Scheduling Letters Are on Their Way – Are You Ready? The Top Five OFCCP Audit Preparation Tips

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Last month, OFCCP announced it had sent 1,000 Courtesy Scheduling Announcement Letters (CSALs) to contractors to notify them that they would be audited by OFCCP in the near future, and as soon as March 19, 2018. As contractors who were on that CSAL list anxiously check their mail boxes for audit scheduling letters, it’s a good time to evaluate best practices for preparing audit submissions to OFCCP. But what can contractors expect from OFCCP under the Trump Administration and the leadership of the new Director, Ondray Harris?

Under the former Director, Patricia Shiu, contractors saw OFCCP move toward more aggressive enforcement in audits, more deep-dive data investigations, and less communication with contractors about preliminary findings while audits were pending. Since he took over leadership of OFCCP in December 2017, Director Harris has been forecasting more compliance assistance and less “gotcha” audit tactics from the Agency. In January, he held a two-day meeting with industry groups at which he previewed his priorities and vision for OFCCP, painting a picture of an Agency working with employers on compliance issues, employee training and apprenticeship programs. The CSAL announcement similarly contained indications of a more business-friendly Agency, including the welcome news that OFCCP voluntarily limited the number of establishments-per-employer that could be on the audit scheduling list and increased the audit “immunity” time period from two years to five years.

But how will OFCCP’s regional leadership and local offices respond? The reality is that the Agency has exhibited a mentality of “us vs. them” in audits, and that is not likely to change overnight. Other than a small wave of retirements, there have been no big personnel changes among OFCCP’s “boots on the ground.” At the local level, OFCCP has continued to push more and more aggressive enforcement techniques, with no sign of slowing down or changing course. In fact, for the last several months while there was no Director in place 1, some regions have taken advantage of the lapse in supervision to push new interpretations of OFCCP’s authority in audits, including more and more requests for information and data, and more and more threats of “denial of access” if employers don’t turn over everything and anything, the Agency may request without any discussion of why.

With the Agency’s local leadership continuing to send signals of tougher enforcement that conflicts with Director Harris’s message of cooperation, how can contractors possibly know what to expect in audits under the new OFCCP? For now, contractors must assume the local offices will continue with “business as usual.” It takes time within federal agencies – sometimes several years – for the mentality of new leadership to trickle down to the “boots on the ground” who actually implement the agency’s mission. For that reason, the best way to prepare for new OFCCP audits is to look at recent trends and developments.

Parsing through recent developments and activity, a handful of areas have emerged as OFCCP “hot spots.” Here are five things all employers need to consider as they prepare for this new round of audits:

1. Compensation – Be Prepared to Explain Your “Pay Gaps”

Pay equity continues to be a top priority for OFCCP. In the wake of the #MeToo movement, a light is being shined on the impact that decades of pay discrimination had on the current gender and race “pay gaps.”

Over the past few years, OFCCP has refined its techniques for conducting deep-dive compensation investigations. In almost every audit, OFCCP requests telephone interviews with compensation managers to learn about how pay is administered so its statisticians can conduct more informed analyses. These interviews are generally accompanied by comprehensive requests for information from data systems, personnel files, market studies, and/or internal, pro-active reviews. If OFCCP’s analyses find any statistical “flags,” OFCCP may dig in for an even more prolonged investigation, including information requests, additional interviews and even multi-day onsite investigations, all of which extend the time period of audits (as well as potential period for back pay damages) for several years.

These new techniques appear to be working as OFCCP has recently obtained some of its largest ever pay discrimination settlements, including a $5M settlement with an investment management financial services company.

So what can contractors awaiting audits do to prepare for OFCCP’s deep-dive compensation investigations?

Contractors need to know that OFCCP expects them to be able to clearly articulate how pay is administered, including how pay ranges for positions are determined and how individual starting pay decisions are made. In short, how should OFCCP analyze your data? If contractors have trouble effectively conveying this information, OFCCP may develop its own framework for analyses. Then, OFCCP expects contractors to be able to demonstrate explanations for any disparities that its statistical analyses may have found. Many contractors have difficultly at this stage putting their hands on resumes, applications or recruiter notes, and it can be a challenge to piece together pay decisions made several years ago when the employees under review were first hired. Where a contractor fails to demonstrate a legitimate, non-discriminatory explanation, OFCCP will assume discrimination caused the disparity.

Accordingly, contractors awaiting audits need to be prepared to demonstrate to OFCCP why and how all employees are paid fairly. If contractors are not up-to-date on their regular internal pay equity analyses, this means contractors preparing for OFCCP audits need to be analyzing the compensation data that will be submitted to OFCCP, finding the apparent “pay gaps” where more information may be needed, investigating the reasons for those disparities, and collecting any information or documents that may be necessary to justify individual pay rates. Certainly, pay groups with 30 or more employees or complex pay practices need statistical analyses (under attorney-client privilege). Contractors should also review their compensation policies and internal protocols to ensure they are current and accurately reflect actual practices, and be prepared to discuss those practices with OFCCP.

