Beat The Clock: OFCCP Moves Swiftly To Finalize Regulatory Reforms Before 2000 Elections

As the curtain closes on the Clinton Administration, the Department of Labor's Office of Federal Contract Compliance Programs ("OFCCP" or "the Agency") is pressing regulatory reforms that will significantly alter the landscape for all government contractors. Spurred by its landmark settlement with the Boeing Company in November 1999, the OFCCP is poised to codify a novel definition of the term "applicant" and significantly increase reporting obligations of contractors. It is also poised to revamp the affirmative action planning process and enhance its scrutiny of compensation systems and practices.

The Agency is playing "beat the clock" with two initiatives: (1) an Equal Opportunity Survey ("EOS" or "Survey"), which has already been sent to 7,000 federal contractors; and (2) revisions to regulations governing the preparation of affirmative action plans ("AAPs"), 41 C.F.R. Section 60-2, to be published for public comment in the next several weeks. Elements of both initiatives were previewed in the Boeing-OFCCP settlement, on which district offices of the OFCCP are already relying as if the settlement were law governing other contractors. While the Survey has cleared the Office of Management and Budget and will reach all 60,000 covered contractors by the end of the year, the revised regulations have not yet been made available for public comment, raising the possibility that the Clinton Administration will "exit stage left" before its work on the revised regulations is done.

BACKDROP: 1999 BOEING SETTLEMENT

On November 19, 1999, Boeing and the OFCCP agreed to a four-year, $4.5 million settlement to end an acrimonious battle that dates back to 1994. Aside from the millions that Boeing agreed to pay to resolve alleged pay disparities at ten Boeing facilities, Boeing also agreed to conduct annual compensation analyses on an on-going basis and to implement a new candidate tracking system. These two facets of the settlement are now reverberating across the country, as OFCCP auditors cite the Boeing settlement as the basis for similar demands elsewhere.

Under the terms of the settlement, Boeing will pay: (1) at least $2.6 million to women and minorities to remedy alleged compensation disparities identified by the OFCCP at seven locations; (2) at least $1.3 million in prospective adjustments to women and minorities at three other locations, and (3) $500,000 to Boeing executives nationwide. Boeing will report all yearly compensation analyses and pay adjustments to the OFCCP.

The settlement also details a new definition of "applicant" that will require Boeing to develop an entirely new tracking scheme to obtain race and gender data from a much broader population. For purposes of its adverse impact analyses, Boeing had defined "applicant" as a candidate who was actually interviewed. This definition was rejected by the OFCCP. Now Boeing will seek and maintain gender and race information from the entire universe of individuals who inquire about possible jobs at its facilities. Any person who makes even a generalized job inquiry through the Internet will be treated as an "applicant" for purposes of adverse impact analyses, and will be asked to identify his or her race and gender through methods such as an electronic tear-off form or postcard survey.

The very sweeping definition of "applicant" in the Boeing settlement - a term of art the Agency has heretofore refused to define - is revolutionary; it includes as "applicants" all individuals who express an interest in a job, irrespective of whether they possess minimal qualifications for the position. Obviously, Boeing's applicant tracking and record-keeping obligations will increase dramatically under the settlement.

Boeing's agreement to this definition of "applicant" represents a major victory for OFCCP. In the months that have passed since the settlement, OFCCP officials - from the national to local levels - have publicly warned that the Agency will seek to impose the Boeing definition of "applicant" in all audits. If Boeing, with 202,000 employees in 70 locations, can implement a system to track such applicants, the argument runs, all other federal contractors can do the same.

In exchange for Boeing's concessions, the OFCCP agreed to close all ten open audits and agreed that it will not conduct on-site reviews at Boeing facilities for the next four years. The Agency also agreed to perform "off-site records reviews" only, and will give Boeing advance notice, in November of each year, of any Boeing facility targeted for an off-site records review or compliance check in the following year.

INITIATIVE ONE: ANNUAL "EQUAL OPPORTUNITY SURVEY"

Approximately two months prior to the Boeing settlement, OFCCP published a Notice in the Federal Register announcing that it will require all 60,000 federal contractors with 50 or more employees and federal contracts in excess of $50,000 to complete an "Equal Opportunity Survey" every year, beginning in fiscal year 2000. On March 30, 2000, following a public comment period, the Agency announced that the Office of Management and Budget had approved the Survey under the Paperwork Reduction Act and that the first 7,000 Surveys will be mailed in early April. Contractors now receiving the Survey will have 30 days to respond. Responses are mandatory.

Several representatives of the contracting community submitted objections to the proposed Survey, urging OFCCP to abandon it and urging OMB to withhold approval. Consistent with its recent operating philosophy, OFCCP ignored the substantial concerns raised by federal contractors and pressed forward with the Survey. Thus, contractors nationwide are scrambling to decide how - and whether - to implement the full panoply of data-tracking changes that must be adopted in short order to respond to the Survey in 2000 and in coming years.

