of women in the construction occupations were issued in 1978, and extended indefinitely in 1980, and were also developed using 1970 Census data.

Even though the existing regulations are “hopelessly out of date,” Fox said he doubts any proposal to revise them will be published during the Obama Administration because of the large number of other pending OFCCP initiatives.

Compensation survey. Among the other items on the OFCCP’s regulatory agenda is the development of a new strategic compensation data collection tool designed to effectively identify contractors that are likely to violate EO 11246. This potential data collection tool may also play a key role in the agency’s establishment-specific, contractor-wide, and industry-wide analyses.

However, a recent report from the National Research Council (NRC) of the National Academies of Sciences (NAS) “has thrown a bucket of ice water on this strategy” according to Copus. A pre-publication version of the report, entitled “Collecting Compensation Data from Employers,” was released on August 15, 2012.

Fox cited several quotes from the report, including:

“Furthermore, the panel concludes that existing studies of the cost-effectiveness of an instrument for collecting wage data and the resulting burden are inadequate to assess any new program. Unless the agencies [the U.S. Equal Employment Opportunity Commission, the Office of Federal Contract Compliance Programs, and the U.S. Department of Justice] have a comprehensive plan that includes the form of the data collection, it will not be possible to determine, with precision, the actual burden on employers and the probable costs and benefits of the collection. Therefore, the first recommendation is to develop such a plan.”

The report also recommended that after the agencies complete the comprehensive plan for use of earnings data, they should “initiate a pilot study to test the collection instrument and the plan for the use of the data. The pilot study should be conducted by an independent contractor charged with measuring the resulting data quality, fitness for use in the comprehensive plan, cost, and respondent burden.”

Both Copus and Fox agreed that the tasks involved in following these recommendations cannot be completed during the remaining course of the Obama Administration. Fox said that following these recommendations would take at least six years. Copus noted this situation doesn’t mean that the OFCCP has given up on systemic compensation discrimination enforcement; it simply means that the agency won’t pursue such enforcement in the form of a new compensation survey.  

New compensation directive. Declining to provide any specific analytical formulas, the OFCCP announced on February 26, a flexible, case-by-case approach to its analysis of systemic compensation discrimination. This policy announcement was made in conjunction with the OFCCP’s “Notice of Final Rescission” (NFR) published in the February 28, 2013 Federal Register (78 FR 13508-13520) of its 2006 notices on systemic compensation discrimination. Along with the NFR, the OFCCP has also issued Directive No 307, entitled, “Procedures for Reviewing Contractor Compensation Systems and Practices.” Links to the NFR, the new directive, and related documents, including a FAQ, are posted on the OFCCP website.

Despite the “ballyhooing” of the OFCCP announcements, there is really nothing new here in terms of the OFCCP’s analytical approach to compensation, Fox asserted. The Obama Administration has ignored the Bush Administration standards for years, so saying they aren’t following them is not a big deal.  Although the analytical approach will remain same, contractors should be cognizant of operational changes in the coming months/years, he advised.

Problems with the OFCCP’s analytical approach.  Fox and Copus noted problems with the OFCCP’s analytical approach to compensation. First, the agency’s is “broadbanding” — i.e. consolidating a contractor’s existing job titles and pay grades — because larger groups are better for conducting meaningful statistical analyses. However, Fox pointed out that such aggregation of job titles with very different parts is like comparing apples and oranges.

In addition, the OFCCP’s practice of conducting compensation analysis by looking at current pay data is erroneous because the relevant legal standard requires looking at pay decisions (meaning events that impact pay such hiring, promotions, pay freezes, bonuses, and demotions). In Directive No 307 and the related policy statements, the OFCCP states it will enforce pay discrimination based on Title VII principles, but Copus pointed out that the focus of Title VII is on decisions not data. He explained that the only thing the Ledbetter Fair Pay Act did was to extend the charge filing period indefinitely when a Title VII claimant challenges a discrete pay decision. It did not however, change the requirement, mandated in the Supreme Court’s 2007 decision in Ledbetter v Goodyear Tire & Rubber Co, that Title VII claimants must identify and challenge discrete pay decisions.

Supplemental compensation data requests. 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. Paragraph # 11 of the “Itemized Listing” that accompanies the scheduling letter requires the submission of annualized compensation data by either salary range, rate, grade or level showing total number of employees by race and gender and total compensation by race and gender. In its initial review of this data, the OFCCP is looking for indicators of potential discrimination. After the OFCCP receives a contractor’s response to Paragraph 11, it uses an algorithm for an initial assessment of the data to see if indicators of potential discrimination are present — the algorithm does not lead to a finding of unlawful discrimination, but rather is a means to trip the OFCCP’s alert system for further investigation. The algorithm has evolved over time, and the OFCCP has never officially announced or otherwise explicitly communicated to the public the precise algorithm.

If data submitted by the contractor does not pass muster under the OFCCP’s algorithm, the OFCCP will then make what Fox referred to as a “supplemental data request” (SDR). In such cases, the OFCCP will send a letter to the contractor requesting additional data for each non-bargaining unit (i.e. non-union) employee in the entire workforce at the establishment under audit. There are various versions of this data request, but it generally consists of about 14 factors. Once the OFCCP compliance officer/district office receives the contractor’s response, the data is sent to the Division of Statistics and Technology in the OFCCP’s national office, Fox said. If the results of its analysis of the supplemental compensation data are satisfactory to the OFCCP, the agency will administratively close the compensation portion of the desk audit. However, if the supplemental data fails the OFCCP’s review, the OFCCP may conduct an onsite audit.

Paperwork Reduction Act. The Paperwork Reduction Act (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).  The scheduling letter and corresponding itemized listing (including Paragraph 11) have been approved the OMB, but the follow-up SDRs do not have OMB approval, and thus may violate the PRA, Fox pointed out.

Nationwide clearinghouse for supplemental data requests.  In an effort to discover SDRs that violate the PRA, Fox announced that his firm, Fox, Wang & Morgan P.C. is creating a nationwide clearinghouse for OFCCP SDR letters/emails. Starting immediately, contractors may send their actual OFCCP SDR letters and emails to: Jfox@foxwangmorgan.com. The firm will post all OFCCP SDRs on its website (http://foxwangmorgan.com/) under a new tab titled “OFCCP Supplemental Data Requests”. Those who visit the site and find “9 or more” of a particular OFCCP SDR (that matches the SDR their company or client has received, thus, bringing the count of that particular SDR to ten or more), will then know that they may successfully resist the OFCCP’s SDR to their company or client because it violates the PRA.

The presenters. Fox is the President and a founder of Fox, Wang & Morgan P.C. He leads large and complex litigation matters in state and federal courts, in cases involving wage-hour and discrimination class actions, trade secret claims, employment contract disputes, 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 has more than 35 years of litigation and counseling experience and has regularly represented 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 has recently retired from Ogletree Deakins in Morristown, New Jersey.

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.