2. Evidence of Internal Reviews of Personnel Processes and Compensation

Under 41 CFR § 60-2.17(b) and (d), as well as 41 CFR § 300.44(b) and § 741.44(b), contractors are required to evaluate their personnel processes, including the compensation system (under § 60-2.17(b) and (d) only), to identify any affirmative action “problem areas.” In recent audits, OFCCP has regularly requested evidence of these self-evaluations. Where such evidence is available, OFCCP has second-guessed whether the contractor did enough to make good faith identifications of problem areas.

For example, OFCCP may request “all documents and data related to internal analyses of compensation and personnel activity … which were performed in order to comply with the regulations under 41 CFR §60-2.17(b) and (d)” as well as “evidence [the company] conducted the requisite assessments, as required by 41 CFR §61-300.44(b) 741.44(b).” 41 CFR §60-2.17(b) states that “the contractor must perform in-depth analyses of its total employment process to determine whether and where impediments to equal employment opportunity exist” by evaluating its workforce, personnel activity, compensation system, and its selection, recruitment, referral, and other personnel procedures.

However, whether the regulations require the creation of actual documentation of these reviews is unclear, and the difference between the requirements of § 60-2.17(b) and (d) (female and minorities) as compared to § 61-300.44(b) (protected veterans) and 741.44(b) (individuals with disabilities) is critical.

While the female and minority regulations (§ 60-2.10(c)) requires contractors to “maintain and make available to OFCCP documentation of their compliance with §§60-2.11 through 60-2.17,” these sections are silent with respect to the creation of any specific documentation or reports. However, the regulations under Section 503 of the Rehabilitation Act and the Vietnam Era Veterans Readjustment Assistance Act (VEVRAA) do in fact require the creation of “a description of the review and any necessary modifications to personnel processes or development of new processes.… ” §60-300.44(b) and §60-741.44(b).
...OFCCP’s regulations require contractors to conduct a self “evaluation” of compensation systems to determine whether race, gender, or ethnicity-based disparities exist.
Many commentators believe OFCCP has become interested in documentation of these required self-evaluations because it wants to obtain copies of analyses, specifically pay analyses, which may show unaddressed discrimination. This day and age, all employers should be conducting compensation analyses under attorney-client privilege to determine where there may be shortfalls in compliance with the patchwork of federal, state and local laws. Separate from this type of best practice pay equity analysis, however, OFCCP’s regulations require contractors to conduct a self “evaluation” of compensation systems to determine whether race, gender, or ethnicity-based disparities exist.

There is no required format or steps for these “evaluations.” An “eyeball review” may be enough in many cases. In such a review, documentation may not be generated or maintained. In fact, many employers choose to not create documentation for analyses of sensitive employee data for privacy, confidentiality, data security, and/or legal exposure reasons. Yet, if a contractor fails to demonstrate to OFCCP that evaluations were conducted, then OFCCP may issue a violation and require the contractor to submit reports on future evaluations so the Agency can monitor compliance. If documentation of evaluations is created, of course, OFCCP’s regulations require such documentation be maintained and made available to OFCCP.

So what can contractors awaiting audits do to prepare for requests for evidence that these evaluations were conducted?

If they haven’t done so already, contractors need to review their obligations under § 60-2.17(b) and (d) as well as §60-300.44(b) and §60-741.44(b), and develop a plan for a periodic evaluation of their personnel processes. Many contractors have seen a benefit to timing these evaluations with the completion of the annual affirmative action plans, using the utilization and other analyses to help identify potential problem areas. As noted above, these evaluations should include a non-privileged review of the compensation system. Contractors should consult with counsel about whether and what evaluations are appropriate for their organization, as well to discuss what types of records should be generated concerning these sensitive, non-privileged evaluations.

3. Diversity Outreach – Too Much is Never Enough

Lack of sufficient diversity outreach was one of the most frequent types of violations cited in 2017. OFCCP expects all contractors to be able to provide documentation showing local, person-to-person efforts to attract diverse candidates. And, OFCCP is running a fine-toothed comb through this documentation to verify that recruiters are not just going through the motions, and are actually working with recruitment sources to better identify qualified candidates (spoiler alert: in OFCCP’s eyes, contractors could always do more).

The best practices for diversity outreach include identifying multiple, local diversity recruitment sources, establishing a partnership with those organizations, attending/hosting career fairs in diverse areas, advertising jobs in diversity-specific publications and job boards, and documenting everything.

