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How to Gain Executive Buy-In for Your Compliance Needs

December 1, 2020 By Matt Nusbaum

It’s common for executives to ignore, underestimate, or pay lip service to Equal Employment Opportunity (EEO) and Affirmative Action (AA) regulations. Unfortunately, many feel it’s easier this way.

Taking compliance regulations seriously means actively looking for problems, bringing them to light, and dealing with them directly — the antithesis of the traditional business approach to mitigating potential legal exposure. AA and EEO compliance, specifically, means confronting systemic racism and implicit bias aggressively at a moment when both matters are hot-button issues. No company wants to be discriminatory, but few want to confess publicly to finding instances of those problems in their operation — especially senior leadership desperate to avoid bad PR.

Ignoring AA/EEO compliance seems like the path of least resistance, but any compliance officer can tell you that ignorance of the rules isn’t a sound strategy. Furthermore, any real efforts to increase and encourage diversity in the workplace must have executive buy-in to have any hope of succeeding. Actual change comes from the top,but it’s up to compliance officers to demonstrate the benefits of a compliance program.

The Business Case for Diversity and Inclusion

All explanations for why executive buy-in is often lacking with regard to diversity and inclusion boils down to one thing: the business case. If executives make something a priority, it’s typically because they see some advantage in acting fast or some risk in doing nothing. With diversity and inclusion, it’s harder to see how aggressive action or serious investment fit into the business strategy.

At least, that’s the assumption. Leaders think it’s impossible to meaningfully quantify the amount of money and heartache that could be saved by implementing strong AA/EEO compliance programs and not being cited for violations or having to settle discrimination claims. But that’s objectively false.

The Department of Labor publishes all financial settlements it collects from companies that violate EEO and AA regulations. In 2019 alone, the agency collected more than $40 million in settlements from companies that discriminated based on race, color, religion, sex, sexual orientation, gender identity, national origin, disability, or veteran status — $16 million more than it had ever collected before. In this way, executives can clearly see the cost of neglecting AA/EEO compliance. Less quantifiable but potentially even more costly is the brand damage of being publicly identified as a discriminatory company.

To put the risk of downplaying EEO/AA regulations into perspective, consider the story of a client I recently worked with that chose to furlough its EEO compliance department at the outset of COVID-19 — despite an ongoing DOL audit. The company assumed its in-house counsel and an outside attorney could handle things without incident. On the contrary, a lack of experience led to a whole raft of damages and triggered years of extra monitoring by the DOL. The company stands to spend at least$1 million over the next five years to correct this mistake, which was entirely caused by a lack of executive buy-in around the importance of strict compliance.

This is an extreme example of a common attitude: that compliance is secondary. If companies want to have any hope of avoiding expensive damages and irreparable harm to their reputations, this attitude needs to change.

Making Compliance a Top-Down Priority

One way to improve executive buy-in is to make someone in the C-suite responsible for diversity and inclusion efforts. Having a “chief diversity officer” sitting at the table ensures those considerations factor into every major decision the company makes.

In conjunction with professional compliance officers and the legal department, that executive can begin to make the case that diversity in the workplace is a priority. They can point to mountains of anecdotal evidence showing that diverse organizations attract better talent, produce more innovation, and enjoy a healthier culture. Advocates can also use the argument outlined above to make the business case to executives unconvinced by the “soft” benefits of a compliance program. The right approach should highlight every advantage and address every objection. When done correctly, an EEO/AA program is one of the best tools a company has to mitigate its potential legal exposure with regard to employment discrimination. A strong case can and should be made that a healthy EEO/AA program provides a broader, stronger base from which other departments can grow their revenue contributions with diverse talent, fresh ideas, and a culture that encourages innovation. What executive wouldn’t want that?

How to Be Ready for a DOL Compliance Audit

November 24, 2020 By Matt Nusbaum

Embracing a robust DOL compliance audit process offers businesses unspeakable value, but the idea is daunting and often unfamiliar.

It’s critically important to understand the basic elements of an audit before trying to adopt a process. Audits used to determine whether a company has an effective compliance program are somewhat of a “game,” with the contractor tasked with convincing a skeptical government official that the organization has things under control with regard to EEO/AA.

What this looks like differs from organization to organization and circumstance to circumstance. What it doesn’t look like is simply showcasing “technical compliance.” Having the elements of an affirmative action program in place is only the bare minimum — what businesses actually do with those elements matters far more.

