What Lies Ahead for OFCCP and Federal Contractors in 2016 May Surprise You!
1) OFCCP’S NEW REGULATIONS-BINGING IS OVER. Contrary to every Blog I have read for the last 6 months, 2015 was NOT an active Rulemaking (i.e. “regulation” making) year for OFCCP, let alone its most active regulatory period in history, as many erroneously believe. Rather, 2015 will be remembered as the year The Congress and OMB shut down OFCCP’s 2013-2014 regulatory blitzkrieg even though many contractors are still reeling from that short burst of intense regulatory activity (which was in fact, I believe, the most active regulatory period in any two years of OFCCP history (although OFCCP Directors Weldon Rougeau (Carter Administration) and Shirley Wilcher (Clinton Administration) were no slouches and also get honorable mention here. In fact, Shirley might win for substantive change…but that is another column).
In calendar 2015, though, OFCCP issued exactly:
– One Proposed Rule: (January 30, 2015: “Discrimination on the Basis of Sex”…which, even though unnecessary to the agency’s investigation and prosecution of sex discrimination, as proposed, was no big deal); and
– One Final Rule (September 11, 2015: “Prohibitions Against Pay -Secrecy Policies and Actions”…which also was no big deal for the contractor community and you all shrugged it off with equanimity).
Rather than to continue its “pedal to the metal” high energy approach to Rulemaking which characterized its numerous regulatory actions in 2013 and 2014, OFCCP hit the brakes in 2015. Here is some background and soothsaying:
– OFCCP’s Hoped-For Construction Rules are likely not to publish in the Obama Administration. In 2009, one of the earliest regulatory objectives the Obama-OFCCP announced was revision of OFCCP’s construction regulations. Indeed, in 2009, OFCCP projected to propose revised Rules for the construction industry in January, 2011. Obviously, that did not happen. But, in the meantime, OFCCP has been ready to publish these Rules for over five (5) years now. Since January 2011, OFCCP has time and again re-scheduled publication of its Proposed Rule, in 6 to 12 month increments. The most recent pushbacks look like this: in the fall of 2013, OFCCP scheduled publication for April of 2014, and then re-scheduled it in fall 2014 for publication in September 2015. Then, OFCCP again rescheduled publication, this time to November 2015 (2 months later). Publication seemed imminent with a prediction of publication only two months away. But, in a surprise, publication did not happen. OFCCP has now re-scheduled its proposed construction Rules ostensibly for publication in “May” 2016 (at the time of the next Semi-Annual Regulatory Agenda publication date: see below as to why that is important);
– OFCCP’s Equal Pay Report (“EPR”) is now likely not to publish in the Obama Administration. In August 2011, OFCCP published a (rare) Advanced Notice of Proposed Rulemaking (this is a document which precedes a Notice of Proposed Rulemaking, which in turn precedes publication of a Final Rule).
In August 2013, at the request of the EEOC and the OFCCP, The National Academy of Sciences reviewed the proposals and plans of both agencies to require employers/contractors to submit universal “employee-level” compensation data to the agencies for their review. In August 2013, The Academy (via a panel of Labor Economists contractors feared was stacked against industry) published a very critical and damning report of both the EEOC’s and OFCCP’s proposals to collect compensation information. Indeed, The Academy bluntly concluded that OFCCP had no plan and made 6 recommendations to the EEOC and OFCCP to consider if they were to go forward with a compensation data collection plan. A central recommendation was that OFCCP obtain legislative protection like the EEOC enjoys against compelled disclosure to the public of contractor compensation data. The Academy also recommended OFCCP contribute budget to help develop computer technology to insure confidentiality and to defeat “hacking” of the data. The EEOC took The Academy’s recommendations to heart (it is hard to just blow off the most prestigious scientific advisory body in the United States) and began to carefully work through the 6 recommendations (which appeared to me to lay out an approximately 4-6 year runway of needed actions and studies to properly prepare for any such wide-scale collection of corporate employee-level compensation data).
