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OFCCP Publishes Final Rule Regarding the Resolution of Potential Employment Discrimination Violations

November 13, 2020 By Matt Nusbaum

The Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has published a final rule in the Federal Register codifying several existing procedures for resolving discrimination allegations.

The new rule is complex and well worth the read for compliance practitioners and attorneys and is meant to “provide contractors with greater certainty” regarding what to expect from the OFCCP during compliance evaluations and complaint investigations. Among the many notable provisions, the new rule:

  • clarifies evidentiary standards;
  • establishes new terms to describe the type of evidence the OFCCP must identify for different discrimination theories;
  • codifies the consideration of “practical significance” in assessing potential violations;
  • more clearly differentiates the procedures and burdens for disparate treatment and disparate impact theories;
  • requires the OFCCP to explain the basis of findings, including details of statistical models; and,
  • codifies the early resolution procedures currently used by directive.

The rule officially updates the agency’s regulations implementing Executive Order (E.O.) 11246, Section 503 of the Rehabilitation Act, and Section 4212 of the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA). In doing so, the OFCCP has made several agency directives more “official” and binding on the agency.

The procedures are also more “permanent” in that major changes would require formal rule making, rather than simply rescinding or revising directives (which are sub-regulatory guidance documents that are not enforceable). This is not necessarily a nefarious move by any measure, though, and should provide a degree of stability in the upcoming change in White House administration.

Brief Background

Under current Director Craig Leen, the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP) has engaged in several initiatives to bring the agency’s enforcement practices back within the four corners of the law and established jurisprudence, and to increase transparency, communication, and information-sharing between the agency and federal contractor employers during the course of OFCCP audits and complaint investigations.

The agency has issued 19 new directives since 2018 on myriad issues along these lines such as:

  • use of predetermination notices (PDNs);
  • focused reviews;
  • compensation analyses;
  • transparency;
  • compliance review procedures;
  • efficiency in compliance evaluations;
  • ombud service; and
  • opinion letters and help desk.

The OFCCP has also issued a variety of additional guidance in the form of “frequently asked questions” (FAQs) providing much needed additional clarity to the agency’s enforcement approach and expectations.

Much to federal contractors’ frustration, however, the on-the-ground execution of OFCCP national office policies among the various regional and district offices has proven to be somewhat inconsistent, particularly with regard to standard procedures for evaluating potential employment selection discrimination and/or discrimination in compensation. Codifying these policies and practices in the agency’s implementing regulations should result in more uniformity.

Evidentiary Standards

Perhaps the largest frustration shared by any federal contractor that has undergone an OFCCP audit is the “moving target” of evidence to establish a discrimination violation, whether the allegation involves employment selection procedures or compensation practices. The agency has considerable leverage over federal contractor employers when bringing allegations of discrimination, knowing that most are unprepared and/or unwilling to engage in a protracted legal battle. This has, over the years, been subject to some degree of abuse, allowing the agency to skirt established jurisprudence and force settlements that otherwise might not hold up in court.

The new rule largely brings the OFCCP back in line with well-established Title VII enforcement principles and evidentiary standards in a number of ways, such as: explicitly recognizing and describing the requirements to bring allegations under differing theories of discrimination (disparate treatment vs. disparate impact); codifying a role for the consideration of practical significance; and more clearly defining statistical analysis methods and thresholds for inferring discriminatory practices.

Disparate Treatment or Disparate Impact?

The two theories of discrimination the OFCCP might employ are “disparate treatment” involving intentional adverse treatment based on protected characteristics, and “disparate impact” involving an otherwise neutral business practice that nonetheless has a discriminatory effect. While these two theories are very different, they do share some similarities, particularly in the use of statistical evidence.

Both disparate treatment and disparate impact claims can be established using statistical evidence, but the former also requires a showing of intent. Outside of complaint investigations, the OFCCP relies almost entirely on a disparate impact framework, which does not require intent. However, when the statistical analyses indicate discrimination, that presumption is rebuttable and, if the employer can demonstrate that the practice in question is a legitimate “business necessity,” the claim will likely fail unless the plaintiff can demonstrate that alternative practices exist that would meet the business needs of the employer without discriminatory effect or if intent is introduced as a factor.

If that all sounds complicated, it’s because it is! And the OFCCP is often confused about what is required to bring a disparate impact claim vs. a disparate treatment one. A common practice over the years has been to either simply refuse to specify the discrimination theory being alleged, or to allege both, leaving contractor employers to guess at how to mount a sufficient defense. Those practices should end with this new rule.

“Qualitative” vs. “Quantitative” Evidence

If the brief discussion above regarding disparate treatment vs. disparate impact theories of discrimination was confusing, it gets even more complicated when we talk about the types of evidence required for each, why, and when. As noted, both can be established through statistical evidence, and the OFCCP tends to prefer to pretend that statistical evidence is all that is ever required.

