DE Talk | Tips & Tricks for Mastering the “Deep Dredge” Audit

Season 4 • Episode 1

Over the last few years, OFCCP has initiated fewer audits than ever before, but each audit has become alarmingly more complex. So how can you ensure you remain in compliance without letting the agency take advantage of your rights? Listen in as OFCCP compliance experts John Fox and Candee Chambers discuss the latest trends in audits and what OFCCP can and can’t request, how to know when outside counsel is needed, as well as tips and tricks to help ensure a positive outcome from various types of audits you may be required to undergo. 

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About DE Talk

For DirectEmployers, it’s all about valuable connections and meaningful conversations. This monthly podcast features honest and open dialogue between powerhouse industry experts on a variety of HR topics ranging from OFCCP compliance advice to emerging recruitment marketing trends, diversity and inclusion initiatives, and insightful solutions that help infuse new life into your HR strategies.

Hosted by Candee Chambers, Executive Director of DirectEmployers Association.

Episode Guest

Episode Transcript

Candee Chambers:

Get ready. The DE Talk podcast starts now! Insightful conversations and dialogue, helping you put the human factor back in HR. When you’re a federal contractor, two things are certain. One, compliance with contract obligations are non-negotiable, and two, it’s not a matter of if you will ever undergo a compliance evaluation or audit, but when. Trust me when I say each audit brings its own unique challenges. And after more than 100 audits myself and zero conciliation agreements, I can give you some advice to help you along the way.

Joining me in today’s conversation is employment law expert John Fox of Fox, Wang & Morgan, and I’ll say his skills at navigating the world of federal contracts and legal requirements are definitely unmatched. When we first were brainstorming this topic, he jokingly said that he needed no prep work to have this conversation. It’s one he’s been having with clients across the country for over 46 years. So let’s get started, John. Here we are again, you freshly back from California and me back from Florida. No better time to talk about stress-inducing topics like compliance audits and after a relaxing vacation, right?

John C. Fox:

Right. Well, I’m glad to join you again, Candee, and have this discussion, which we could go for an hour or 10 hours or 10 days.

Candee Chambers:

Well, you know what, John? When I was thinking about this podcast this morning, I thought, “Okay. I’m going to have to tell John this is, at max, a half-an-hour, not a three-hour discussion,” which I know you could easily do. So, as I said, I’ve defended over 100 audits myself with two major companies when I led that role before I ever came to DirectEmployers. And today, our members need assistance on a regular basis whenever they have OFCCP audits and have a question or need some ongoing assistance or help from any other part of our teams here at DE.

The one thing I’ve observed over the years though is that the OFCCP audits are always changing. And that was true when Shirley Wilshire… And I’ve learned a lot of this from you, John, but Shirley Wilshire ran the OFCCP for eight years during the Clinton administration, and she kind of innovated four different types of compliance evaluations that she referred to them as. And there were four different kinds that she focused on, and one was a compliance review, which they call a compliance evaluation. Most people just call it an audit, and that’s their main audit tool. A compliance check, and I think we like to call it here a drive-by audit, it’s just kind of, throw a dart and see what sticks and it might-

John C. Fox:

20 minutes in and gone.

Candee Chambers:

Exactly. My daughter used to call drive-throughs pop garages. It was before she was old enough to buy beer, but it was a pop garage when she was a kid. There’s an offsite review of records, but I don’t know that the OFCCP has ever even used that. And then a focused review, which Craig Leen and the Trump administration kind of focused on, and they had…

John C. Fox:

No pun intended?

Candee Chambers:

Exactly. Yeah. I didn’t even think about that. Thank you for that. It’s really weird. I didn’t even think about that, but they had VEVRAA focused reviews, Section 503 focused reviews, and then they were going to do promotion focused reviews for a minute, and then Jenny Yang came in and said, “Nope, we’re not doing that anymore.”

So what our DE members really want to know today, John, and, really, what I would like to discuss with you is, what is going on currently with the ever-changing audit world of OFCCP, and what are the issues and the practical advice to handle these issues at the OFCCP that we could give to our federal government contractor members?

John C. Fox:

Well, it is always changing, Candee, as you say. And as we sit here in August of 2022, right now, they are doing about 1,000 audits per year. That includes construction and supply and service, both. This is way down, a historic low. When I was at OFCCP, I had a bad feeling if we did fewer than 7,000 a year.