Posting a policy in the company break room, for instance, is helpful and sometimes required to ensure compliance. But audits don’t focus on whether a policy is posted and visible — they look at whether (and to what extent) that policy is being followed and applied consistently. It’s about achieving equal employment opportunity.

What a DOL Audit Involves and Requires

Just how much time and resources must be devoted to a DOL audit? In 2015, Congress found alarming evidence that the answer to that question was “too much.” Businesses with no violations saw audits lasting roughly six months, and those with even minor technical violations worked through the process for more than a year. When discrimination allegations were involved, an audit could take up to four years.

The good news? When a business undergoes a DOL audit, no one goes to jail or incurs fines — the DOL doesn’t actually have the authority to levy fines. However, the agency regularly enters into DOL settlement agreements and consent decrees, and it frequently wins court orders involving invasive monitoring of employment practices that allow it to collect damages for alleged discrimination victims, which can quickly reach six or seven figures.

There’s also the matter of public relations issues that can arise during and because of an audit. Because DOL publishes all financial agreements on its website and regularly issues press releases about discrimination settlements, a company’s issues become public knowledge. As a result, those reports can lead to criticism and reputational damage.

Perfecting the Compliance Audit Process

How can compliance professionals prepare for and perform well during a robust DOL compliance audit process? What do they need to do before submission or to prepare for follow-ups before or after an on-site visit?

They don’t need law degrees, but they do need a deep understanding of the underlying goals of equal employment opportunity and affirmative action. The what is fairly useless without the why. Every audit seeks to answer core questions about a company’s culture, so every answer must show that the company has an active culture of inclusivity.

While it helps for businesses to demonstrate sincere, good-faith efforts to comply, that effort can be all for naught if compliance professionals can’t sell it. Because of this, they have to be able to control the conversation and show receipts for how they are working to make their organizations EEO and AA compliant.

Compliance professionals should also routinely perform mock audits to test how prepared they would be in a real-world audit. More than anecdotes and persuasive conversation, data and documents tell the story of how hard a company is working to be compliant. Preparing for an audit can quickly show compliance professionals any existing holes in their documentation and records.

Too many compliance professionals only engage in the hard work of compliance if and when they get notice of an audit, but it doesn’t have to be this way. By actively working toward and preparing for audits, they help ensure nothing comes as a surprise when they’re asked to show whether an effective compliance program is in place and checks all the boxes.

Ultimately, compliance professionals must be prepared to speak with confidence about their compliance efforts. The individuals in charge of compliance programs must be ready, willing, and able to show that they abide by that truth in their organizations. There is no reason to let fear or anxiety hinder the DOL audit process. Instead, compliance professionals should see audits as opportunities to interact with regulators personally while showcasing the hard work they’re doing to create actively diverse and inclusive workplaces.

Interested in making sure your organization has an effective compliance program in place today? Uncover any issues by performing a mock audit at your company.

Parsing Colorado’s New Equal Pay Transparency Rules

November 20, 2020 By Matt Nusbaum

Last year, the Colorado General Assembly passed legislation strengthening the state’s pay equity laws. Now the Colorado Department of Labor and Employment (CDLE) has issued final rules implementing the Equal Pay for Equal Work Act, which goes into effect January 1, 2021.

The Equal Pay for Equal Work Act prohibits Colorado employers from paying employees of different sexes differently for substantially similar work and provides limited factors to explain pay disparities based on sex. The entire differential must be explained by a seniority system, merit system, a system that measures earnings by quantity or quality of production, legitimate geographic location differences, or education, training, or experience related to the position in question. The Act also prohibits Colorado employers from asking job applicants about their prior salary history and may not base pay determinations on salary histories should they become known.

But the Act also requires employers to inform Colorado employees of promotional opportunities throughout the organization, and to provide pay and benefit information in postings for jobs to be performed in Colorado. Employers with operations in Colorado are scrambling to parse these new requirements.

Job Posting Pay and Benefit Requirements

The final rules require employers to “disclose in each posting for each job” the following information:

The hourly rate, salary, or pay range the employer is offering for the position; and
A description of all benefits and “other compensation” to be offered to successful applicants.

With regard to the advertised pay, the final rules note that employers may ultimately pay more or less than the posted amount or range, provided that what was posted was the employer’s “good-faith and reasonable estimate” of possible compensation at the time of posting. In other words, applicants are still free to negotiate their pay.