When the difference in selection rates among protected groups is large enough, the statistical evidence alone can establish a claim. But when the difference is enough to be suspicious but not conclusive and/or the sample sizes are small, demographics of the selection pool are particularly lopsided, etc.. At that point, “anecdotal” evidence is often required by courts to eliminate other possible explanations for the complained-of disparity. In a disparate treatment claim, anecdotal evidence is critical to establish intent.

The new rule jettisons the relatively strict terms, “statistical evidence” and “anecdotal evidence,” in favor of the broader terms, “quantitative” and “qualitative,” respectively. This is largely because “statistical” evidence is too narrow and potentially excludes non-statistical evidence such as cohort comparisons and summary data. Statistical models are often very powerful and useful evidence, but do have limitations, and the OFCCP wants to make sure that other “numbers” evidence is included under the “statistical” umbrella for the purpose of showing discrimination. This is not particularly controversial, though, and mostly acts as a clarification of existing practice.

Practical Significance

To further complicate the discussion surrounding statistical evidence of discrimination, common analysis models can, in certain circumstances, “show” discrimination in an employment practice where the actual harm is relatively minor. While the OFCCP would like to eliminate all degrees of employment discrimination (as would most employers), the practical reality is that compliance and enforcement resources are limited. The general consensus is that those resources should be engaged where they can do the most good first; i.e., eliminating the most harm. Spending months and months investigating and potentially litigating a case in which an employment practice may have resulted in just one or two people being adversely affected over a 12-18 month period (the typical relevant period in an audit) is arguably a waste of resources if practices that harm dozens or even hundreds go unchecked.

Enter the concept of practical significance. The new rule describes it this way:

“The concept focuses on the contextual impact or importance of the disparity, rather than its likelihood of occurring by chance as in measures of statistical significance. OFCCP uses measures of practical significance as a tool of enforcement discretion to ensure it is targeting the strongest cases in its compliance reviews with the most compelling evidence, as well as a safeguard against the limitations of statistical modeling when attempting to explain complex human phenomena.”

By and large, this is good news for federal contractor employers as it allows them to allocate and focus their own compliance resources where they can do the most good first without fear of punishment by the OFCCP. However, it is worth noting that practical significance can go “both ways.”

We typically think of practical significance as a sort of “stop gap” against making a mountain out of a molehill—in other words, where there is clearly statistical significance though the impact is relatively slight. But the OFCCP is very interested in another scenario in which the statistical significance is slight, or even questionable, but the practical impact is relatively large. The concept of practical significance can, in certain circumstances, bolster a relatively weak statistical case into something the OFCCP can deem worthy of pursuit.

Information Sharing

Perhaps one of the most important aspects of the new rule is codifying the agency’s recent efforts regarding transparency and information sharing. For years, contractors have struggled to get basic information out of the OFCCP regarding the basis of their claims. If challenged in court, there would be discovery and full disclosure of evidence and analysis methodologies by both sides, but the OFCCP knows that contractors are far more likely to settle rather than buckle up and pay for a protracted legal battle. So, while grousing about contractors’ tendency to “hide the ball” in audits and investigations, the agency has often responded by keeping contractors in the dark and unable to mount any sort of defense.

Those practices have largely ended under current OFCCP Director Craig Leen, but not entirely. The new rule codifies the agency’s responsibility to “show its cards” when bringing discrimination allegations and should result in more transparency and more uniformity of practice across the various OFCCP field offices.

Conclusion

As noted above, the new rule should generally be welcomed by the federal contracting community. But, as in all things, the devil is in the details. BCGi strongly recommends that compliance personnel and legal professionals familiarize themselves with the new rule and be prepared to hold OFCCP compliance officers and district and regional directors to these new provisions.

If you have any questions or concerns, feel free to contact your BCG consultant or BCGi at bcgi@biddle.com.

OFCCP Publishes Supplemental CSAL List With 500 VEVRAA Focused Reviews

November 11, 2019 By Matt Nusbaum

The OFCCP has published a “supplemental” 2019 Corporate Scheduling Announcement List (CSAL) of federal contractor establishments that have been selected, but not yet scheduled for an audit. Historically, it has been typical for the agency to generate two audit lists per year, often with a larger “main” list from which the agency works the majority of the year, followed by a smaller list to keep district offices busy as they move through their respective caseloads.

The agency used to mail physical letters prior to the initiation of an audit called, “Corporate Scheduling Announcement Letters.” When word broke that the agency had generated a new audit list, contractors could obtain a list of their own establishments on that list by writing to the OFCCP. The agency now simply publishes the entire list online in what they call the “FOIA Library.”

