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Federal district court in DC rules Bank of America consented to OFCCP desk audit, probable cause existed for on-site review

July 9th, 2014  |  Cynthia L. Hackerott

Adopting the bulk of a magistrate’s recommendations, the federal district court for the District of Columbia has ruled that substantial evidence supported a DOL Administrative Review Board (ARB) decision — finding that Bank of America (BOA) consented to the desk audit portion of an OFCCP compliance review and that there was specific evidence of a violation of Executive Order (EO) 11246 to support the OFCCP’s decision to conduct an on-site review. The court declined, however, to adopt the magistrate’s determination to the extent that she found that a desk audit was equivalent to an administrative subpoena for the purposes of Fourth Amendment analysis and that the OFCCP did not apply neutral administrative criteria for selecting a certain BOA branch location for a compliance review (Bank of Am v Solis, July 2, 2014, Sullivan, E).

Background. In 2004, the OFCCP conducted a desk audit of a BOA facility in Charlotte, North Carolina. Via the itemized listing that accompanies every audit scheduling letter, the OFCCP requested that the contractor provide the agency with its affirmative action programs (AAPs) and specified supporting documents and records, and BOA complied. By letter dated September 23, 2004, the OFCCP informed the bank that the data it submitted revealed indicators of a need for further in-depth investigation of the bank’s compensation practices. Included in this letter were tables indicating that BOA paid men more than women and non-minorities more than minorities in several job classifications. The letter requested that BOA submit additional data, and the bank complied, submitting the requested data as well as its explanation for the differences in employee pay at the facility.

In November 2004, the OFCCP performed a statistical regression analysis of the data it received during the desk audit and concluded that the data revealed indicators of salary disparities against women. Based on this analysis, the agency decided that an on-site investigation was necessary. Thus, in March 2005, the OFCCP informed BOA that it wanted to come onsite to interview certain employees and review certain categories of documents. After BOA refused to allow the OFCCP to conduct the on-site review, the OFCCP filed an administrative complaint alleging that BOA violated EO 11246 and its implementing regulations.

Administrative rulings. On May 22, 2007, the ALJ issued a “Recommended Order Enforcing On-Site Review” (ALJ Case No 2006-OFC-003) and on September 30, 2009, the ARB issued its final decision and order (ARB No 07-090).

Stating that it is “well settled” that one of the specifically established exceptions to the requirements of both a warrant and probable cause is a search that is conducted pursuant to consent, the ARB noted that during the desk audit stage, BOA turned over its AAP and supporting documents to the OFCCP knowingly and voluntarily, and the OFCCP did not coerce or mislead the bank to obtain its consent. Thus, the ALJ concluded that BOA consented to the first part of the compliance review, including selection of the branch for review. The ARB found that a preponderance of the evidence supported the ALJ’s determination. Further, the ARB refused to adopt BOA’s assertion that the agency’s compliance review scheduling letter was coercive or misrepresented the OFCCP’s authority, and thereby, negated any voluntary consent.

Since it was clear that BOA did not consent to the agency’s proposed on-site visit, the ARB next considered whether the proposed visit conformed to Fourth Amendment requirements. The OFCCP argued before the ALJ that the results of the November 2004 statistical regression analysis provided sufficient evidence of an existing violation. However, BOA’s expert demonstrated “conclusively” to the ALJ that the analysis was too flawed to support any conclusions about the bank’s personnel practices.

However, the ALJ noted that there is no requirement that the OFCCP base its decision to seek an on-site review on a regression analysis. That the regression analysis lacked probative value did not mean that the OFCCP lacked a reasonable basis to conduct such an on-site review. The ALJ found such basis in the agency’s September 23, 2004 letter to BOA, which contained tables that indicated that, for certain groups of employees, the average salaries of males were approximately 9 to 23 percent higher than those of females, and that the average salaries of non-minorities were approximately 5 to 23 percent higher than those of minorities. Indeed, the ALJ commented that “given this raw data, one wonders why OFCCP thought it needed a regression analysis to justify an on-site review.”

Like the ALJ, the ARB found that there was no evidence in the record disputing this data. Thus, the ARB held that the proposed on-site records inspection and employee interviews would not violate the Fourth Amendment, and directed BOA to give the OFCCP the requested access.

Magistrate’s recommendation. On October 26, 2009, the bank commenced the present action in the DC federal district court, petitioning the court to “hold unlawful and set aside” the final order of the ARB. In turn, the OFCCP moved for summary judgment. On December 13, 2011, the magistrate issued her report and recommended that the court: (1) deny BOA’s petition to set aside the ARB’s final order; and (2) grant the OFCCP’s motion for summary judgment (95 EPD ¶44,370).

