OFCCP Issues Final Rules Imposing Numerous New and Onerous Requirements on Federal Contractors

On August 27, 2013, the U.S. Department of Labor's Office of Federal Contract Compliance Programs (OFCCP) issued final regulations governing disabled individuals and protected veterans. This alert will provide background on the new regulations, an overview of the key changes and recommendations concerning what Contractors should be doing now to prepare for when the regulations become effective in March 2014.

The following three key directives will have the most far-reaching impact on federal government contractors (Contractors):

• Contractors must establish specific goals for the number of protected veterans to be hired and the number of disabled employees to be employed;
• Contractors must collect new data and implement new ways to track whether the hiring and utilization targets are being met; and
• Contractors must engage in extensive self-evaluation of their affirmative action programs, which evaluations must be documented, along with all steps taken to address any deficiencies.

Copies of the new regulations can be obtained at http://www.dol.gov/ofccp/vevraarule (for veterans) and https://www.dol.gov/agencies/ofccp/section-503 (for disabled individuals).

Background on the New Regulations and OFCCP's Goals

The OFCCP initially issued proposed regulations for veterans in April 2011 and for disabled individuals in December 2011. While the final regulations eliminated a few of the requirements in the initial proposals based on a cost-benefit analysis, the final regulations impose significant new burdens on covered federal contractors.

In addition, it appears that the new regulations may only be a first step in the challenges Contractors will face. As a justification for both sets of new regulations, the OFCCP cited the need for more and better data to identify alleged barriers to employment. This stated need, coupled with the fact that the regulations were issued four days after the OFCCP issued a new 500 page Federal Contract Compliance Manual to guide its compliance officers, indicate that the Obama administration is going to continue to be extremely aggressive in its review of Contractor compliance.

Particularly troubling in this regard is the OFCCP's comment that the "culture of the typical workplace" contributes to discrimination in some employment settings, but to-date, it did not have empirical data to target interventions. Again, this is an indication that the OFCCP is going to use the information collected pursuant to these new regulations to challenge a wide range of employer practices and decisions.

In commentary to the new regulations, the OFCCP made it clear that data collection and analysis will be critical to its enforcement effort, and the numeric goals provide a benchmark against which a Contractor's efforts can be measured. In that regard, the OFCCP said that measuring effectiveness without some goal was practically "worthless."

I. Highlights of the New Regulations

The OFCCP identified the following as being the key changes made by the new regulations:

Hiring and Utilization Goals

The regulations set, as goals, that 8 percent of a Contractor's new hires be protected veterans, and that disabled employees make up 7 percent of a Contractor's workforce; however, Contractors will be able to develop their own percentages for veterans, based on standards set forth in the regulations (which look to state availability and the contractor's recruiting and hiring history). The utilization of disabled individuals must be established for each job group included in the Contractor's affirmative action plan ("AAP"), although Contractors with 100 or less employees can base the percentage on their entire workforce. The OFCCP stated that these percentages were not quotas and are aspirational in nature. There is little doubt, however, that every contractor that fails to meet these standards is going to have to justify what actions it took to meet the goals and may need to identify new or additional steps it will take to increase its percentages.

Data Collection and Outreach Efforts

The regulations require contractors to collect, annually review/audit, and retain for three years the following information:

1. The number of applicants who have self-identified as, or are known to be, disabled or a protected veteran.
2. The total number of job openings and total number of jobs filled.
3. The total number of applicants for all jobs.
4. The number of veterans and disabled individuals hired; and
5. The total number of applicants hired.

While collecting this data will impose additional costs on Contractors, it is the annual review/audit, the requirement to document that review and the steps Contractors must take to address any problems that could impose significant challenges and risks for Contractors. This is particularly true with regard to disabled individuals, for whom the regulations require contractors to "develop and execute action-orientated programs designed to correct any problem area." Indeed, the OFCCP is likely to take action against any contractor that has under-utilization in any job group and has not (1) documented that under-utilization, (2) identified the potential reason(s) for that under-utilization and (3) established specific action items to address that under-utilization.

In addition, although not listed by the OFCCP in its summary of the highlights, contractors are also required to annually review their external outreach and recruiting efforts, document their conclusions regarding the effectiveness of those efforts and identify what else needs to be done to improve them. These records are required to be kept for three years. The annual review will go hand-in-hand with the audit described above in giving the Contractor, and the OFCCP, a complete analysis of the Contractor's compliance efforts.

New Self-Identification Requirements

Up to now, Contractors were required to permit applicants to self-identify as being disabled or a protected veteran only after an offer of employment was made. The new regulations require Contractors to allow applicants to self-identify as disabled or as a protected veteran prior to a job offer, and invite all employees to self-identify as disabled every five years, with reminders more frequently (this will reach out to employees who became disabled after they were hired and/or were not comfortable self-identifying when they were hired). The self-identification forms will be published by the OFCCP. The information collected must be kept in a separate data file, not in the employee's medical file and can only be used for data purposes.

New Contract Language

The OFCCP originally proposed that every contract and subcontract be required to incorporate the Equal Opportunity Clause (EO Clause) in its entirety, rather than by reference, as most contractors do. The new regulations allow incorporation by reference, but also require new language to be included in all applicable contracts and subcontracts stating that both the contractors and subcontractor have affirmative action and non-discrimination obligations.