Nonetheless, in August of 2014, OFCCP, surprisingly, then published a Proposed Rule (which greatly upset the federal contractor community and set off an intense and sustained corporate lobbying effort on Capitol Hill and at The White House). In a moment of poor timing for OFCCP, the Chinese government two months later reportedly hacked SONY Corporation’s corporate compensation databases and e-mail accounts and published them worldwide on the Internet. (Jennifer Lawrence then drew worldwide empathy when it was learned that the 25 year old actress had been paid less than her male co-stars on the movie American Hustle. As a discrimination lawyer, I found it interesting that many news commentators and comedians could not relate to the problem because of Ms. Lawrence’s reported net worth of $51 Million—unrelated to Powerball. If you play that point of view through, its premise is that it is ok to discriminate against wealthy women. Hmmm?)
OFCCP then nonetheless readied the EPR for publication in Final in the Spring 2015 (“Damn the torpedoes; full speed ahead”), but then pushed the scheduled publication date back to August 2015, and then pushed it back to November 2015—again making publication sound imminent to the contractor community . Obviously, OFCCP missed that publication date, too. OFCCP has now pushed the ostensible publication date of the EPR back to “May” 2016.
What is important about that “May” ostensible publication date (for both the EPR and the earlier mentioned construction industry Rules) is that it coincides with the next publication cycle of the U.S. Department of Labor’s “Semi-Annual” Regulatory Agenda. (A transparency-in-government innovation in 1993 was President Clinton’s Executive Order 12866 directing all federal agencies within the Executive Branch of government to twice a year (May and November) publish a Semi-Annual Regulatory Agenda cataloguing all Rules the agency was intending to propose in the upcoming 6 months and to catalogue the status of all Rules already proposed and projecting publication dates of all Final Rules when the agency is ready to go to Final Rulemaking. In addition, pursuant to a Carter-era statute designed to cause federal agencies to be observant of and cautious as to the impact of its Rules on small businesses, all federal agencies, regardless whether in the Executive Branch or not, must file annual Regulatory Plans pursuant to the Regulatory Flexibility Act of 1980).
Punchline: When agencies do not have a publication “tee-time,” they often punt their estimated publication date to the next Semi-Annual Regulatory Agenda date.
Please do not misunderstand: OFCCP has not given up and will keep pushing to get its proposed construction Rules published and the EPR finalized, but that is likely not going to happen. In fact, as to the EPR, look for rumors to start emerging from OFCCP in the late Winter and Spring that OFCCP has made a strategic decision to join forces with the EEOC and drive a national employee-level pay collection tool through the EEOC. Then, OFCCP will just sit on its proposed EPR Rule to see what happens in the November elections. “Mid-night Rules” issued after the November election are also a distinct possibility if a Republican wins The White House.
While both Rules are likely doomed absent stubborn resistance to Congressional will, neither has a snowball’s chance in Hades if the stock market continues to fall beyond the current “correction” it is suffering, the economy starts to soften and unemployment starts to again rise. While it is invisible to most federal contractors, a “rugby scrum” is in progress between OFCCP, OMB and the Appropriations and Labor Committees in the House and Senate. In lame duck Presidential years, the smart betting is always on Congress to win most “rugby scrums” when Presidential power is almost always at its nadir and lobbyists can more easily pick off and neutralize incumbents worried about re-election. Many Democrats are now distancing themselves from The White House on many issues as of this writing, as they keep an eye on the November elections, a trend which will increase through November unless and until The President’s popularity rating goes higher. (The President’s approval rating with Americans has fallen from a weekly (all-time) high of 67% in the third week of January of 2009—immediately after taking the oath of Office) to slightly less than half of all Americans (53% disapprove) as of the same week in 2016).
NOTE: All 435 seats in the House of Representatives, of course, are up for re-election (Congressional Representatives serve for 2 years at a time). So, there are 435 Congressional Representatives especially vulnerable to contractor concerns about OFCCP. There are 246 Republican and 188 Democratic House seats up for grabs in November with one vacant seat (the largest Republican domination since 1928). Democrats would have to win 30 seats in November to regain control of The House, a number which both parties view as not just difficult but impossible for Democrats to achieve. So, The House will remain Republican in November, but all incumbents are listening to voters and lobbyists.