With regard to the description of benefits, the final rules require a “general description” of any bonuses, commissions, or other forms of compensation being offered, as well as a description of “all employment benefits” including (but not limited to):

Health care;
Retirement;
Leave (sick, parental, vacation, etc.); and
Any other benefits that must be reported for federal tax purposes.

The final rules explicitly exclude benefits “in the form of minor perks” from the posting requirement, but does not elaborate or provide examples.

Geographic Limits

The job posting pay and benefit requirements do not apply to jobs to be performed entirely outside of Colorado, nor do they apply to postings entirely outside Colorado. The distinction between “jobs to be performed entirely outside of Colorado” and “postings entirely outside Colorado” is unclear.

Unfortunately, the final rules do not provide clarification here and do not appear to consider the complexity arising from remote work situations.

Whether or not the organization is a “Colorado employer,” defined to include the state and “every other person employing a person in the state,” does not appear to be a consideration, though there are clearly jurisdictional issues that would arise if the state attempted to enforce these provisions on organizations with no physical presence in the state.

Positions at physical work locations outside the state where the work does not involve travel to and work performed in Colorado would appear to be exempted, regardless of whether or not the employer could be considered a “Colorado employer.”

Jobs held by Colorado residents who commute out of state for work, such as employees who live near a state border and who live on the Colorado side, but work in one of the surrounding states (Wyoming, Nebraska, Kansas, Oklahoma, New Mexico, Arizona, or Utah) also appear to be exempted, again regardless of whether or not the employer has operations within the state. However, if such an employee does work for an organization with operations in Colorado, even if they do not work at a Colorado location, these provisions could be triggered if such an employee were allowed to perform work at home or could reasonably foreseeably use the employer’s Colorado facilities for any reason.

Employers with no facilities in Colorado but that nonetheless do business in Colorado may have reason to worry. Consider a consulting firm that advises Colorado organizations and might even send consultants to work temporarily at client sites within the state. It is unlikely that the state would have jurisdiction over such organizations sufficient to enforce these provisions, but they would be wise to seek the advice of legal counsel on that point.

Promotion Notification Requirements

Separate from the provisions regarding the content of job postings discussed above, the final rule requires employers to make “reasonable efforts” to “announce, post or otherwise make known all opportunities for promotion to all current employees on the same calendar day and prior to making a promotion decision.”

In other words, employees must be given advance notice of potential promotion opportunities, but only Colorado employees. The final rule exempts “employees entirely outside Colorado” from the promotion notice requirement altogether.

“Promotional opportunity” is defined as when an employer has or anticipates a vacancy in an existing or new position “that could be considered a promotion for one or more employee(s) [sic] in terms of compensation, benefits, status, duties, or access to further advancement.” Note, however, that employers are required to provide notice of such opportunities to all employees and may not limit the notice audience to employees deemed qualified. As a result, anything above an entry-level position is likely to qualify.

The required notices must be “in writing” and must include at least:

Job title;
Compensation and benefits information if applicable (discussed above); and
How employees can apply for the position.

Past that, the form and format is up to the individual employer.

Note that notices of promotional opportunities do not need to include compensation and benefits information if the position is to be performed entirely outside Colorado or for “postings entirely outside Colorado.”

Administrative Headache with Potential Consequences

Understandably, employers that might have a “touch” inside the state of Colorado are concerned about the administrative logistical gymnastics posed by these final rules. The law is clearly intended to push employers to opt for broader solutions that incorporate internal and external transparency regarding pay and benefits for particular positions (typically considered confidential due to business competition concerns, among others) and internal advertising of open positions across the entire organization.

While the latter is likely an attractive option (why not inform the existing workforce of internal opportunities?), the former is unlikely to be an attractive option. Especially for larger, more complex organizations, determining whether or not a particular job posting must include pay and benefit information could very likely be a full-time job.

Often employers that make reasonable determinations in good faith are not harshly punished if they get it wrong. Typically they will be required to correct any deficiencies on a going-forward basis, but here it is unclear. Violations of these provisions appear to be subject to a fine of up to $100 per day that the employer violates the new rules. Whether that starts from the time CDLE determines a violation, or whether the fines can be retroactive (potentially as far back as the implementation date) is unclear.

To the extent that an organization is concerned about compliance with these provisions and does not intend to implement broader solutions, such organizations are well advised to seek legal counsel, specifically from firms with operations in Colorado that are likely to be more intimately familiar with the legislative background and intent, and more plugged-in to the CDLE and its enforcement processes. If you have questions, feel free to contact us at bcgi@biddle.com.