People have been waiting for and wondering how the new administration will distinguish itself from the prior one with regard to affirmative action requirements for federal contractors, and we finally have more than a peek into what is to come from the Office of Federal Contract Compliance Programs (OFCCP).
The agency has issued two new directives in short order—DIR 2022-01, “Pay Equity Audits,” and DIR 2022-02, “Effective Compliance Evaluations and Enforcement.”
As previously noted, the directive regarding “pay equity audits” signals a few distressing trends. For one, the OFCCP is now taking a hardline approach to requiring contractors under audit to turn over the results of compensation analyses, as opposed to the underlying data and information about analysis methodology used, as has been the practice in recent years. This is likely to encourage contractors to mock up basic compensation “analyses” that are meant to satisfy the technical, regulatory requirements while revealing as little as possible about actual, potential pay issues. Rather than increase the efficiency of audits, this is likely to split the parties’ time and attention between fighting over what does and does not constitute a technically compliant compensation analysis, and fighting over whether and to what extent the OFCCP is entitled to see the “real” analyses contractors actually rely on.
The other is the fact that the OFCCP seems to have lost track of its mission when it comes to pay issues. The agency is tasked with eliminating pay discrimination under a Title VII framework. The agency is not tasked with a broader “pay equity” mandate. Yet the directive itself is titled, “Pay Equity Audits,” and makes 28 references to “pay equity” while referring to pay “discrimination” just three times in the entire document. This is about as clear a signal as we are likely to get that the OFCCP intends to stray from traditional Title VII jurisprudence to interpret Executive Order 11246. What is less clear is the larger Department of Labor’s appetite for defending such a divergence in court. But the OFCCP understands that until they are challenged, countless contractors will likely try to comply in an effort to “go along to get along” and get their audits closed.
But where DIR 2022-01 signals that the OFCCP is partially throwing out the Title VII playbook, DIR 2022-02 is a wholesale burning of the playbook under former Director Craig Leen, seen by many as a rare OFCCP Director who could split the difference and ride the line between the more traditional hard-nosed approaches of Democratic administrations and the “business-friendly” approaches of Republican ones. His directives were widely seen as tough, but fair, going to lengths to balance the interests of both the agency and the private employers it regulates.
The new directive is a big one, and we encourage you to read through yourself rather than rely on others’ analyses. That said, below are what we have identified as the major “highlights” and how they are likely to impact you.
Standing Early Resolution Procedures (ERP) On Its Head
One of the most alarming aspects of the new directive is tucked discretely into the very first section under “Policies and Procedures,” titled, “Compliance Evaluation and Strategic Enforcement Objectives.”
Most of the analysis here has focused on the OFCCP’s use of the term, “comprehensive compliance evaluations,” noting that the agency is doing away with the compliance checks and focused reviews implemented under Leen, and potentially signaling the return of “full audits” under former Director Patricia Shiu, sometimes referred to by certain pundits as a “full proctology exam.” But the agency is entitled to a “full exam” if that is what they want. There are legitimate questions about whether and to what extent a full audit is warranted in every instance and/or an effective use of the agency’s time and resources, but such an approach is squarely within the OFCCP’s prerogative. It’s the third subparagraph that we need to pay attention to.
The directive states that it is now OFCCP policy to implement a “coordinated, cross-regional approach to conducting multi-establishment compliance reviews.” It goes on to explain, “Where an employer has multiple establishments scheduled for review pursuant to OFCCP’s neutral scheduling methodology, OFCCP will coordinate evaluations of common policies and patterns across establishments. This coordination can benefit more workers where the contractor agrees to remedy violations and revise practices or policies company-wide or across a broader group of establishments that have similar practices to those identified during compliance evaluations of the scheduled establishments.”
Now take a look at DIR 2019-02, “Early Resolution Procedures.” If you are unfamiliar, the ERP directive gives contractors the option to resolve potential violations across multiple locations under review. It is the contractor’s choice, but the directive provides significant incentive to participate in ERP with potentially generous “safe harbor” provisions, and many contractors have taken the agency up on their offer in the last several years.
However, the new directive seems to indicate that the OFCCP intends to determine when ERP is appropriate and to take that choice away from the contractor. Far short of the agency’s ultimate dream of company-wide audits, this new policy appears to allow the OFCCP to decide to effectively combine the audits of multiple establishments, so long as they were all previously selected through a neutral selection process, as required.