One-third (34) of The Senate is up for re-election this November by operation of The Constitution. (Senators serve, of course, for 6 years). Unlike The House, though, The Senate is again “up for grabs” with 54 Republicans, 44 Democrats and two Independents (who caucus with the Democrats). Democrats would have to pick up five votes to win control of The Senate, which both parties think is difficult, but possible. Of the 34 seats in contest, Republicans have the most to lose by far: 24 Republican seats are at risk (mainly Freshman Senators) or 70% (24/34) of the Senate seats up for election in this election cycle, while only 10 Democratic seats are up for election. Six of the 34 seats are also held by Senators who are retiring: 3 seats held by Democrats and 3 seats held by Republicans. Those seats are notable wildcards in the absence of an incumbent’s re-election advantage and are also largely immune to lobbying efforts. So, there are potentially only 7 Democratic Senators vulnerable to contractor concerns about OFCCP…except that those 7 appear to be “shoe-ins” for re-election (3 have no Republican opponent) and thus they are able to operate very independently of concerns for voters and most lobbying pressure. However, there are 24 Republican Senators with large antennae listening carefully to voters and lobbyists. Expect to see a LOT of money spent on Senate campaigns with no or a weak incumbent running since those elections could make a difference in The Senate. And, the Republicans are on slippery ice with a whopping 24 seats at risk (and making us recall the tremendous gains in the Senate which Republicans made in 2010 to now cause so many Republican seats to be up for grabs.
– OFCCP’s Sex Discrimination Rules: These are overdue (OFCCP scheduled them for publication in December 2015), but I predict OFCCP will eventually get the greenlight from The White House to publish them in 2016. OFCCP’s Sex Discrimination Rules will thus likely be OFCCP’s ONLY regulatory reform or update for the remainder of the Obama Administration. As proposed, OFCCP’s Sex Discrimination Rules were innocuous (pabulum, really). Contractors viewed them as largely redundant and not exciting since they sought to merely (and unnecessarily) regurgitate Title VII law on sex discrimination. (However, OFCCP’s Rule would update one very important, but not controversial, piece of Title VII law: outlawing pregnancy discrimination pursuant to Executive Order 11246 for the first time. Yes, it is amazing! 36 years after the Congress amended Title VII (but not, of course, the Executive Order—since it is a Presidential order), by passing the 1978 Pregnancy Discrimination Act and sending it to President Carter for signature, OFCCP is now finally getting around to catching Executive Order 11246 up to this portion of Title VII law by amending and updating its substantive Rules).
2) OFCCP AUDITS IN 2016 WILL CONTINUE TO BE SLOW IN PACE, FEWER IN NUMBER, CONTINUE TO FATIGUE CONTRACTORS WITH DETAILED COMPENSATION DATA REQUESTS AND ON-SITE AUDITS, ALREADY RARE, WILL LIKELY GET EVEN MORE RARE.
-Slow in Pace and Fewer in Number: In FY 2015, OFCCP completed only about 68% of the number of Supply and Service (i.e. non-construction) audits it expected to close (2603 closed out of an expected and projected 3840). Moreover, OFCCP is still working off of its 2014 CSALs (Corporate Scheduling Announcement Letters) notifying contractors of upcoming audits (to enhance OFCCP’s efficiency by allowing contractors to have their AAPs and Support Data needed for audit ready and waiting for OFCCP when the day does come for OFCCP to issue an audit Scheduling Letter actually commencing the audit). What is remarkable about the fact that OFCCP is still conducting the audits its 2014 CSALs authorized is that the tradition (and need of the agency) has been for OFCCP to issue two CSALs a year since the Bush Administration (the son) OFCCP innovated the use of CSALs. OFCCP typically issues one in the late Fall and the second in the late Winter/early Spring. Historically, OFCCP District Offices have needed audit fuel twice a year to keep busy and not run out of work. OFCCP designs the CSAL list to provide enough audit “targets” to OFCCP’s almost 60 District Offices around the country to keep them busy each Fiscal Year and allowing OFCCP to achieve its Budget Plan.