Court’s ruling. The district court’s decision addressed the objections to the magistrate’s recommendations made by both parties. BOA objected to the magistrate’s findings generally, and made the specific objections to the following three findings: (1) that the OFCCP desk audit was equivalent to an administrative subpoena; (2) that the bank consented to the desk audit; and (3) that there was specific evidence of a violation of EO 11246 sufficient to support the constitutionality of an on-site review. The OFCCP only had one objection — that the magistrate should not have reached the conclusion that the OFCCP did not provide sufficient evidence that it applied a neutral administrative plan in initially selecting the bank facility at issue for a compliance review.

Fourth Amendment. The court explained that different standards apply to administrative warrants and subpoenas under the Fourth Amendment. For an administrative warrant to issue, the government must have either specific evidence of an existing violation or the ability to show that reasonable legislative or administrative standards such as a general administrative plan derived from neutral sources justify the warrant (i.e. a showing of “probable cause”).  A lower standard applies to administrative subpoenas; in order to be enforceable; the Fourth Amendment requires that the subpoena be sufficiently limited in scope, relevant in purpose, and specific in directive so that compliance will not be unreasonably burdensome.

Initial selection. In this case, BOA challenged two stages of the compliance review process: (1) its initial selection for audit, and (2) the OFCCP’s request to conduct an on-site review. Ultimately, both the ARB and the magistrate determined that whether the bank’s initial selection complied with the Fourth Amendment was immaterial because it had consented to the desk audit.

Of note, the magistrate concluded that the record showed the OFCCP did not comply with the standard set forth in the DC district court’s 2000 decision in Beverly Enterprises v Herman (79 EPD ¶40,258) regarding the initial selection of BOA for review. Beverly requires that for such a selection to be valid, it must be made pursuant to a neutral administrative plan. Although the record showed that BOA was not singled out for a compliance review, the OFCCP failed to document whether that it actually applied its neutral administrative plan (the Equal Employment Data System or EEDS which generates a random list of contractors) in a neutral manner with regard to the selection at issue, the magistrate found.

Voluntary consent. However, the OFCCP’s failure to meet the Beverly standard did not matter here because the magistrate determined, and the district court agreed, that BOA consented to the desk audit. An administrative search conducted without probable cause is nonetheless valid if conducted pursuant to voluntary, contemporaneous consent, the court noted. Observing that BOA “is a sophisticated financial institution that is not new to the compliance review process” and not a novice “when it comes to challenging the OFCCP’s efforts to complete compliance reviews,” the court found the facts presented belied the bank’s contention that its consent was anything but voluntary.

The audit scheduling letter was not coercive in nature, the court found. The letter provided basic information about the stages of a compliance review and cited to the relevant statutory authority, and it was not suffused with threats to induce compliance. Moreover, although BOA did make inquiries into whether its facility had been selected as a result of a neutral administrative plan and not the result of the unfettered discretion of an officer in the field, the bank continued to make subsequent submissions of documents in response to the OFCCP’s requests.

Alternate ground for desk audit validity. As an alternative ground for finding that the desk audit was valid under the Fourth Amendment, the magistrate determined that the desk audit was equivalent to an administrative subpoena, and that the OFCCP complied with the administrative subpoena standard in the way it conducted the desk audit. The court determined that it did not need to address BOA’s objection regarding this alternative finding because the court adopted the magistrate’s conclusion that the bank consented to the desk audit.

On-site review. While the bank had consented to the desk audit portion of the compliance review, that consent was withdrawn for the on-site portion of the review. Therefore, as explained above, probable cause was required to justify an on-site review under the Fourth Amendment. Agreeing with the magistrate, the court determined that the ARB’s final order, finding there was specific evidence of an existing violation of EO 11246 – i.e. probable cause – to justify an on-site review, was supported by substantial evidence. Even though the OFCCP asserted in the administrative proceedings that the on-site review was justified based on its regression analysis, which was later found to be unreliable, the ALJ and ARB reached the same conclusion (that the on-site review was justified) based on the results from the desk audit, to which BOA consented. Specifically, the ALJ and the ARB found that the raw desk audit data set that was captured in the September 23, 2004, letter (as detailed above) provided the likelihood of specific evidence of an existing violation regarding the BOA facility under audit.

Regardless of whether the OFCCP relied on the raw desk audit data or on a flawed regression analysis, the court found that the pay disparities identified in the raw data were sufficient to provide the agency with a reasonable suspicion of a violation. As such, the court affirmed the portion of magistrate’s recommendation finding that there was specific evidence of an existing violation of EO 11246 to justify the OFCCP’s proposed on-site review.

Neutral administrative plan. The OFCCP argued, and the court agreed, that the magistrate should not have reached the conclusion that the OFCCP did not provide sufficient evidence that it applied a neutral administrative plan in initially selecting the BOA facility for a compliance review because that conclusion exceeded the scope of the court’s review. The ARB determined that it need not consider whether the OFCCP selected the bank facility at issue for compliance review in accordance with a neutral administrative plan because BOA consented to the desk audit; thus, because the magistrate’s findings on this issue were outside the scope of its review, the court did not adopt them.

Accordingly, the court granted the OFCCP’s motion for summary judgment and denied BOA’s motion to set aside the ARB’s order.