Hunton Employment & Labor Law Perspectives : Employment Lawyers & Attorneys : Hunton & Williams Law Firm : Labor Law Legislative Updates

Section 503 prohibits discrimination by federal contractors and subcontractors against individuals on the basis of disability and requires affirmative action on behalf of qualified individuals with disabilities.  However, there continues to be a substantial discrepancy in unemployment rates between working age individuals with and without disabilities.  The current unemployment rate for individuals with disabilities is thirteen percent, one and one half times the rate of individuals without disabilities.  Moreover, almost eighty percent of individuals with disabilities remain outside of the labor force, compared to about thirty percent of those without disabilities. 

OFCCP’s proposed rule strengthens the affirmative action provisions by detailing specific actions contractors must take in the areas of recruitment, training, record-keeping and policy dissemination.  The proposed rule applies to contractors with at least 50 employees and contracts worth $50,000 or more. 

National Utilization Hiring Goal

The most significant proposed change to Section 503 is the establishment of a national utilization goal for individuals with disabilities.  This is the first time the federal government has tried to set fixed numerical targets for the number of people with disabilities in a company’s workforce.  Under the proposed rule, federal contractors are required to set a hiring goal of seven percent disabled workers in each job group in the workforce.  The goal is neither a quota, nor a restrictive hiring ceiling, and a failure to attain the goal does not necessarily constitute a violation of Section 503 or OFCCP’s regulations.  The U.S. Department of Labor noted that the goal is meant to serve as an important tool for employers to measure their progress towards achieving equal employment opportunity, and for assessing where in the workforce barriers to such opportunity remains. 

While the OFCCP is suggesting a national utilization goal of seven percent, it is asking for comments on using a range of values between four and ten percent.  Additionally, it is asking for comments regarding the concept of using a two percent sub-goal for individuals with certain particularly severe or targeted disabilities and if instated, what disabilities should be included in this sub-goal.

Effects On Data Collection, Record Keeping And Personnel Policies

Along with the creation of a hiring goal, the proposed rule expands data collection and record keeping requirements.  Currently, Section 503 requires that contractors maintain specific data such as the total number of applicants, the total number of job openings, and the number of jobs filled.  The proposed rule increases a contractor’s data collection obligations by requiring it to compile annually disability related data such as the number of individuals with disabilities applying for positions and the number of disabled individuals who were hired. 

In addition, the proposed rule mandates that contractors must invite applicants to voluntarily self-identify as “an individual with a disability” at the pre-offer stage of the hiring process, as well as invite post-offer voluntary self identification by anonymously surveying all employees annually.  Contractors will be required to invite applicants and employees to self-identify by using the language prescribed by the OFCCP.  An employee will only be asked about the general existence of a disability and not for information regarding the specific type.  The OFCCP is seeking comments on the potential self-identification text. 

Furthermore, the proposed rule adds an entirely new provision which requires contractors to develop and implement written procedures for processing requests for reasonable accommodations. 

Contractors’ personnel policies and procedures will also be affected by the proposed rule. First, the statutory terms within the existing Section 503 will be revised to conform with the ADA Amendments and the EEOC’s regulations implementing the ADA.  All personnel policies and procedures must be updated to reflect this change, as well as include an affirmative action plan.  Second, Section 503 provides recommended steps contractors must take to review their personnel processes, as well as physical and mental job qualifications.  Presently, these reviews are to be done “periodically.”  However, the proposed rule changes this provision and requires these self-reviews to be completed annually. 

Recruitment And Outreach Efforts

The proposed rule also imposes additional recruitment and outreach requirements.  In accordance with the proposed rule, contractors will have to engage in a minimum of three specific types of outreach and recruitment efforts.  The effectiveness of these efforts in identifying and recruiting individuals with disabilities must be reviewed annually, and this review must be documented.  Additionally, job openings must be listed with one-stop career centers and other appropriate employment delivery systems in order to increase the pools of qualified applicants.  Additionally, all records relating to a contractor’s recruitment and outreach efforts must now be kept for five years, which departs from the standard two year retention period.

Comments To The Proposed Rule

The public may comment on the proposed rule at www.regulations.gov or by mail to Debra A. Carr, OFCCP, Room C-3325, 200 Constitution Ave., NW, Washington, D.C., 20210.  All comments must be received by February 7, 2012 and include the identification number (RIN) 1250-AA02.  Federal contractors should continue to monitor the regulatory activity of the OFCCP and be prepared to make adjustments to their human resources practices and technologies to comply with the OFCCP’s expanded requirements.

If the proposed changes are accepted as drafted, contractors will face increased compliance obligations when responding to audits.  Although several of the proposed changes merely clarify requests in the current Itemized Listing, many of the changes will require contractors to provide new information and detailed data that was not previously requested in audits.  Several of the more significant proposed changes are explained below.