Stated Goals and General Requirements of the Survey

The stated goals for the Survey are to "increase compliance" by improving contractor "self-awareness," to identify and select those contractors "more likely than not to be in noncompliance" for audit, and to increase OFCCP's own efficiency. 64 Fed. Reg. 54056, 54057 (Oct. 5, 1999). Through the use of "adverse indicators," which it has failed to identify, OFCCP intends to use the Survey results to rank contractors and "identify establishments for compliance evaluations." The Agency claims this process will be aided by use of an "analytical model" that is neither explained nor defined by the Survey or anything that OFCCP has published to date. Id.

The Survey requires submission of what OFCCP describes as "general information on the status of the federal contractor's affirmative action plan and aggregated personnel and compensation data, with a breakdown by gender and minority status." In particular, the Survey requires contractors to provide, for each of nine EEO-1 categories (Officials and Managers, Professionals, Technical, Sales, etc.) and for each facility: (1) the number of employees, applicants, hires, promotions and terminations for the previous year, broken down into six racial/ethnic groups and by gender; and (2) aggregate, as well as some individualized, "monetary compensation" data for minority females, non-minority females, minority males, and non-minority males. Never before have federal contractors gathered and reported this so-called "general information."

Personnel Activity Data: New Definitions

Without taking the trouble to engage in rulemaking, OFCCP will use the Survey to introduce several new definitions of critical terms which the Agency has previously refused to define in its regulations - new terms which will require contractors to revamp their record-keeping procedures at significant cost and administrative burden. For instance, the Survey defines an "applicant" as "[a]ny person who has indicated an interest in being considered for hiring, promotion, or other employment opportunities." OFCCP means to count even those who are rejected because they lack a necessary degree or other qualification, or because the job was already filled.

By including within its sweep those persons who lack minimum qualifications, the Survey definition is at odds with case law developed under Title VII. It is also inconsistent with the definition of "applicant" previously sanctioned by the Agency in numerous Conciliation Agreements. (Contractors will have to count twice: once using the definition from the Conciliation Agreement for its AAP and the second time using the Survey definition to answer the Survey.) Through this mandatory "information collection" program and without engaging in formal notice and comment rule-making, the Agency has substantively altered the legal obligations imposed on federal contractors.

The Survey also introduces a new, and incomprehensible, definition of the term "promotion":

• Any personnel action resulting in a movement to a position (1) with higher pay or greater rank, or (2) requiring greater skill or responsibility, or (3) with the opportunity to attain increased pay, rank, skill, or responsibility.

There is virtually no limit to the range of personnel actions that might provide an opportunity to attain increased pay, rank, skill or responsibility. Arguably, it would include any personnel movement within a company (including "competitive" and "non-competitive" transfers), without regard to the commonly-accepted - and workable - definition of a promotion as movement from one pay level/band/grade to another.

In short, the new definition of "promotion" promises to allow great subjectivity. In fact, the definition is so malleable that it could allow contractors to choose, virtually on a case-by-case basis, whether a "promotion" has taken place when there is no immediate increase in pay or responsibility. Unscrupulous contractors now have an opportunity to manipulate their data to improve their adverse impact analyses! At a minimum, the proposed definition of "promotion" will lead to the submission of inconsistent data - data on which the OFCCP could not legitimately rely to make valid comparisons between contractors.

Compensation Data: Reams of Meaningless Information

With respect to compensation data, the Survey requires submission of "monetary compensation" data on an EEO-1 category basis for all employees at each facility. The Survey demands the following information:

• "Total Annual Monetary Compensation" and "Average Tenure," broken out for minority females, non-minority females, minority males, and non-minority males; and

• "Lowest Annual Monetary Compensation" and "Highest Annual Monetary Compensation" among minority females, non-minority females, minority males, and non-minority males.

OFCCP has failed to explain the precise purpose for which this compensation data is requested or how it will be analyzed. Presumably, OFCCP hopes the data will provide some indication of whether gender- or race-based discrimination in compensation exists. However, at most, the data will permit OFCCP to calculate average monetary compensation for males, females, minorities and non-minorities in each EEO-1 category and the highest and lowest salaries among men, women, minorities and non-minorities within each EEO-1 category.

As such, the Survey responses will not provide the OFCCP a basis on which to conduct any useful or legitimate analysis of compensation. The data will not permit the Agency to examine equal or substantially equal jobs because the data will be reported on an EEO-1 category basis. Each of the nine EEO-1 categories encompasses a broad range of positions, disciplines, levels of responsibility, and skills. Any statistical analysis based on an aggregation of compensation data for all such positions would be meaningless, as the jobs that are grouped together are neither identical nor even comparable.

