Always be Prepared: The OFCCP Audit and Enforcement Survival Guide

1. Always be Prepared:  The OFCCP Audit and Enforcement Survival Guide Kris D. Meade Jody Shipper Partner Executive Director Crowell & Moring LLP Office of Equity and Diversity Washington, DC University of Southern California kmeade@crowell.com jshipper@usc.edu 202.624.2854 213.740.5086

2. Introduction Agenda • Understanding the OFCCP and Its Agenda • Key Regulatory Developments • Key Enforcement Priorities – Hot Button Issues • Preparing for an Audit – Practical Tips • Surviving an Audit – Phase-by-phase Tips • Concluding an Audit – Potential Resolutions

3. Understanding the OFCCP and Its Agenda

4. OFCCP – Overview and Agenda Organizational Structure and Mission • Within Department of Labor • Enforces Executive Order 11246, the Vietnam-Era Veterans Readjustment Assistance Act (VEVRAA), and Section 503 of the Rehabilitation Act (Section 503) • Non-discrimination – “thou shall not” • Affirmative action – “thou shall” • National Office, Regional Offices, District Offices • Decentralized in practice

5. OFCCP – Overview and Agenda Jurisdiction • Federal contractors and subcontractors – not grant recipients • “Subcontractor” – two prongs Enforcement Tools • Compliance Reviews or “Audits” • Complaint Investigations Remedies • No civil fines or criminal penalties • Standard Title VII-like remedies – back pay, reinstatement, instatement, pay adjustments • Debarment – ultimate sanction – rarely used

6. OFCCP – Overview and Agenda Primary Obligations of Contractors and Subcontractors • Prepare Affirmative Action Plans (AAPs) - Annually • Engage in outreach • Flow down obligations to subcontractors

7. Regulatory Developments Overhaul of VEVRAA and Section 503 Regulations • Proposed Rules – 2011 – Substantial Increase in Contractors’ Obligations • Contractor Community Response – assessment of cost • Final Rules – announced August 27, 2013 • Effective Date of Final Rule – March 22, 2014 • “Phased In” compliance for AAPs • If AAP in place before March 22, 2014, no changes to AAP in 2014 • Significant systems and process changes prior to March 2014

8. Regulatory Developments Key Changes - Section 503 • 7% Utilization Goal – every job group • Periodic Solicitation of Disabled Status • All Employees • All “Applicants” • Documentation of Outreach Efforts • Collection and Assessment of Disabled Applicant and Hire Data • New Subcontract “Flow Down” Language • Three-year Record-Keeping Requirement • Expanded Audit Scope

9. Regulatory Developments Key Changes – VEVRAA • Solicitation of Veterans Status • Annual Hiring “Benchmarks” – workforce as a whole • 8% default • Set own • Documentation of Outreach Efforts • Collection of Veteran Applicant and Hire Data • New Subcontract “Flow Down” Language • Three-year Record-Keeping Requirement • Expanded Audit Scope

10. Regulatory Developments Challenging Implementation Issues • Extent of Effort to Achieve 7% Goal • 8% Benchmark v. 5-Factor Analysis • How to Document Audit and Reporting System • Reasonable Accommodation Guidelines – Adopt? • Other

11. Regulatory and Enforcement Agenda Compensation Guidelines – Directive 307 issued 2013 • Reflects importance of compensation issues to OFCCP • Rescinds Bush-era guidance – regressions and anecdotal evidence required • Ad-hoc, case-by-case approach • Statistical, non-statistical and anecdotal evidence • Pay analysis groups – broader than job title • Investigate at systemic, unit, and individual level

12. Regulatory and Enforcement Agenda United Space Alliance – right to individualized compensation data • 2009 – scheduling letter issues; company provides aggregate compensation data – per item 11 • OFCCP conducts “threshold test” – no indicators of discrimination • OFCCP conducts additional tests – “pattern test” – claims disparity, seeks individualized data • Company refuses • ALJ – orders company to provide data • District Court – 2011 – affirms based on substantial deference standard

13. Recent Significant Decisions Frito-Lay – timeframe for investigation expanded • Scheduling letter dated July 13, 2007 • Company provides activity data for 2005, 2006 and part of 2007 • OFCCP claims data show “statistically significant disparity” – requests additional data - 2008 and 2009 • Cites variance in female hiring rates – 3.26 standard deviations • Company refuses to produce – beyond date of scheduling letter

14. Recent Significant Decisions Frito-Lay • ALJ Decision – OFCCP precluded from seeking 2008-09 data; based on FCCM • ARB reverses ALJ • “OFCCP clearly has discretion to request AAP data covering activity occurring after the scheduling letter” • OFCCP’s “impetus” in seeking additional data “reasonable” • 2013 – Frito-Lay files challenge in federal court in Texas; OFCCP’s Motion to Dismiss pending

15. Hot Button Issues

16. OFCCP – Hot Button Issues Priority Issues – those that yield monetary recoveries • Compensation – lack of Agency experience with higher education • Personnel selection decisions – hires, promotions, and terminations • Applicant tracking and selection processes: Making sure your records talk, so your employees don’t have to be interviewed

17. Hot Button Issue: Compensation OFCCP’s limited understanding of factors common in higher education for determining differences in compensation can create traps for institutions - Retention - Reputation - Differences in status of various publications - Differences in funding sources

18. Other Traps Easily Exploited by OFCCP Personnel Selection and Applicant Tracking: • Who is an “applicant” in a faculty search? • Does your faculty keep records of all searches? • Is everyone a Target of Opportunity Hire?