Note that the directive uses the term, “coordination” to describe the agency’s cross-establishment efforts here, and does not elaborate on what that coordination will actually entail. But given the overall tone of the directive, “combining” audits, at least conceptually, may not be far from the mark. What that means for analyses of things like hiring, promotion, termination, and pay across multiple locations remains to be seen.
Goodbye to Grace Periods, Hello to “Audit-Ready” AAPs
It was a good run, but apparently all good runs eventually come to an end. The “run” in question is getting a meaningful “heads-up” from the agency that a location has been selected for audit. As the agency will happily confirm, the OFCCP is under absolutely no legal obligation to “warn” you when they intend to initiate an audit. But over the years certain practices have lent themselves to more transparency and fewer surprises.
For example, the OFCCP used to develop audit lists and keep them locked away in a salt mine in Utah or some such nonsense, and you didn’t know you were on that list until the audit scheduling letter arrived in the mail. As the years went by and for reasons not worth going into here, the agency concluded that everyone was better off if contractors at least knew that an audit might be coming. If their AAPs were not up to snuff, knowing that an audit could hit at any moment could prompt them to get their act together. And while this might “rob” the OFCCP of some violation stats, the point of the exercise is to protect the rights of employees, so encouraging contractors to get their acts together won out.
But mailing physical letters to contractors informing them that they lost the lottery had some major drawbacks. For one, it was expensive. Postage isn’t free, and neither is paper, ink, and personnel to stuff thousands of envelopes. Another recurring issue was where and to whom to send such a communication to achieve the intended goal. The agency flip-flopped over the years between sending these “heads-up” letters to the selected locations and sending them to the “headquarters” location.
Then the OFCCP discovered the Internet, did some careful research into whether or not they could or should divulge this type of information to the general public, and concluded that it was much cheaper and easier (and legal) to simply publish new audit lists on their website and let contractors go check the lists themselves like theater kids in high school finding out whether or not they were cast in the big musical (except not quite as happy-making).
And all through this the OFCCP developed an informal practice of holding actual scheduling letters for a certain period of time to give the heads-up letters time to arrive and do their job. Under former Director Shiu, that practice was suspended, and it was not unusual for contractors to receive a scheduling letter before the heads-up letter arrived, defeating the purpose of the heads-up. The practice of holding scheduling letters was re-implemented under Leen, and when the agency started simply publishing audit lists on their website, the agency formalized the practice. Since the “delay” was no longer dependent on when a contractor received the heads-up letter, the agency needed to give the contracting community as a whole enough time to receive notification that a new audit list had been generated and go check the list for their name. The OFCCP landed on a generous 45 days from the time the audit list is posted to the time the first scheduling letter would be issued from that list.
And then the OFCCP did a remarkable thing. They figured out that submitting “the AAP” is the easy part for contractors, whether or not they actually had an AAP “in the can” to submit when the letter arrived. Time and time again, though, contractors asked for extensions to provide the “supporting data,” including summary data regarding hires and applicants, and employee-level data regarding compensation.
A cynical person might assume contractors seeking these deadline extensions in audits simply had not actually evaluated their hiring or compensation data and needed extra time to catch up. But anyone who has gone through an OFCCP audit will tell you it is critical to analyze this data the way the OFCCP will analyze it and be prepared to essentially “litigate” from the agency’s starting point, not the employer’s. And that is often a very different animal than analyzing the information in a genuine effort to uncover and remedy and/or prevent actual harm.
Regardless, the agency started effectively “bifurcating” audits by requiring contractors to submit AAP reports and analyses by the standard 30-day deadline after receiving the scheduling letter. But an automatic 30-day extension would be granted upon request for the submission of additional support data (Itemized Listing paragraphs 15-22).
That is all gone now. Under the new directive, the agency can start sending scheduling letters upon publication of a new audit list. And while the agency could notify people of the publication of a new list—for instance, by sending out an alert to anyone who signed up for notices on their website—they currently do not and the directive makes no mention of anything other than simply “publishing” the list.
And there are no more automatic extensions for support data. Extensions may still be granted on a case-by-case basis as they always have, but the directive limits these extensions to “extraordinary circumstances” and provides five examples, all of which involve the unavailability of key personnel or a natural disaster. So not only does the agency expect you to prepare “complete” AAPs (see below), the agency expects you to prepare “audit-ready” AAPs.