The last CSAL OFCCP has issued, however, was on November 11, 2014 and contained the names of only 2500 corporate establishments for audit. Fourteen months later, OFCCP has not yet issued a 2015 CSAL and is half way into January 2016 still surviving on the audit targets from the November 2014 CSALs (and I have recently heard of a few audits still being scheduled, amazingly, from OFCCP’s Spring 2014 CSALs). The absence of a recent CSAL means OFCCP has not yet finished starting the last of the 2500 establishments OFCCP initially targeted in November 2014 for audit in the then upcoming 6 months, or so.
So, here’s the math quiz of the day: If OFCCP starts only 2500 or fewer audits in 14 months, it cannot complete more than 2500 audits in the following year. Absent OFCCP managers soon going down to Ace Hardware to buy some Energizer Bunny batteries, not a whole lot of audits are going to finish in 2016. Said another way, OFCCP should be completing about 320 audits per month (3840 divided by 12), but has been in fact completing audits at a pace of only about 217 per month (2603 divided by 12) since October 1, 2014 (the beginning of OFCCP’s FY2015). And, if you are not closing audits, you can’t start new ones, as we are seeing in the CSAL numbers: OFCCP is starting less than 180 audits per month for each of the last 14 months since November 11, 2014 (2500 divided by 14). NOTE: to hit its Budget Plan, OFCCP needs to start at least 320 audits per month (3840 audits budgeted divided by 12 months).
But of course crediting OFCCP with 180 audit starts per month is too generous to OFCCP since the agency has not yet exhausted the November 2014 CSAL list of 2500 audit targets). NOTE: Pat Shiu told me in late October 2015 that OFCCP had not abandoned use of the CSAL tool: it just did not need to issue a new one just yet. A number of law firms which make audit defense their bread and butter work are calling me monthly to ask what’s going on as their workloads are dropping precipitously as a direct consequence of OFCCP’s reduced audit activity.
And since OFCCP rarely comes onsite anymore (less than 6% of the time, it appears to me), the slow pace of audits cannot be the doughnuts you are serving causing OFCCP Compliance Officers to linger. What might be the explanation? See below.
- Two Things Have Happened to Cause OFCCP’s Unprecedented (and continuing) Audit Slowdown
- OFCCP’s Compensation Fixation: Every OFCCP District manager will tell you that engaging in the current style of “deep dive” compensation audits is delaying them tremendously from closing audits; and
- OFCCP’s Budget Cuts Will Now Slow Many District Offices and Audits Even Further
First, morale goes down. Reduced morale translates into reduced productivity.
Second, OFCCP Compliance Officers start to transfer to other agencies leaving work behind and challenging managers to find replacements to pick up the work. (OFCCP already has a long term employee retention problem which pre-dates this Administration). Productivity, of course, takes a hit as managers wait for a new Compliance Officer to be assigned and the new investigator has to pick up a cold file, pick up the trail where it was suddenly left, and carry on.
Third, OFCCP can suck up its budget cut in three primary ways, all of which impact efficiency and productivity:
– attrition (not filling vacated jobs). As most of you know from experience, attrition-based RIFs are the worst destroyers of productivity because the locations of the vacancies are not predictable or controlled: you cannot predict who is leaving and cannot keep critical pipeline jobs filled by directing terminations. And, your best performers are the ones who tend to leave…because they can. One manager might lose three employees (who quit/transfer/retire/die) leaving him/her managerially heavy with no one to do the work and another manager might lose only one employee. However, that one employee may have been the one with the statistical prowess and ability to manipulate numbers and the Excel spreadsheets…skills critical to the whole team or even the entire District Office. Managers victimized by attrition are then forced to operate with the teams they are left, not the teams they want to build.
NOTE: While OFCCP’s budget cut was only $1M, there were three more kickers which deepened that cut.