Back in March of this year, the OFCCP published the “main” CSAL list consisting of 3,500 contractor establishments. The published CSAL lists now include the type of audit for which each establishment has been selected, be it a full compliance review, a corporate management compliance evaluation, a Section 503 (disability) focused review, or a compliance check. Just in time for Veterans’ Day, the 2019 supplemental list adds VEVRAA focused reviews to that list.

In fact, the 2019 supplemental list contains 500 contractor establishments, all of which have been selected for a VEVRAA focused review. A VEVRAA focused review will exclusively examine compliance with the OFCCP’s equal employment opportunity and affirmative action requirements for protected veterans under Section 4212 of the Vietnam Era Veterans’ Readjustment Assistance Act (VEVRAA).

The agency currently has a policy of publishing the CSAL list at least 45 days before mailing any Scheduling Letters, initiating the actual audit. Contractors are encouraged to use that time to prepare and minimize delays when an actual audit begins.

The OFCCP has also created a new VEVRAA focused review “landing page” with links to contractor resources meant to assist with preparing for such a review. Of note, that page contains links to “frequently asked questions” and “best practices” that are likely roadmaps to what OFCCP compliance officers will be asking about in VEVRAA focused reviews.

Like Section 503 focused reviews regarding disability AAPs, the agency is likely to be interested in a variety of “best practices” that may not actually be required by the regulations. In such circumstances, it is okay to have a more open conversation with the agency and request technical assistance as failure to meet any such practice is not a violation.

In the end analysis, the agency is trying to get a sense of whether and to what extent the veteran AAP is a “check the box exercise” for the contractor or something more. Here, effort and desire should count just as much as success. Disappointingly, the OFCCP has yet to receive approval to use a revised VEVRAA focused review scheduling letter, though approval could come in the 45 days before the agency starts sending them out. In the meantime, if you want to start preparing for your VEVRAA focused review, here is a link to download the current scheduling letter.

OFCCP Proposes to Collect Detailed Applicant- and Employee-Level Transaction and Compensation Data in 503 and VEVRAA Focused Reviews

April 12, 2019 By Matt Nusbaum

Yesterday OFCCP Director Craig Leen and ODEP Deputy Assistant Secretary Jennifer Sheehy participated in a National Industry Liaison Group (NILG) webinar entitled, “OFCCP and ODEP: Section 503 Compliance & Focused Reviews.” The presentation provided a road map of sorts for what OFCCP will be looking for in upcoming 503 (disability) focused reviews. A recording of the webinar will be made available on the NILG website, but a much clearer road map was submitted to the White House Office of Management and Budget (OMB) today.

Director Leen stated during the webinar that OFCCP intends to “look at” contractors’ hiring, promotion, termination, and compensation data for evidence of potential discrimination against individuals with disabilities. While contractors are currently required to prepare (and submit for audit) summary employment transaction data with regard to individuals with disabilities, the proposed 503 (and VEVRAA) focused review scheduling letters would, if approved in current form, require contractors to submit detailed applicant- and employee-level data regarding hiring, promotion, termination, and compensation activity, along with disability (or veteran) self-identification data.

When OFCCP significantly overhauled the regulations implementing Section 503 of the Rehabilitation Act in 2013, the agency noted in the preamble to the Final Rule published in the Federal Register that OFCCP “will not be using the applicant and hiring data [regarding individuals with disabilities] to conduct underutilization or impact ratio analyses.” However, the agency also noted that “enforcement actions will not be brought solely on the basis of statistical disparities between individuals with, and without, disabilities” (emphasis added), potentially leaving the door open to statistical disparities playing some role.

Of further note, the proposed focus review scheduling letters would require contractors that receive the letter six months or more into their current AAP cycle to also submit transaction data for “every completed month of the current AAP year,” as opposed to “at least six months” of “update” data requested by OFCCP’s current compliance evaluation scheduling letters.

OFCCP has also published its proposed compliance check scheduling letter for supply and service contractors. Public comments regarding OFCCP’s proposed scheduling letters are due June 11, 2019.

During the NILG webinar, Director Leen had some additional revelations that should be of immediate interest to federal contractor employers. For instance, he spent a significant amount of time talking about OFCCP’s efforts to clear the books of “aged” cases, defined as audits that have been ongoing for more than two years. Director Leen noted that the agency has “hundreds” of cases that are past the two-year mark, a “big chunk” that have been ongoing for six years or more, and plenty in the nine- to ten-year range. He has directed all OFCCP Regional Directors to close their aged audits, to the extent possible, by the end of OFCCP’s current fiscal year (which ends September 30, 2019).

He recommended that contractors with aged cases contact their regional director and “make an offer.” While Director Leen’s suggestion was certainly made with the best intentions, Biddle Consulting Group recommends that contractors with aged cases proceed with more caution and consult with legal counsel regarding what, if any, opportunity Leen’s directive might provide to resolve long-running audits.

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