19. OFCCP – Hot Button Issues Outreach – Veterans and Individuals With Disabilities • How much is sufficient? • Record keeping? • Do results matter, or just the effort? • Side note: When asking for disability status, do you put yourself on notice of need to discuss reasonable accommodations?

20. OFCCP – Hot Button Issues Internet applicants, tracking and testing • Record keeping • LinkedIn and other common job search sites • Pre-employment testing Background checks

21. Practical Tips to Prepare for an Audit

22. Preparations for Audit – Practical Tips Role of General Counsel’s Office • Often not intimately involved prior to audit • Recommendation • Become more involved in day-to-day program • Treat audit enforcement action and proactively manage response • Initial decisions may include whether to ask for delay • Review of past plan

23. Preparations for Audit – Practical Tips Technical Review of AAP and Related Policies • Compliance with regulations • Potential exclusions • Temporary employees • Student workers • No definition of “employee”

24. Preparations for Audit – Practical Tips AAP Structure • Multiple establishments? Employment Tests • Use? • Locally validated? Monitoring for Adverse Impact • Quarterly – applicants, hires, promotions, and terminations • Steps to address areas of adverse impact

25. Preparations for Audit – Practical Tips Self-identification – race and gender (currently) • Different obligations for applicants and employees • “Decline to state” – gender vs. race • Approaches • Visual identification if no self-identification?

26. Preparations for Audit – Practical Tips Record-keeping • Two years – “personnel records” • Tracking down “missing” records • Interview notes • How capture? • What level of detail? • Dispositions of candidates • The importance of consistency

27. Preparations for Audit – Practical Tips Mock Audits • Particularly useful if not audited in last five years • Privilege issues • Areas of focus – parallel OFCCP areas of interest • Interview managers; examine data

28. Preparations for Audit – Practical Tips Compensation Analyses • Pay equity studies – academic side • Routine practice on many campuses; transparency • Regressions – privilege issues again • Difficulty identifying and quantifying factors that impact pay – often not in data form

29. Practical Steps: Each Phase of Audit

30. Practical Steps – Each Phase of Audit Receipt of “Pre-Scheduling” Letter • Assess readiness – areas of strength and vulnerabilities • AAP review • Understand your numbers – utilization and adverse impact • Compensation analysis – potential pay adjustments • Assemble audit response team • Interdisciplinary – HR/Affirmative Action/Compensation/Legal • Designate leads • Develop preliminary themes • Educate your client

31. Practical Steps – Each Phase of Audit Receipt of Scheduling Letter • Data required • More than six months into AAP year? If so, analyze data for AAP year-to-date • Deadline for response – 30 days (extensions) • Pull compensation data – analyze, assess (and adjust?) • Format of response – varying approaches • Explain areas of apparent discrepancy – particularly on compensation • Confidential/Proprietary Information – password protect • Educate your client (again) and OFCCP

32. Practical Steps – Each Phase of Audit Desk Audit Phase • Timeline – first contact can be within days or may not be for months • Additional data and document requests • Unreasonable deadlines – “within three days” • Impact of sequestration – travel limits – more done at desk audit • Accommodations, lists of employees who have taken leave and whether they returned • Charges filed with agencies and any settlements – “employee complaints” • Bate number all documents

33. Practical Steps – Each Phase of Audit Desk Audit Phase • Develop Rapport with OFCCP Compliance Officer • Legal v. HR/affirmative action as point of contact • In-house counsel and outside counsel • Professional, respectful tone – even if not returned • Know when to push back and when to escalate • Silence – what then? Low bar for moving from Desk Audit to On-Site Review

34. Practical Steps – Each Phase of Audit On-Site Phase • OFCCP team • Large numbers • Many inexperienced • Opening conference • OFCCP will present • Be proactive – stress themes; inform about campus • Document reviews • Track all documents provided – if originals • Offer to provide as available

35. Practical Steps – Each Phase of Audit On Site Review • Preparation – the big and the small • Legal • Media relations • Logistics – where and when • Parking? • Coffee and cookies – how comfortable do you want them to be? • Ask around – colleagues at other institutions may have direct experiences with same team members

36. Practical Steps – Each Phase of Audit On-Site Phase • Logistics • Offices away from other employees and away from HR • Suggest places for lunch – not campus cafeteria • Interviews – key areas and key decision-makers • HR personnel – recruiting and compensation functions • Management personnel • Preparing staff and senior administrators • Brief on OFCCP and its mission • Ensure knowledge of AAP and compliance posture – themes • Deposition-like preparation

37. Practical Steps – Each Phase of Audit On-Site Phase • Preparing non-management employees • No right to be present or have legal counsel present • Explain OFCCP and mission • Can inform of right to ask to have someone else present • Interview statements prepared by OFCCP • Often vague or incorrect • To correct or not correct? • To sign or not to sign? • Copies • Who has control over the order of interviews?

38. Practical Steps – Each Phase of Audit Audit Closure • Compliance – formal and informal closures • Conciliation Agreement • Negotiation – some parts • Reporting period – almost always – 6 months to two years • Press release if monetary remedies • Not negotiable • Often misleading • Can prompt private actions

39. Practical Steps – Each Phase of Audit • Audit Closure • Enforcement Proceedings – if unable or unwilling to resolve • Solicitor’s office, not within OFCCP • Administrative litigation • Before ALJ • Some discovery • Appeal to Administrative Review Board of DOL • Appeal ARB decision to federal courts • Opportunities to settle

40. QUESTIONS

41. Always be Prepared:  The OFCCP Audit and Enforcement Survival Guide Kris D. Meade Jody Shipper Partner Executive Director Crowell & Moring LLP Office of Equity and Diversity Washington, DC University of Southern California kmeade@crowell.com jshipper@usc.edu 202.624.2854 213.740.5086