Is the Department of Labor’s Office of Federal Contract Compliance Programs (“OFCCP”) likely to come knocking on your door? If your company has a federal contract, subcontract, or federally assisted construction contract, it is likely subject to federal affirmative action requirements.

Generally speaking, if you: (1) hold a single federal contract, subcontract, or federally assisted construction contract in excess of $10,000.00; (2) have a federal contract or subcontracts with a combined total in excess of $10,000.00 in any 12-month period; or (3) hold Government bills of lading, serve as a depository of federal funds, or are an issuing and paying agency for U.S. savings bonds and notes in any amount, your company will be subject to requirements under one or more of the laws enforced by the OFCCP. Covered contractors must comply with Executive Order 11246, Executive Order 13496, Section 503 of the Rehabilitation Act of 1973, and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, and are subject to audit by the OFCCP.

The Process of an Audit.

The regulations implementing Executive Order 11246 require every “Service Contractor,” i.e., nonconstruction employer, who has 50 or more employees and has a federal contract or subcontract (or bills of lading) of $50,000 or more, to develop a written affirmative action plan (“AAP”) for each of its establishments. Financial institutions which issue savings bonds or act as federal depositories are also covered. Covered federal contractors and subcontractors must update their AAPs annually and tender their AAPs to the OFCCP upon request. Since January of 2011, the OFCCP has utilized a NEW system called Active Case Enforcement (“ACE”) to enforce compliance with these regulations.

The OFCCP also maintains a Federal Contractor Selection System (FCSS) list of companies it believes are covered contractors, and establishments are selected by the OFCCP National Office for compliance evaluation from this list. The list designates which investigative procedure will be followed. An “establishment” is a contractor’s worksite location for which an AAP has been prepared. The OFCCP will initiate the review by sending a scheduling letter. The compliance evaluation process will include one or more of the following elements: 1) a compliance review (which has three stages: desk audit, on-site review and off-site analysis. A “full compliance review” consists of all three stages); 2) a compliance check; 3) an off-site review of records; 4) a focused review; and/or 5) a pre-award compliance evaluation. The OFCCP will also contact the EEOC and the local Fair Employment Practice Agency to learn the nature and resolution of any complaints that may have been made against your company.

If your company is selected for a full desk audit, the OFCCP will undertake a comprehensive review of the company’s AAPs and all supporting documentation. The analyses include, but are not limited to, utilization analysis and review of goals and adverse impact analysis and internal audit procedures, compensation analysis, and assessment of the reasonableness and acceptability of your AAP. The Compliance Officer will review the company’s compliance history for the past three years to determine if there are patterns of noncompliance. The Compliance Officer will use the OFCCP internal database, and any information from the EEOC and state or local employment agencies, such as the DOL’s Wage and Hour Division, or Veterans’ Employment and Training Service to look for patterns. So, if you’ve had charges during this time period, expect greater scrutiny on those areas and job groups.

If the desk audit indicates potential discrimination/violations of the affirmative action regulations, an onsite review may be conducted. A Compliance Officer will visit the establishment to document the contractor’s compliance with the indicators that prompted the onsite review, as well as check for compliance with Executive Order 13496 (notification to employees of their rights under the NLRA), and other laws enforced by OFCCP. It is important to remember Compliance Officer’s review is not limited to the issues that prompted the visit, and the scope can quickly expand if the employer is not prepared. Importantly, although the prior procedures focused on whether 10 or more class members might be affected by discrimination, now there is no class member threshold under the new ACE procedures.

If no potential discrimination or violations are found by the Compliance Officer, he will issue a Closure for No Apparent Violations or Technical Violations. If violations are found, however, the OFCCP will issue a Notice of Violations specifying what corrective action must be taken to remedy each violation. Typically, the agency will then seek to require the employer to enter into a Conciliation Agreement which incorporates all of the remedial action identified by the OFCCP. OFCCP can seek enforcement action if the employer does not enter into the Conciliation Agreement. If the contractor denies the OFCCP access or refuses to provide requested information, the Compliance Officer will typically issue a “show cause” notice as to why the contractor should not be found in violation of the regulations. A contractor establishment which has undergone an ACE compliance evaluation has a 24-month grace period during which it will not be selected again for compliance evaluation. Other establishments of the same contractor, however, do not fall within this grace period and may still be selected for evaluation.

What Should Employers Do to Prepare for an Audit?

Employers should conduct a self-audit to help ensure that they will not end up on the wrong end of the OFCCP’s enforcement scheme. First, and most importantly, make sure you have updated your AAP for the current year and updated the applicant flow and statistical analysis of your workforce. Be prepared to discuss your progress in achieving the goals from the prior year’s plan. Where you have goals, the focus will be on what “action-oriented steps” you took to increase the number of qualified women and minorities in the applicant pool. Additionally, be prepared to identify specific steps you took in groups with goals to reach a diverse applicant pool (and what was different than last year).

Next, review the adverse impact analysis from your hires, promotions and terminations in the prior year and be prepared to explain any indications of adverse impact based on the personnel records of actions taken. Review your I-9 files for compliance. Make sure your application website is ADA compliant. Check and insure that the new Executive Order 13496 posters are up. If you use temp work or staffing agencies, make sure that their hiring practices and applicant tracking will pass muster.

In the last several years, a large portion of settlements with the OFCCP have involved failure-to-hire claims. If you use tests to screen applicants, ensure that all tests are validated for each job they are used to screen for. Similarly, make sure that the physical and other requirements in your job descriptions are up to date and accurate so that they don’t potentially screen out qualified female and minority applicants.

Another area of increased scrutiny is on pay equity. Break down your employee roster into the groups used in the plan and calculate the median and mean salary for females and males, and minorities and non-minorities, in each group (and in each job with a large number of incumbents). If there are disparities in compensation, be prepared to articulate non-discriminatory reasons for them, which may include length of service, educational and experience levels. Veterans and disability outreach is also receiving more attention than in years past, so make sure that your outreach is up to date and you are posting your jobs with the local employment commission and Veterans liaison groups. Finally, make sure that supporting materials such as letters to recruiting sources and vendors, sample advertisements, policies, outreach efforts, and job postings are pulled and ready.

In our experience, the more complete the initial submission to the Investigator, the more smoothly the process goes. You only have 30 days from the time you receive the scheduling letter to submit your AAP and supporting materials. The attorneys on LeClairRyan’s Labor and Employment Team are available to help you and your company reach and maintain compliance. We can help you repair and bolster your policies now, before the OFCCP comes knocking.