On April 28, 2016, the U.S. Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) rescinded its earlier guidance on Functional Affirmative Action Programs (“FAAPs”) and issued a new enforcement guidance document on this subject, Directive 2013-01 Revision 1Functional Affirmative Action Programs (the “Directive”), which took effect on the same date.

By way of background, each federal contractor with 50 or more employees and a federal government contract of $50,000 or more must develop a written affirmative action program (AAP) for each of its physical “establishments.” OFCCP defines an “establishment” as a “facility or unit which produces goods or services, such as a factory, office, store, or mine.” However, contractors may be eligible to apply for permission to develop an AAP based on business function or unit—a functional affirmative action plan, or FAAP—in lieu of, or in conjunction with, one or more existing establishment-based AAPs. OFCCP defines “functional or business unit” as a “component within an organization that operates autonomously in the ordinary course of the organization’s business.”

FAAPs may provide certain efficiencies to contractors whose business is managed at the business unit level. Before a contractor may develop a FAAP, OFCCP must approve in writing the contractor’s proposal to implement the FAAP and enter into a FAAP agreement with the contractor. Once approved, contractors must follow the agency’s strict procedures for maintaining and renewing FAAPs.

OFCCP has made certain changes to these procedures, as announced in the Directive.

Old Guidance on FAAPs Formally Rescinded

OFCCP first issued guidance on the development of FAAPs on December 17, 2002. The agency replaced that guidance document on June 14, 2011, and most recently, on December 12, 2012. The Directive supersedes the agency’s earlier guidance documents on FAAPs.

New Directive 2013-01 Revision 1: Functional Affirmative Action Programs

The Directive provides detailed guidance regarding the procedures under which OFCCP will consider a contractor’s application to develop and implement a FAAP.

Many of the prerequisites and procedures for obtaining FAAPs remain unchanged. For example, the contractor’s functional or business unit must continue to meet the following criteria to be considered suitable for a FAAP: (1) currently exists and operates autonomously; (2) includes at least 50 employees; (3) has its own managing official; and (4) has the ability to track and maintain its own personnel activity.

Similarly, many of the “basic principles” of FAAP agreements articulated in the Directive remain unchanged, including, but not limited to: required approval from OFCCP for new FAAPs and amendments or modifications to FAAPs; OFCCP’s consideration of the contractor’s past compliance with affirmative action requirements and EEO violations in the three preceding years when evaluating a contractor’s FAAP application; the three-year term of a FAAP agreement; and the process and grounds for terminating a FAAP agreement.

However, for federal contractors considering applying for and developing a FAAP, as well as federal contractors with an existing FAAP, the Directive contains a few key changes of which they should be aware:

  1. Compliance with Updated Affirmative Action Requirements for Individuals with Disabilities and Protected Veterans

OFCCP now requires contractors with approved FAAP agreements to comply with the affirmative action requirements of Section 503 of the Rehabilitation Act of 1983 (“Section 503”), as amended, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as amended (“VEVRAA”). Contractors have to demonstrate their compliance with these requirements during the FAAP negotiation or certification process. This requirement serves as yet another reminder of the significance of compliance with the expanded Section 503 and VEVRAA regulations effective in March 2014.

  1. Compliance Evaluations During FAAP Term

The prior directive did not require federal contractors with a FAAP to undergo an OFCCP compliance evaluation during the term of the FAAP agreement, but rather provided that to be eligible for renewal of the FAAP agreement, contractors had to undergo two compliance evaluations during the term of the FAAP agreement. Like all contractors, those with a FAAP were subject to ostensibly administratively neutral selection criteria to select the contractor for a compliance evaluation, and OFCCP could extend the FAAP agreement term until the two compliance evaluations were completed.

The Directive, however, provides that contractors “will undergo at least one compliance evaluation during the term of their FAAP agreement.” This requirement in effect puts contractors with FAAPs in a special category when it comes to selection for OFCCP compliance evaluations, guaranteeing that they will be in OFCCP’s crosshairs.

  1. FAAP Request Process

For the most part, the FAAP request process remains unchanged. However, one potentially welcome development is that OFCCP no longer will require each contractor applicant to have a conference with OFCCP to discuss its proposed FAAP. Instead, the agency recognizes that it may need to meet with the contractor before it makes a final determination on the request to use a FAAP and explains that “every effort will be made to gather sufficient information regarding the contractor’s corporate structure to process the FAAP agreement request” so as to minimize the need for a conference.

  1. Certifying a FAAP 

Whereas prior guidance required contractors with a FAAP to apply for renewal of the FAAP agreement, the Directive sets forth a similar “certification” process that appears to require a contractor with a FAAP to include updated business information to allow OFCCP to determine whether it will re-issue the FAAP agreement. Just as with the prior renewal process, a contractor must submit the certification request at least 120 days before the expiration of its FAAP agreement.

What This Means for Employers

In recent years, OFCCP has significantly stepped up its audit and enforcement efforts. Accordingly, the contractor community should remain vigilant to ensure compliance with the myriad laws and regulations that OFCCP enforces.

FAAPs long have been a double-edged sword for contractors. While a FAAP may make sense for contractors with organizational structures along functional lines, obtaining OFCCP approval necessarily invites heightened scrutiny from the federal government. The Directive’s “guaranteed” compliance evaluation requirement and expanded review of Section 503 and VEVRAA compliance during the negotiation and certification process only reinforce this potential risk.

Federal government contractors considering applying for and developing one or more FAAPs in lieu of establishment-based AAPs should consult with legal counsel regarding the risks, benefits and other considerations associated with FAAPs, particularly in light of the new Directive. Contractors with existing FAAPs should review the Directive to ensure that they are in compliance with the new procedures for maintaining and updating FAAPs, and they should consider auditing their compliance with all applicable affirmative action requirements to prepare for a compliance evaluation.