Candee Chambers:

Well, they have a lot fewer employees today too.

John C. Fox:

Well, about half.

Candee Chambers:

Yeah. Yeah.

John C. Fox:

And we used to do full onsite reviews 100 times out of 100 in those days, but these audits have changed quite a bit. So it seems like a good thing at first blush for contractors,-

Candee Chambers:

For the contractor community. Yeah. Exactly.

John C. Fox:

… but they’re only doing 1,000, but the downside of that is that they are doing what I call a deep dredge. These are very multi-year, difficult, complex, time-consuming audits in a way that they weren’t in the old days.

Candee Chambers:

When you say deep dredge, we used to say that when Pat Shiu was in charge,-

John C. Fox:

She began deep dredge.

Candee Chambers:

… which was the prior Democratic administration. And I certainly don’t want to have a political discussion, but it does seem to move from active case enforcement… Or active case, gosh,-

John C. Fox:

Management.

Candee Chambers:

… management to active case enforcement, depending on the political party in office. And I think we are back in the deep dredge and the active case enforcement focus today.

John C. Fox:

Very much so. 2015, Pat Shiu definitely, consciously, purposely, and she signaled this publicly, wanted to change the audits, slow them down, make them go deeper. She was afraid that OFCCP was missing discrimination by moving too quickly.

Candee Chambers:

Mm-hmm.

John C. Fox:

And then we’ve been waiting to see where this OFCCP is going to go, because every director puts his or her own-

Candee Chambers:

Oh yeah.

John C. Fox:

… stamp on it and-

Candee Chambers:

Leave their legacy.

John C. Fox:

… we’re seeing a return of deep dredge. But second, there’s two types of reviews to keep in mind, supply and service, which most of us just think of as the regular contractor type of audit that applies to the non-construction world, and then there’s the construction contractors, and they’re going through a new evolution right now because-

Candee Chambers:

After Baker DC, right, John?

John C. Fox:

… there was a Baker DC case decision-

Candee Chambers:

That was yours.

John C. Fox:

… where I represented Baker DC. It shut down OFCCP’s construction program for about two and a half years while they rebooted and have, just recently in the last three or four months, started their new life of construction audits, and we’re in the very first early opening moments of that new era.

Candee Chambers:

Tina Williams at the recent NILG in Boston actually said that, that the construction audits were starting anew after the Baker DC decision. She publicly said that. I was very pleased to hear her.

John C. Fox:

So they started out tepidly, purposely, with the construction side of things, with compliance checks, which are those quick 20-minute flybys-

Candee Chambers:

Drive-throughs.

John C. Fox:

… just looking at records, one from each of the three OFCCP programs. Not deep at all, but they’re through those 400 and they’re starting to now do the full compliance reviews in the construction world as we speak. They’re unfolding… The first dozen or so are in progress right now. So the next thing, I think, to keep in mind about these audits is that the OFCCP regulations for the last 50 years have broken these audits into three parts, whether it’s appliance service or construction. Very formal, distinct segments of an audit. This becomes very important to where we are today.

The first is called the desk audit. You’ll find these in 41 CFR Section 60-1.20, and it’s all laid out there as part of the compliance review. Next is the onsite and then the third is the offsite. The desk audit is what we would normally think of, historically and currently, as that portion of the audit where the contractor would respond to the audit scheduling letter and its attached itemized listing-

Candee Chambers:

Listing.

John C. Fox:

… that calls for a certain set of documents described in the itemized listing. OFCCP then receives those and then evaluates them while sitting at their desk. They’re not onsite at the contractor’s location. And then they make a decision. Do they go onsite, or what do they do? The way the regs look at it is that you’re supposed to either stop at the desk audit or make a conscious decision now to go onsite and get more records.

But what we’ve seen in the real world is, for the last eight or nine years or so, that OFCCP is starting to blur the lines between each of these three distinct segments and do, during the desk audit, what I called the never-ending desk audit during the Obama administration and which is reappearing now in the Biden OFCCP administration, a merging of all of the things that you used to do during the onsite, is being moved forward into the desk audit.

Candee Chambers:

Well, John, remember, when we used to teach at NELI, you used to ask how many supplemental data requests people had seen. And at that point, I said 28, and you said you hadn’t seen more than what I had received. Now, mind you, that was 28 separate requests. So each email… I remember one email had about 30 things they wanted, in one of those emails.