Leave Policies.  Under the proposed changes contractors must provide employment leave policies including policies that address pregnancy leave, the Family and Medical Leave Act and accommodations for religious observances and practices.  If these policies are contained in employee manuals or handbooks, contractors should provide the handbook or manual.  This proposed change is notable because the current Itemizing Listing does not address these issues,  which are typically handled by the Wage and Hour Division of the Department of Labor or the Equal Employment Opportunity Commission.

Detailed Demographic Information.  The proposed Itemized Listing requires contractors to provide applicant, hire, promotion and termination data by specific race/ ethnicity group, instead of by categories of minority and non-minority.  The OFCCP explains that contractors should list this data based on the following race/ ethnicity categories; African American/Black, Asian/ Pacific Islander, Hispanic, American Indian/Native Alaskan, and White.

Job Title and Job Group.  The OFCCP has proposed that applicant, hire, promotion and termination data be submitted by both job group and job title.  Currently contractors may submit this information by either job group or job title.

Pool Data.  The proposed changes would also require contractors to provide the “actual pool of candidates who applied for or were considered” for promotions and additionally the “actual pool of candidates who were considered for terminations.”  Under the current Itemized Listing contractors need only provide the number of individuals promoted or terminated, the pool data is not required.

Additional Compensation Data.  The amended Itemized Listing makes major changes to its request for compensation data.  The proposed changes would require contractors to provide individual employee compensation data rather than aggregate compensation data, which is requested in the current scheduling letter.  This information would need to be provided by particular racial/ethnicity group rather than by minorities as a whole.  The proposed changes also require contractors to identify separately the following information; base salary, wage rate and hours worked, bonuses, incentives, commissions, merit increases, locality pay and/or overtime.  Finally, contractors would be required to produce any documentation and policies relating to compensation practices, including such policies used to explain the factors and reasons for compensation decisions.

Veterans’ Employment Reports.  The OFCCP’s proposed changes would require contractors to provide their VETS 100 and/or VETS 100A reports for the last three years. 

Although in explaining the proposed changes the OFCCP states that the revisions “will reduce the overall burden on contractors,” the opposite seems to be true.  If the proposed changes are accepted contractors will not only have to provide more information and more detailed data in an initial response to an audit, but they will need to track and collect this new information.  This will likely require contractors to make significant adjustments to both their human resources practices and technologies.  Because the current Scheduling Letter and Itemized Listing are set to expire in September 2011, contractors should be aware of these possible changes so they can respond to future audit letters appropriately.

The proposed rule includes several significant changes including a shift in the overall tone of the regulations from providing suggestions for compliance to now issuing mandates for compliance. Below are several examples of actions contractors must take under the proposed rule.

• Mandatory Job Listing Requirements. Contractors must provide the state employment service with the following information annually; 1) status as federal contractor; 2) contact information for the contractor hiring official at each location in the state; 3) contractor’s request for priority referrals of protected veterans for job openings; and 4) contact information for any outside job-search companies used by the contractor. 
• Pre-Offer Invitation to Self-Identify. Contractors must invite all applicants to self-identify as a protected veteran prior to being offered a job.  (Applicants would not be required to specify which type of protected veteran he or she is.)
• Increased Data Collection.  Contractors must collect the following data annually and maintain records of this data for five years;
  • Total number of referrals; number of priority referrals of protected veterans received; and ratio of referred protected veterans to total referrals.
  • Total number of applicants; number of applicants who are known protected veterans; and ratio of protected veteran applicants to total applicants.
  • Total number of people hired; number of protected veterans hired; and ratio of protected veterans hires to total hires.
  • Total number of job openings; number of jobs filled; and ratio of job openings to job openings filled.
• Hiring Benchmarks. Contractors must establish annual hiring benchmarks. The benchmark will be established by determining the percentage of total hires who are protected veterans that the contractor seeks to hire in the following year.
• Annual Evaluation of Recruitment Efforts. Contractors must evaluate the effectiveness in identifying and recruiting qualified protected veterans and document this review. Contractors should review the number of protected veteran referrals, applicants and hires for the current year and two previous years.

The increased obligations presented in the proposed rule will likely have a significant impact on federal contractors. If the rule is finalized as drafted, contractors will face greater burdens in terms of data tracking, data collection and record keeping. Because contractors will likely need to overhaul their internal practices and procedures to satisfy these burdens, contractors should follow the proposed rule closely in order to be prepared to implement the necessary changes to achieve compliance.