For example, the "Officials and Managers" EEO-1 category properly encompasses both a first-level supervisor in the accounts payable department and the contractor's chief financial officer. Although these positions are both properly classified as "Officials and Managers," it is obvious to anyone but the OFCCP that the job duties, levels of responsibility, and, therefore, monetary compensation paid to each, are widely divergent without regard to gender or race. What could a comparison of these two salary extremes demonstrate?

In addition, the Survey fails to distinguish the varying work functions (and resulting compensation levels) of different employees. By demanding aggregate data on all Professionals in that EEO-1 category, for example, it will force an averaging of the salaries of computer engineers, lawyers, HR personnel, and chemists. The salaries of such employees vary widely, based on market value and skills. For precisely this reason, such employees are typically subdivided into smaller job groups for purposes of an AAP and adverse impact analyses.

Notably, the Survey does not seek data regarding the range of variables that impact pay in the real world. Any analysis of compensation that ignores the multiplicity of factors that really affect pay - market value, experience, performance, tenure, education, to name a few - is highly suspect. Only a regression analysis, which accounts for multiple factors, yields a statistically-defensible result. Accordingly, the Survey will yield - at best - single data points on which the OFCCP could not reasonably rely to assess whether further review of a contractor's pay practices would be warranted.

The Survey's demand for the annual pay of the single-lowest and single-highest paid minority females, non-minority females, minority males, and non-minority males within each EEO-1 category fares no better as a legitimate analytic tool. The Agency fails to explain how a comparison of the single?highest and single?lowest salaries across gender and race would permit the OFCCP to determine whether a contractor is failing to comply with E.O. 11246, Section 503 or VEVRAA.

AAP Information and Certification Requirement

In addition to aggregate personnel activity and compensation data, the Survey mandates submission of certain AAP-related data and requires certification that all Survey responses are "true and accurate." For instance, each contractor must list the expiration date for each of its AAPs or acknowledge that it does not have current AAPs in place (an acknowledgment of non-compliance). For those contractors who fail to complete their AAPs in a timely fashion, these new requirements will likely energize the AAP updating process. Contractors must also state whether - and how many - employment openings were listed with the state employment service and/or America's Job Bank, as required by the regulations. Finally, under express threat of prosecution for submission of false statements to the government, a company official must certify that the Survey responses are "accurate and complete."

Responding to the Survey

The Survey in all its glory should start appearing in mailboxes within days. Federal contractors should start considering immediately how they propose to respond since OFCCP will allow only 30 days to gather and submit answers. Options run the gamut from a hurry-up makeover of your data systems to capture the requested information, if possible, to challenging the Survey through litigation. For those who elect to try to answer the Survey with data that does not reflect the definitions of the Survey, we strongly recommend a detailed disclaimer.

What contractors should not do is ignore their mail! Those who ignore the Survey risk an "enforcement action," according to deputy assistant secretary of labor Shirley Wilcher. Assuming this posture will invite a compliance evaluation and may lead to an administrative complaint, so contractors considering this option should carefully weigh the costs.

REVISED SECTION 60-2 REGULATIONS: "THE CHECK'S IN THE MAIL"

The OFCCP's third attempt to "beat the clock" may not be as successful as the first two. The third comes in the form of proposed revisions to 41 C.F.R. Section 60-2, the substantive regulations that govern the development and content of AAPs. For the past several months, OFCCP officials have repeatedly been forecasting that proposed revisions to the Section 60-2 regulations are imminent, to change regulations which have been largely static for more than two decades. Although the Agency's last public statement on this subject promised publication of the proposed revisions in March 2000, they are not out as of this writing.

OFCCP has been uncharacteristically mum about the substance of the proposed regulations. Senior officials have declared only that the revisions will "streamline and reduce the paperwork burden" for contractors, but have offered no specifics. (Since OFCCP also projected a mere 12 hours of work to handle the Survey, we don't take the declaration that the revised regulations will be streamlined or will reduce contractors' burdens too much to heart.)

We think the revisions will likely propose a codification of various elements of the Boeing settlement and the Survey. The new regulations may also capture OFCCP's equal pay initiative, perhaps by requiring annual compensation analyses or other self-monitoring by contractors, a la the Boeing agreement. We anticipate as well that that the OFCCP's current definition of "applicant" will be proposed.

Stung by the OFCCP's steadfast refusal to modify its Survey, the contracting community is poised to challenge the Agency if its revised regulations overreach. The Clinton Administration will surely face an uphill battle if it chooses to use the proposed revised regulations to further leave its mark on the affirmative action landscape. And a battle over affirmative action in an election year, on the heels of anti-affirmative action sentiment that recently engulfed California and other states, is a prospect the Administration - or, at least the Vice President - will not take lightly.