During a hearing conducted on Wednesday by the House Subcommittee on Health, Employment, Labor, and Pensions, panelists – including Littler shareholder Alissa Horvitz – debated the merits of recent regulatory and enforcement initiatives established by the Department of Labor’s Office of Federal Contract Compliance Programs (OFCCP). According to Horvitz, while the OFCCP’s mission is a laudable one that should be supported, many in the business community are becoming frustrated with the overly burdensome requirements that the agency imposes on federal contractors. Within the past couple of years the OFCCP has instituted a number significant policy and regulatory changes. Horvitz testified (pdf) that a number of employers are terminating their contracts with the federal government while others are deciding not to become government contractors because of the onerous compliance barriers imposed.

Agency Changes

On the regulatory front, the OFCCP issued in December 2011 a proposed rule that would amend the nondiscrimination and affirmative action requirements regarding individuals with disabilities for federal contractors and subcontractors. Earlier that year the agency issued a proposal to amend its regulations regarding a contractor’s and subcontractor’s affirmative action and nondiscrimination obligations towards protected veterans under the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA). In addition, in August 2011 the OFCCP issued an advance notice of proposed rulemaking (ANPRM) to solicit public input on the agency’s development and implementation of a new compensation data collection tool.

As for policy and enforcement changes, in December 2010 the agency issued a directive to discontinue the former Active Case Enforcement (ACE) process for conducting supply and service (S&S) compliance evaluations that had been in place since 2003. In early 2011 the OFCCP issued a directive outlining new ACE procedures. In June 2011 the agency issued another new directive updating the application and approval procedures for Functional Affirmative Action Program (FAAP) Agreements. In October 2011 the agency submitted to the Office of Management and Budget (OMB) for review revised forms it uses to collect information in connection with non-construction S&S contractor compliance reviews. These changes to the scheduling letter and itemized listing would significantly impact how federal contractors maintain their records and respond to audit scheduling letters.

In addition, subcommittee Chairman Phil Roe (R-TN) noted that the OFCCP is seeking to require that federal contractors provide a “statement of reasons” that “explains why certain workers were not extended an employment opportunity.” Rep. Roe also considered the OFCCP’s attempt to expand its jurisdiction to certain TRICARE providers a “bureaucratic overreach.” TRICARE is the Defense Department’s health care program for active duty and retired military and their families. In a directive issued last December, the OFCCP clarified instances in which it believed health care providers and insurers are subject to OFCCP requirements, although during the hearing Horvitz pointed out that this directive is not available to contractors on the OFCCP’s website. Generally, the OFCCP’s position is that certain arrangements with the Federal Employees Health Benefit Program (FEHBP) and TRICARE constitute government contracts that create OFCCP jurisdiction. Litigation on this jurisdiction expansion is still pending. The National Defense Authorization Act for Fiscal Year 2012 included a provision stipulating that in determining whether TRICARE network providers are to be considered subcontractors subject to affirmative action and other requirements governed by the OFCCP, TRICARE managed care support contracts that include the requirement to establish, manage, or maintain a network of providers will not be considered to be a contract for the performance of health care services or supplies on the basis of that requirement.

Increasing Compliance Burdens

Some lawmakers and panelists voiced concern during the hearing that the growing number of requirements imposed on contractors is outweighing the benefits of the OFCCP’s mission. For example, the dollar threshold triggering OFCCP obligations is “far too low for the burden placed on companies,” according to Horvitz. She suggested that one way to ease this burden is to raise the current dollar threshold of $50,000 for a supply and service contract to a tiered approach based on contract value starting at $250,000. She also advocated that the “implementation time before OFCCP can select the company for an audit should be extended from its current 120 days to 12 months, if not longer.” In addition, Horvitz promoted the idea that companies whose federal contracts do not exceed $1 million in the first year working with the government be exempt from audits altogether. She recommended a tiered approach for audit eligibility for subsequent years. “Congress needs to give smaller and medium businesses that are new to these obligations adequate time to evaluate the profit margin from these contracts and to take steps to comply with OFCCP’s obligations.”

Horvitz also testified that the OFCCP needs to be more transparent. She noted that the agency has released a number of directives, including one that explains how compliance officers should evaluate compensation, but has never posted these directives on the agency’s website. Horvitz argued that if the OFCCP does not publish these directives, contractors have no guidance on how to evaluate their own pay data and perform self-audits. “How are companies who want to do the right thing and be in compliance, proactively, supposed to do that when OFCCP does not publish the directives it later enforces and without advising government contractors how to self-evaluate their own data?” She stated further that “it seems fundamentally contrary to notions of due process that companies could be accused of violating OFCCP’s regulations when the agency doing the enforcing has failed to identify the benchmarks and standards that companies should follow.”

Horvitz claimed that in her experience, the agency’s conduct during compliance reviews “is one of the principal reasons why more companies do not want to contract with the government. There is no current compliance manual that defines how audits ought to be conducted, which has led to OFCCP’s compliance officers conducting these audits very differently across OFCCP’s six regions.” In response to a question, Horvitz noted also that many businesses are becoming wary of doing business with federal contractors, as they could unwittingly become federal subcontractors subject to OFCCP jurisdiction.

Horvitz similarly criticized the OFCCP’s plan to create a “one-size-fits-all” approach to evaluating pay through a proposed compensation data tool.

Jeffrey Norris, President of the Equal Employment Advisory Council, echoed many of these points and discussed the OFCCP’s aggressive regulatory agenda, stating that the agency’s new efforts will “expand exponentially” the data that employers must provide to the government. With respect to the proposed new affirmative action requirements for veterans and individuals with disabilities, Norris claimed that these proposals:

would transform a qualitative program based on situation-specific good faith efforts, equal opportunity, and respect for privacy of a person’s disability into a quantitative program based on federally mandated numeric targets, preferential treatment, ineffective and extraordinarily burdensome paperwork requirements, and invasive inquiries into the disability status of tens of millions of U.S. workers and job seekers each year.

He also spoke against the proposed compensation data collection tool, stating that the agency has not yet demonstrated any need for a new method, and criticized the OFCCP’s withdrawal of its published guidance on legal and statistical standards for evaluating compensation for self-audits.

As for compliance evaluations, Norris claimed that the changed data collection requirements have “expanded dramatically” the information that a contractor must submit at the beginning of the audit, and that the agency has consistently underestimated the burdens and costs associated with the proposed changes.

For example, Norris testified that the proposed rule change related to affirmative action requirements for individuals with disabilities will cost employers $2 billion in its first year of implementation, and at least $1.5 billion for each subsequent year. According to Norris, this cost estimate is more than 30 times the agency’s projection.

Moreover, in response to a question posed by Rep. Todd Rokita (R-IN), Norris explained that this proposed rule “is inconsistent with the underlying philosophy of the [Americans with Disabilities Act].” One of the purposes of the ADA, he claimed, is to ensure that an individual’s disability is kept a private matter unless divulging this information is necessary. Instead, Norris claimed, “what this proposal would do would be to feature one’s disability.”

While other lawmakers debated the need for increased regulation regarding the nondiscrimination requirements the OFCCP is charged with enforcing, Rep. John Tierney (D-MA) questioned the need for a hearing at this time. He stated that since the OFCCP’s proposals are not yet finalized, an evaluation of the regulations at the date is premature.

Horvitz concluded her remarks by calling for the OFCCP to display a “greater willingness to be more objective” and be “less biased, and more conciliatory, especially when dealing with employers that truly are trying to do the right thing and be in compliance with the laws and regulations that OFCCP enforces.” 

A complete list of panelists and links to their testimony and an archived webcast of the hearing can be found here.