Somewhat ironically, an “automatic” 30-day (or more) extension is still available as long as you are willing to let the head of your organization get a letter from the Department of Labor. If you do not submit all required materials in response to a scheduling letter within the allotted 30 days, the OFCCP can (and will, according to this directive) issue a “Notice to Show Cause.” That is the first step in initiating enforcement proceedings against you. But a “show cause notice” provides two paths: either demonstrate legitimate reason(s) why you are unable or not required to comply; or remedy the reason for the notice. And the OFCCP’s show cause notice provides 30 days to respond. In other words, if the OFCCP issues a show cause notice because you did not submit everything within 30 days, they give you another 30 days to either fix that (recommended) or go to court (not recommended). Just understand that the show cause notice is not sent to you, it is sent to the head of your organization. But if you are willing to take that hit, you can get at least 30 extra days to comply, likely more since it takes some time for the agency to notice you are delinquent and actually prepare and send the notice.
They Want It All
When it comes to additional information, documents, and data, the OFCCP has broad authority to request material relevant to any aspect of their EEO/AA requirements. The regulations and case law are fairly clear here and the broad scope of the agency’s authority is well established. The new directive reiterates that, apparently because at some point someone advanced a legal theory that the OFCCP is limited to gathering things enumerated in the scheduling letter and itemized listing, and under the previous administration there was perhaps some sympathy for that argument. But as far as this author knows, nothing was ever codified into agency policy limiting what the agency could and could not ask about or follow-up on.
There are some limitations and some gray areas, though, and the new directive appears to just blow right through them.
When it comes to the temporal scope of an OFCCP audit, it has long been understood that the OFCCP is limited to about two years of data (they typically start with one year and expand back in time if necessary and at the agency’s discretion). This is not a legal limitation, however, but a practical one. At most, contractors are required to maintain most AAP records for a maximum of two years. There is a small handful of items that come with a three-year recordkeeping requirement, but the “money” items like hiring and compensation are subject to a two-year recordkeeping requirement (one year for smaller contractors). So if the OFCCP tries to expand the scope of an audit more than two years back, contractors are likely to simply respond that the records are not available and there is little the agency can do since contractors are not required to keep these records indefinitely. And the new directive reiterates that the agency can go back two years if they deem it prudent.
The open question is whether and to what extent the OFCCP can request additional records for any time period after the initiation of an audit. The new directive simply states that they can, and implies there is no limit on this, but that is not exactly settled law.
The most recent and dramatic example came years ago from an audit of a major food and beverage manufacturer. As was the unfortunate practice of the agency at the time, the audit was humming along and then suddenly “went dark” on the OFCCP side. The employer did not receive any communication from the agency about the audit for over 18 months. When the agency “woke up” again and resumed the audit, they asked the employer to provide hire and applicant data for the intervening 18-month period. The employer refused, arguing that the agency can’t extend the temporal scope of an audit by simply sitting on it for a year and a half. On the eve of the parties going to litigation over the matter, the OFCCP settled the case, so we don’t have a judicial ruling on the matter. But it is unlikely that the OFCCP would have settled if they thought they would prevail.
Now the agency seems more confident that there is no limit on the scope of an audit as it drags on into the indefinite future. This will likely cause many contractors to reconsider old adages like, “Never wake a sleeping lion,” and instead keep their audits moving to the extent that is within their power.
There may not be a clearer signal regarding the agency’s view of its role in the universe than the section of the new directive titled, “Access to Employees, Applicants, and Other Witnesses.” Make no mistake, the OFCCP is in fact a federal law enforcement agency. They may not carry guns or badges, but they are here to take down bad actors!
The OFCCP appears to be convinced that employers will, without exception, pressure their employees to keep their mouths shut when and if the OFCCP comes calling for a visit. The agency has always been sensitive to employers “prepping” employees for audit interviews, which is why BCGi provides members with an employee rights fact sheet that they can provide employees and that those employees can show to an OFCCP compliance officer to answer the inevitable question, “Were you prepped in any way by your employer prior to this interview?” And we encourage contractors to prepare (not “prep”) their employees to make sure they understand what is going on and what their rights are. It’s only courtesy.
When it comes to managers and supervisors being interviewed in that capacity, the employer can (and should) absolutely “prep” them for the interview because in that interview they are representing the company, not themselves individually. The OFCCP does not like that, but it is unquestionably allowed and is a common practice.