First, OFCCP’s expenses and cost of doing business increase each year. It looks to me like the increased costs OFCCP expected to face (for salary increases, benefits, retiree payments, added lease expense, etc.) in FY2016 amounted to not less than $1M. So, now OFCCP is about $2M down from where it was in FY2015.
But wait! That is the second kicker. OFCCP was three months into FY2016 when it got its FY2016 budget. However, OFCCP survived the first three months of FY2016 (October, November and December 2015) under a Continuing Resolution. Under the terms of Continuing Resolutions, federal agencies operate under their last year’s budget value until they receive a new budget. So, for the first 3 months of FY2016 OFCCP has been living “too high on the hog”…at the value of last year’s (higher) budget. So, there’s another $250,000 out the door which OFCCP has spent, but did not get back in budget for FY2016.
Third, and finally, OFCCP only has 9 months (not 12 months) to get down over what looks like a total budget impact of over $2M.
Historically, OFCCP tries to suck up budget loss through attrition and travel restrictions. You can expect OFCCP to do so again in FY2016. So, how much is $1M in OFCCP terms? $1M translates to about ten (10) GS-12 Compliance Officers. So, OFCCP will probably just shrink between 10 and 20 Compliance Officer positions this year, and wait to fill positions (each day without a Compliance Officer replacement saves payroll and benefit costs) and leave OFCCP District Directors to do the best they can to staff audits around the empty desks.
– reduce the IT budget (example: OFCCP had wanted over $3M in FY2016 it did not get to help increase it case management efficiency); and
– reduce travel costs (meaning fewer on-site audits–it’s expensive to travel and pay for rental cars, hotels and meals and perhaps also airline tickets (especially out West where OFCCP can be 500 miles away from the contractor),…and woe be it to the contractors located in cities with OFCCP District Offices, especially those only walking distance from OFCCP or down a train line).
CONCLUSION: So, you are going to have to be patient with OFCCP and properly set the expectations for your management team and clients. 2016 is going to be a choppy year for OFCCP, replete with delays and slow moving audits. OFCCP managers will be doing the best they can, but if a desk is empty, they may not be able to fill it. If the National Office asks for yet again more compensation data, remember that the DD or the CO is just the messenger. It is not what anybody signed up for on either side of the audit desk, but this is what it is. One cannot immediately change the reality that is.
In Sum, The Good News for Contractors (not vendors):
(1) There are not going to be a lot of OFCCP audits in 2016. Most federal contractors will miss the misery of an audit and will not know or feel the concern those in audits feel. It’s a winners and losers market, right now.
(2) And, you will no longer have to read 100 page Federal Register Notices of newly proposed and Final OFCCP Rules. You can now relax on the regulatory front and spend the next two years absorbing the tremendous amount of change which did occur in 2013 and 2014.
In Sum, The Bad News for Contractors: If you try to accelerate audits faster than their normal gestation periods, I think your audit defense costs will increase and your frustration level will too. For 2016, I think most federal contractors in audit would be better off to just “surf the wave” knowing you cannot control it, but you can position yourself better in the water to avoid a bruising fall. For those of you who lack patience, maybe you should delegate audits to your subordinates and take up Pac-Man games instead (with their almost instant gratification of catching and eating the bait)!
Happy 2016!…and remember, you chose this profession! John C. Fox
THIS COLUMN IS MEANT TO ASSIST IN A GENERAL UNDERSTANDING OF THE CURRENT LAW AND PRACTICE RELATING TO OFCCP. IT IS NOT TO BE REGARDED AS LEGAL ADVICE. COMPANIES OR INDIVIDUALS WITH PARTICULAR QUESTIONS SHOULD SEEK ADVICE OF COUNSEL.
Reminder: If you have specific OFCCP compliance questions and/or concerns or wish to offer suggestions about future topics for the OFCCP Week In Review, please contact your membership representative at 866-268-6206 (for DirectEmployers Association Members), or email Candee Chambers at email@example.com with your ideas.