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Think You Don’t Need an Affirmative Action Plan? Think Again.
The federal government’s Office of Federal Contract Compliance Programs (OFCCP) monitors affirmative action compliance by companies that do business with the federal government. An OFCCP audit can strike fear into the heart of the most seasoned CEO’s and HR professionals – violations can result in huge liabilities and administrative burdens.
That’s all well and good for companies that typically do business with the federal government and are generally geared up to deal with the voluminous and arcane affirmative action and employment practices compliance requirements the OFCCP imposes. But the problem is this: many companies that have never done business with the federal government are, nevertheless, subject to federal affirmative action requirements -- and the potential wrath of the OFCCP -- and never know about it until it’s too late.
How can that be? Federal affirmative action requirements apply not only to federal contractors, but also to the companies that serve as subcontractors to federal contractors. In fact, companies are bound to exactly the same requirements whether they sell missiles to the Department of Defense, or whether, as a subcontractor, they sell steel, employee uniforms, or office furniture to the missile maker, if the value of those goods or services is $50,000 or more and the subcontractor has at least 50 employees.
These are very low “thresholds,” and they frequently ensnare into the OFCCP’s regulatory scheme many businesses that do not consider themselves “federal contractors.” Federal regulations generally require that federal contractors incorporate these requirements into the contracts and purchase orders they provide to their subcontractors, but often this is done merely by reference to statutory or regulatory citations, rather than by plainly stating what legal requirements the law imposes on such subcontractors. Moreover, whatever notice is provided is usually written in legalese, and is often buried on the back of a purchase order sent to the purchasing or accounting (not the HR) department.
The all-too-frequent result is that a company that has never done business directly with the federal government is subjected to an affirmative action review, and is hit with huge monetary penalties for having failed to comply with obligations it never knew it had – a classic example of ignorance of the law being no excuse.
We bring this up now because the OFCCP has placed itself on the radar screen. It recently implemented a new procedure by which to select companies for audit, and on November 1, 2004, it sent out more than 1,700 "Corporate Scheduling Announcement Letters" to companies with two or more facilities it intends to audit before the end of July 2005. (The OFCCP did not notify companies with only one facility it intends to audit, and it has not notified companies on the post-July 2005 radar screen, so take no solace from the fact that you have not yet received a letter.)
Although the public typically thinks of the OFCCP as being concerned with “affirmative action” and “goals” and “good faith efforts,” the modern OFCCP is far more likely to focus on investigating discrimination – and unlike the EEOC it needs no complaint prior to scheduling a compliance evaluation. The message from the OFCCP is clear: “we’re coming.”
In particular, the OFCCP is aggressively auditing companies in search of discriminatory hiring, promotion and termination practices and disparities in the current compensation paid to each employee. The agency’s investigative technique is almost exclusively some form of statistical analysis, and there have been a spate of multi-million dollar back pay settlements. While, perhaps, few companies engage in deliberate discriminatory treatment, many “we’ve always done it that way” practices impact minorities and women differently than non-minorities and men. These practices, known as “disparate (or adverse) impact” situations, are just as unlawful as overt discrimination, unless the contractor can demonstrate a business necessity for selection criteria that disproportionately excludes minorities or women.
For instance, employers often establish strength or size requirements which have the effect of excluding women, even though strength and size have little to do with a person’s ability to do the job in question. Or they require a college degree, even though the job duties do not merit such a prerequisite, and the effect is to exclude certain disadvantaged minorities. The OFCCP (among others) will analyze an employer’s records (remember that the law imposes certain record retention requirements) in order to determine whether, for instance, the selection rate of women and minority applicants (internal and external) is significantly different than the selection rate of male or non-minority applicants. If it is, the legal presumption is that this difference in success rates is the result of unlawful discrimination. The employer must rebut this presumption by a showing of “business necessity” -- or the OFCCP will demand that the non-compliance be “cured” through, for instance, compensating non-selected minorities and/or women for their lost compensation and other damages.
If there is any good news in all of this, here it is: the OFCCP letters state that it “will give serious consideration to any remedial action voluntarily undertaken” by a company before the audit commences. In other words, if you start the process of compliance now, the OFCCP will go easy; if you don’t and you get caught, good luck.
Companies seeking to avoid these risks will self-audit their employment practices now, in essentially the same way the OFCCP might audit them later. The need for a self-audit of this nature can be assessed by asking this basic question: do you know – really know -- what an analysis of your records will reveal about the effect of your employment practices on minority and female applicants and employees? Can you afford to take the chance that you might not have a true, fact-based handle on this issue?
Once problem areas are identified through a self-audit, the kinds of remedial actions the OFCCP looks for can then be implemented, without the supervisory and monitoring pressures of the federal government. A self-audit of this nature is also invaluable as a tool to prevent individual and class action discrimination claims (i.e., the kinds of claims that led to the recent multi-million dollar settlements paid by Abercrombie & Fitch and Morgan Stanley, and a host of similar, less-publicized settlements).
CCG has extensive experience in helping companies self-monitor by conducting targeted legal compliance audits of this nature. Let us know if we can help.