Typically in an audit the OFCCP will identify employees, managers, and supervisors that they want to interview from information already provided in the desk audit submission. Usually the agency will identify either specific employees or specific job titles for “employee interviews” where the individual is being asked about how they are personally impacted by the employer’s policies. When it comes to manager/supervisor interviews, the agency is more likely to request to speak to knowledgeable people in particular functions, such as compensation and benefits, and let the employer identify who fits the bill. But in all cases, it has historically been the employer who contacts the individual employees and informs them that they have been invited to a really weird party.
In recent years, the OFCCP has gotten particularly interested in interviewing former employees. The extent to which a former employer is allowed to “prep” a former employee is a little fuzzy, but often moot since such overtures are not as likely to be as well-received by someone no longer on the payroll. But again, the agency has historically allowed the employer to make first contact and let the individual(s) know the OFCCP would like to speak to them, coordinate schedules for those willing to be interviewed, etc.
The new directive takes a new approach that is likely to set your law department’s hair on fire. Under DIR 2022-02, the agency hangs its hat on the somewhat dubious theory that contractors are required to not only maintain records regarding their affirmative action obligations, but all “records relevant to” an OFCCP investigation. True, once an audit is initiated, substantive materials that are relevant or may become relevant to that “investigation” must be preserved. You’ve probably heard of people implementing a “legal hold” during investigations and litigation. But that does not extend to anything and everything that could possibly pique the agency’s interest. There are limitations.
Here, the agency seems to believe that personal contact information is among the list of things the agency is entitled to. Notably, they cite to their own regulations for this proposition and not any established case law. They also indicate that the agency is entitled to entire “personnel files” and job applications, not just the portions of those materials that might be substantive to EEO/AA compliance. To put it bluntly, they are wrong. But someone will have to be willing to challenge a federal agency in court to resolve the matter. In the meantime, this is now the policy of the OFCCP.
And the agency no longer wants your help contacting people and scheduling interviews. They want to do that themselves, reaching out directly to current employees, former employees, and potentially even (presumably unsuccessful) job applicants.
What the agency is unlikely to emphasize (or even mention) to any of these people is that they are under no legal obligation to participate in an interview with the OFCCP. That is one of the points our employee rights fact sheet covers (informing people of their rights is not the same thing as discouraging participation). Current employees may have any number of reasons to prefer not to participate without any “signals” from the employer, but without knowing who the agency intends to contact, that could drastically change the way contractors need to handle OFCCP audits, which are not typically overly publicized.
And as the directive reminds us, employers do not have the right to have a representative present during the questioning of a current employee—in their capacity of an employee. Contractors do have a right to have a representative present when employees are being interviewed in their management capacity. And the employee always has the right to have their own representative present, regardless of the type of interview. If the employee chooses to have a company representative present, that is actually allowed, though the OFCCP will insist on some time alone with the employee to determine whether or not they were coerced into bringing the company representative along for the ride.
When it comes to former employees or just job seekers who submitted an application, the contractor has no role and no visibility whatsoever (unless a former employee is being interviewed in their capacity as a former manager, but that is still tricky).
The gatekeeper here is whether or not the OFCCP actually has the authority to require contractors to provide contact information and/or Social Security numbers for current or former employees or job applicants. If the lawsuit and application for a stay is not already being drafted… .
Some “Clarification” Regarding the New AAP-VI
After years of hard work, the OFCCP has finally arrived at effectively duplicating existing affirmative action program certification processes of other agencies, potentially in violation of the Paperwork Reduction Act, but we digress. Federal contractors (and subcontractors at any tier) who are required to prepare AAPs under Executive Order 11246 are now required to register and log in to a new “Contractor Portal” on an annual basis and certify that they do, in fact, prepare AAPs “as applicable.”
Those two words, “as applicable,” carry a lot of water here. Rather than ask contractors to certify whether or not they meet the AAP requirements as an organization, as they are authorized to do, the agency has bizarrely chosen to present contractors with a list of establishments submitted in prior EEO-1 reports and ask them to certify their compliance by clicking into each establishment. Never mind that except for organizations with few physical locations the EEO-1 reporting structure will almost never match the AAP reporting structure and that one has nothing to do with the other. In this inaugural year for the AAP-VI, the most recent EEO-1 data is from the 2018 reporting cycle, making it even more likely that contractors will be presented with a list of establishments that do not reflect current operations.