OFCCP v. Florida Hospital of Orlando
 
TRICARE is a federal health care program for active and retired members of the military and their family.  It is administered by TRICARE Management Activity (“TMA”).  In OFCCP v. Florida Hospital of Orlando, TMA contracted with Humana Military Healthcare Services, Inc. (“HMHS”) to provide networks of health care providers to the beneficiaries of TRICARE.  HMHS in turn contracted with Florida Hospital of Orlando (“Florida Hospital”) and other hospitals to provide health care services to individuals eligible to receive benefits under the agreement between HMHS and TMA. 

The OFCCP sued Florida Hospital arguing it is a federal subcontractor and subject to OFCCP’s jurisdiction.  The ALJ granted summary judgment for the OFCCP, ruling that Florida Hospital was a federal subcontractor because it provided medical services to TRICARE beneficiaries.  The ALJ focused on the regulatory definition of subcontractor which states that a subcontract is:

[A]ny agreement or arrangement between a contractor and any person . . .: (1) For the purchase, sale or use of personal property or nonpersonal services which, in whole or in part, is necessary to the performance of any one or more contracts; or (2) Under which any portion of the contractor’s obligation under any one or more contracts is performed, undertaken or assumed.

41 C.F.R. §§  60-1.3, 60-250.2; 60-741.2.  The ALJ reasoned that Florida Hospital undertook a portion of HMHS’s obligations under its contract with TMA, “specifically the provision of medical services to TRICARE’s beneficiaries.”

The ALJ rejected Florida Hospital’s arguments to the contrary.  Florida Hospital argued that it was not a federal subcontractor because it merely received financial assistance from the federal government similar to Medicare funding.  The ALJ distinguished Florida Hospital’s funding from Medicare because Medicare only pays for medical services whereas TRICARE provides medical services.  The ALJ also rejected Florida Hospital’s arguments that TRICARE did not consider its network providers to be subcontractors and that Florida Hospital’s contract did not contain any of the federal subcontractor compliance provisions.

Beginning in its fiscal year 2010, which began October 1, 2009, “there is no limit on the number of compliance evaluations that OFCCP may schedule or conduct per contractor during a fiscal year.”   This is a significant change from past practice, in which the agency limited the number of compliance evaluations identified each scheduling cycle to 25 per parent company.

The CSAL is a courtesy notification, given to a company’s chief executive officer, that two or more of the company’s facilities are to be scheduled for a compliance evaluation (or “audit”) during the scheduling cycle.  The list of contractors to be audited is generated by the Federal Contractor Selection System (FCSS).  Receipt of a CSAL does not mean that an audit has been initiated, but instead that one will be scheduled in the future.  Once an audit is scheduled, the OFCCP sends out a separate Scheduling Letter, which provides only 30 days for the contractor to provide all requested information and materials.

The CSAL may not necessarily list all the establishments that are to be scheduled for an audit.  Examples of those that may be audited without being listed in a CSAL include, for example:  establishments that are not clearly associated with the parent organization through EEO-1 Reports (as in the case of recent mergers); establishments selected for review through means other than the FCSS; an establishment named in a complaint; an establishment subject to monitoring of a conciliation agreement; an establishment recently awarded a federal contract; and establishments selected for auditing as part of the OFCCP’s Corporate Management Compliance Evaluation (CMCE) or Functional Affirmative Action Plan (FAAP) initiatives.

This change in policy will affect large employers with more than 25 facilities subject to OFCCP jurisdiction.  Such companies will likely have to take additional steps to prepare for and defend audits, which typically include statistical analysis and detailed review of affirmative action plans.  If the OFCCP finds statistically significant disparities at one facility, it will not be limited in the number of investigations of other facilities it may pursue in an attempt to identify patterns of discrimination.  In light of this possibility, federal contractors should consider conducting privileged statistical reviews at facilities subject to OFCCP jurisdiction as early as possible, particularly on receipt of a CSAL.

Shiu is considered to be an aggressive advocate of employee rights and disadvantaged persons.  This, coupled with an expected increase in the OFCCP’s budget, suggests that the OFCCP’s enforcement efforts will be particularly active under her leadership.  Her new position currently is classified as a Deputy Assistant Secretary of Labor, which does not require Senate confirmation.  However, following a reorganization in the DOL, Shiu will report directly to Labor Secretary Hilda Solis, which could elevate her title to Assistant Secretary of Labor and require Senate confirmation.

Shiu has been an employment attorney with the Legal Aid Society of San Francisco since 1983.  She focuses primarily on employment cases of alleged race and sex discrimination.  Shiu also directs the Legal Aid Society’s Works and Family Project and is the Vice President of Programs.  Shiu graduated from the University of San Francisco School of Law, and spent several years in private practice before joining the Legal Aid Society.

In the federal arena, Shiu’s experience includes an appointment to the Department of Education’s Civil Rights Reviewing Authority during the Clinton administration.  She is also a former board member and past vice president of the National Employment Lawyers Association, a plaintiffs’ attorney group.