Contractors must also prepare (and submit to OFCCP in audits) a written assessment of the effectiveness of diversity outreach efforts. This assessment must reasonably address whether each effort in the affirmative action plan year was “effective.” For example, did attendance at the career fair lead to applications being submitted by diverse candidates? Did the recruitment source send qualified candidates who made progress in our hiring process? If the answer to these questions is “no,” what will we do differently next year?

Failure to include an assessment is a clear sign to OFCCP that you are not doing enough to meet your obligations as a federal contractor. Even when assessments are submitted, copious documentation of outreach efforts may be required to meet OFCCP’s high expectations for compliance. Accordingly, before the audit scheduling letter arrives, contractors should be collecting their evidence of outreach efforts, turning over every stone possible to find any and all documentation to provide to OFCCP. Contractors should also revisit their written assessments of outreach effectiveness to ensure they are meaningful and make reasonable evaluations of whether increased or different efforts should be taken in the future.

4. Applicant-to-Hire Data & Adverse Impact

Despite OFCCP’s recent and intense focus on compensation data in audits, “systemic” or class-based hiring discrimination violations continue to be the most impactful and costly violations for employers. Since OFCCP’s FY2015, roughly 73% of OFCCP’s monetary settlements have involved hiring discrimination (according to data available on the Department of Labor website). OFCCP continues to settle these hiring violations for big dollars, including a $1.6 million settlement last year with a technology company.

Where a contractor’s applicant-to-hire data show adverse impact in audit submissions, OFCCP will dig in by requesting extensive applicant data and documents, descriptions of hiring processes, and/or interviews with hiring managers and recruiters involved in the hiring process. Again, it is the contractor’s burden to demonstrate explanation for any statistical “flags,” which means isolating the different stages in the hiring process, identifying the stage causing adverse impact and defending the underlying decisions at that stage and overall. Where employers cannot do so, OFCCP will assume discrimination is the cause of the hiring disparity. Contractors awaiting audits need to review their applicant-to-hire adverse impact analyses. Where there are statistical indicators, contractors can prepare by ensuring the accuracy and integrity of their applicant data, including closely reviewing disposition codes and ensuring the Internet Applicant Rule was applied consistently and diligently. Where affirmative action plan analyses show adverse impact, contractors need to conduct stage analyses and ensure underlying selection decisions were based on legitimate non-discriminatory reasons, consistent with business necessity.

5. Well-Organized, Complete & Timely Submissions Can Make All the Difference

Your affirmative action plan presents a picture of your company and its equal employment opportunity program to OFCCP. When OFCCP receives reports that are late, or unorganized, or confusing, or not 100% in compliance with its regulations, the Agency will assume the contractor either doesn’t take affirmative action seriously or doesn’t understand its obligations as a federal contractor. Poor submissions also often lead to increased scrutiny as OFCCP will assume more significant issues exist beneath the surface due to the contractor’s failure to be sufficiently proactive.

It is therefore critically important for Contractors to ensure their audit submissions convey a picture of a company that takes its affirmative action obligations seriously. Not only does this mean making sure the affirmative action plan is well-organized and easy-to-understand, but also making sure it is complete and timely submitted. 2 If your company is unable or unsure how to do this, or is being audited for the first time, consider retaining experts to help prepare or review the documents.

With OFCCP still being in a state of transition under the new Administration, what contractors can expect from upcoming OFCCP audits is far from clear. For that reason, we can only look to recent trends and developments to prepare for the arrival of OFCCP audit scheduling letters and keep in mind that at the end of the day, a pinch of prevention is always better than a pound of cure.
 
For assistance in preparing affirmative action plans, defending OFCCP audits, conducting statistical analyses, or any other questions, please contact authors Scott Pechaitis at 303-876-2201 or scott.pechaitis@jacksonlewis.com or Lisa Marsh at 303-876-2216 or lisa.marsh@jacksonlewis.com.

This publication is designed to give general and timely information on the subjects covered. It is not intended as advice or assistance with respect to individual problems. It is provided with the understanding that the publisher, editor or authors are not engaged in rendering legal or other professional services. Readers should consult competent counsel or other professional services of their own choosing as to how the matters discussed relate to their own affairs or to resolve specific problems or questions. This publication may be considered attorney advertising in some states. Furthermore, prior results do not guarantee a similar outcome.

Copyright © 2018 Jackson Lewis P.C.


1. Factors for determining whether a person is an employee or a contractor were provided in the opinion of the Supreme Court case of Nationwide Mutual Insurance Co. v. Darden, 503 US 318 (1992).
2. In its CSAL announcement, OFCCP noted that because of the 45-day space between the CSAL and the Scheduling Letter, it would not be granting extensions for routine business reasons, and any extensions that are generally would be limited to 15 days.