Note, however, that the OFCCP is still only authorized to require contractors to certify their compliance (or lack thereof) with their AAP requirements. The agency is not authorized to require contractors to report their AAP structure to the OFCCP at all, much less on an annual basis. Nor is the agency authorized to require contractors to “update” their EEO-1 establishments to reflect their AAP structure for the OFCCP’s convenience. They strongly encourage contractors to do so. In fact, they go to great lengths to imply that updating the EEO-1 data presented is actually required, going so far as to almost imply that there could be consequences for not doing so. But contractors would be fully compliant with the information collection if they simply clicked into each EEO-1 establishment presented and checked the appropriate box reflecting the overall organization’s compliance. And because the check box answers use those two little words, “as applicable,” this holds true whether or not a particular EEO-1 establishment is actually a location with its own AAP. For that matter, it holds true whether or not a particular EEO-1 establishment even exists or is operated by your organization. The agency has simply duplicated the same question and presented it behind each 2018 EEO-1 reporting location, making the certification process more burdensome for multi-establishment employers, and blowing the agency’s burden estimate out of the water, another potential violation of the Paperwork Reduction Act. But again, we digress.
The new directive “clarifies” that when contractors certify their AAP compliance, they are certifying that they prepare “complete” AAPs. Not for nothing, as they say, but that doesn’t need to be clarified unless the OFCCP is changing what it means to have a “complete” AAP. And that is what we call, “foreshadowing.”
The Contractor Portal asks contractors to verify that they have “developed and maintained affirmative action programs at each establishment, as applicable.” According to the OFCCP’s regulations, affirmative action programs consist of six “quantitative analyses” (organizational profile, job group analysis, placement of incumbents in job groups, determining availability, comparing incumbency to availability, and placement goals) and four additional components (designation of responsibility, identification of problem areas, action-oriented programs, and periodic internal audits). And that is it.
So what else might the OFCCP consider to be a part of a “complete” AAP? Most likely the agency is alluding to what it believes is a requirement that contractors perform “in-depth analyses” of its compensation systems, which the agency clearly interprets as statistical analyses. More on that below.
But the OFCCP is also likely signaling that a “complete AAP” includes everything the agency asks for in an audit, which goes far beyond the required elements of the AAP outlined above. The new directive appears to be quite concerned that contractors are only engaging in half measures when it comes to their AAPs. And the agency might have a point as there are contractors who, usually under bad legal advice, only prepare the required reports and analyses and nothing more unless they are audited. Worse, there may still be a few contractors out there that don’t prepare AAPs at all unless a facility comes up for review, in which case they will scramble to put everything together in the 30 days allotted by the OFCCP’s audit scheduling letter. But in our experience, those types of organizations are few and far between these days. Nonetheless, it is important to the OFCCP that you understand that when you certify AAP compliance in the Contractor Portal, you are in fact certifying your compliance with the entirety of your AAP obligations, not some subset.
DIR 2022-02 is a bit of a doozy. Overall it sends a clear signal that the agency is embracing a much more adversarial, “litigation” stance with contractors under audit. Many of the most drastic and concerning aspects rely on shaky legal theory that is likely to be challenged by interest groups and may be stayed (put on hold) pending the outcome of those challenges in court. Until that happens, though, this is the stated policy of the OFCCP now and is likely to drastically change the audit experience for most contractors.
While there is always some degree of swing with political changes in the administration, it is important to keep in mind that much of what former Director Leen implemented was in response to a Congressional investigation into the OFCCP’s practices at the time, characterized by some federal lawmakers as out of control. Audits dragged on for years with little consistency in policy or practice and often no transparency or visibility into the agency’s process. The OFCCP is not actually the FBI, and some degree of cooperation should be a fundamental principle.
Whether and to what extent this directive will lead to the types of abuses (and that is the proper term) we experienced under former Director Shiu remains to be seen, but this new directive certainly seems to open that door. As someone who has for years advocated for reasonable regulation and often successfully worked with the agency to find middle ground, this author is, in a word, disappointed to see the OFCCP throw this kind of grenade. We will just have to wait and assess the damage after the smoke clears. Our focus at BCGi is to help compliance professionals do more with what little they are given so that their affirmative action programs can be more meaningful and effective. In that process, those AAPs get closer to “audit-ready,” which is what the current OFCCP appears to be demanding. If you are interested in learning more about how BCGi can help you weather the storm, drop us a line at BCGi@Biddle.com.