Access to Records

The regulations allow the OFCCP to request that Contractors identify all formats in which records are kept so that the OFCCP can decide what format best meets its needs. In addition, the regulations allow the OFCCP to require Contractors to send records off site to make them easier to review by OFCCP. While the OFCCP has agreed to keep Contractor records that are sent off-site confidential, these changes will make it easier for the OFCCP to conduct more and more in depth audits

Job Listings For Veterans

The regulations governing veterans require that all job openings for positions other than senior management be provided to state and local job services in a manner that they can use. This is designed to make it easier for veterans to search for jobs. In addition, with the first job posting after the regulations go into effect, Contractors must (a) tell the employment services that they are a federal contractor, (b) tell the services that they desire priority referrals of veterans for all openings and (c) provide the employment services with the name, location and contact information of the person responsible for hiring for all locations in that state, as well as the names and contact information of any job search firms used by the contractor.

II. Additional Requirements

In addition to the foregoing highlights, the following addresses some of the other changes that were made, and changes which were not made, but which could portend future action by OFCCP.

Notice Posting and Dissemination of Information

The old regulations listed outreach activities that Contractors "should" take. The new regulations list activities which Contractors "shall" take, even if they do not take all of them. In addition, all solicitations and advertisements are required to state that the Contractor is an equal opportunity employer of disabled individuals and protected veterans. Contractors must also send written notification of their affirmative action obligations to all covered subcontractors, vendors and suppliers requesting appropriate action on their part.

Internally, Contractors must include their equal opportunity employment policy in their employee handbook or otherwise make it available to employees, notify employees when and where the contractor's AAP can be reviewed and notify applicable unions of the same. A Contractor may electronically post information about its obligations for access by employees in remote locations, and must electronically post notices if applicants are allowed to apply for jobs electronically.

Language in the AAP

AAP's are now required to state that the chief executive official in the U.S. supports the policy (previously, the AAP listed that person's attitude) and say that it applies to recruiting, hiring, training and promotions, among other areas.

Direct Threat of Harm

If a Contractor decides not to hire a protected veteran because it determines the applicant presents a direct threat of harm, the Contractor must create a document listing the reasons for its determination, which must address all of the requirements of what constitutes a direct threat. Surprisingly, the same requirement is not included in the regulations covering disabled employees.

Review of Personnel Policies

The OFCCP eliminated the proposed rule which would have required an annual review of personnel policies to determine their effect on the employment of disabled individuals and veterans. However, given the annual audit of the data referenced in paragraph 2 above, this will, in essence, require an annual review of policies in situations where the hiring goal has not been met.

What Employers Should Be Doing Now to Ensure Compliance with the New Regulations

Ensure that All Notices are Posted

Where notices are posted electronically, make sure they are accessible to all employees, including those with disabilities.

Review/Expand List of Referral Sources

Although the OFCCP dropped its requirement that Contractors establish three "linkage agreements" with referral sources for disabled and veteran applicants, it is clear that one key component to meeting the 8 percent hiring goal and 7 percent utilization goal will be to have sufficient applicants who are disabled and protected veterans. The time for selecting and working with potential sources is now, so that Contactors can determine which sources will provide qualified candidates. In addition, even though the regulations do not go into effect until March 2014, there is no reason why Contractors should not start soliciting candidates now.

Review Current Practices and Procedures

The new regulations strongly recommend steps that contractors should take to disseminate its equal employment opportunity policy, train employees and engage in outreach efforts. Contractors should compare what they currently do against the recommended procedures to determine whether they should adopt one or more of the recommendations. If the hiring goals are not met, a Contractor will be at risk if it has not adopted many, if not most, of the recommended procedures.

Be Prepared for What Needs to Be Documented

While this may be a subset of the previous recommendation, it deserves emphasis because Contractors can be assured that the OFCCP will be looking at whether the new documentation requirements are being met.

Revise Language in AAPs, Notices, Advertisements, and Solicitations

While the regulations are not effective until March 2014, Contractors should review their AAP's, notices, advertisements and solicitations now to determine what language needs to be changed and what new notices, advertisements and solicitations need to be prepared.

Determine Which Contracts Require New Language

As contracts with covered subcontractors come up for renewal or new ones are entered into, include the required language now, rather than waiting until March 2014 and then having to revise those contracts again. Also, prepare a list of all current subcontracts and notify those companies that the language in the agreement will need to be changed.

Assign Responsibility for Implementing the Self-Identification and Data Collection Process

Data collection is going to be a major initiative for the OFCCP. Therefore, it is critical that one or more people be given responsibility for implementing and overseeing the self-identification procedures and the information set for in Section I.2 above.

Assign Responsibility for Compliance

While each AAP is required to designate who is responsible for implement the plan, if that person is not directly responsible for the data collection, annual reviews and follow-up action items, then one or more additional people must be assigned responsibility for ensuring compliance.

Train Managers/Employees Involved in Recruiting, Hiring, and Promoting

Although this is something that Contractors should already be doing, the new regulations make training managers and employees responsible for recruiting, hiring and promoting employees a priority so that they understand what will be expected of them.

Look For Future Guidance

There is sure to be future guidance on best practices and efficient ways to comply with the regulations.