So if you multiply it out like that, it was probably another 600 things that they wanted. I’m just throwing that number out, but they wanted so much additional information. And now I’m seeing compensation interview questions that are 200 questions long, and that’s all during the, quote, “desk audit”.

John C. Fox:

Right. So the current processes erupted three different issues the contractors have to think about, and I think that’s where we’ll end up in this discussion is, what are the practical ways that you deal with this current situation where OFCCP is behaving very differently than the way their regulations have been written for 50 years?

So issue one is, how do you deal with the seamless, no-distinct-part audits that just mush everything together during the desk audit when the regs say, and the Office of Management and Budget has said, OFCCP should only do a desk audit and stop based on what they got during the desk audit, or they should then have probable cause to go onsite, and they have to have probable cause, like you see on TV in NCIS or CIS, whatever…

Candee Chambers:

CSI.

John C. Fox:

CSI, whatever show you like. It’s just like the criminal process, but there’s a civil side of it. You’ve got to have the elements of a warrant. You have to have probable cause to come onsite. You have to have evidence of a violation, since they no longer, since 1996, automatically come onsite. They’re making a discretionary decision. And so, under the Fourth Amendment of the Constitution, they have to have probable cause to come onsite. So they have to have evidence from the desk audit materials that there is a violation.

Candee Chambers:

And you’re saying the desk audit materials really only include what is requested in the itemized listing,-

John C. Fox:

Exactly.

Candee Chambers:

… not all of those supplemental data request items.

John C. Fox:

And the proof of the pudding there is that this is a very formal process that OFCCP undergoes with the Office of Management and Budget when they request, every three years, authority for their audit scheduling letter and it says, “We’re going to do a desk audit,” and it has these components, which is the itemized listing.

Candee Chambers:

So, John, let me ask you. I know you’ve been to court a lot of times on behalf of your clients against the OFCCP, but why and how can they get away with that? Because they build their, quote, “probable cause” with all of the supplemental data that they have gathered. So they’re not really following the process, and I know you’re huge on the Administrative Procedure Act, and I know I’m not saying that that’s part of it, but how do they get away with this? That’s the piece I don’t understand.

John C. Fox:

Well, the analogy I would give you is to baseball. Can you steal first base in baseball? And the answer is yes and no. If the batter drops the bat and walks down to first base and just stands on it, he can stay there, comma, unless the other team goes and gets the referee, gets the umpire, and says, “Listen, get him off of there. He’s not entitled to be there.” And then they remove that runner, take him off of first base. And that’s what OFCCP is inviting and requiring contractors to confront, is that issue. They’re stealing first base. They’re doing something that’s not in the rule book, but if you don’t stop it, it will continue. So contractors do what?

Candee Chambers:

They follow through.

John C. Fox:

Well, they’ve got three choices, don’t they? Option one is that they do what OFCCP wants. We should talk about the pros and cons of each of one of these approaches. But number two, they can say no. Just say, “I’m not going to respond to that request. This is a desk audit. You’re only entitled to what’s in the itemized listing. We’ve given you that. If you think that there’s probable cause, tell us what your probable cause is. And if so, we’ll let you come onsite and explore whatever is the problem that you have.”

By the way, OFCCP has not been trained in this, in the field. You won’t hear them responding confidently in response to your request for their evidence of probable cause. They do have what they call indicators. That’s what the guys in Washington who drafted up all of the form language that they use to send back and forth between contractors and the OFCCP will give you. We have indicators that the following is true. They really mean probable cause. They just don’t want to say that for reasons that are totally unclear. That should be pretty straightforward, but they use the words “indicator”. Fine. No big deal.

But then you’ll look at that and see whether you agree or not and then decide whether you want to engage. And the third option, which has been the popular option over the last eight to nine years where we’ve seen these deep dredge audits that are trying to blur the lines between the three stages as they audit, has been to negotiate some middle ground.

Candee Chambers:

So I think you know how frustrated I get on a daily basis when I get emails from our Membership Development folks who are dealing with members or a member that just calls me directly. I have plenty of them, or sends me an email and, “Help,” and everything. The thing that drives me crazy… And John, you know because I’ve beat you up on this for the entire time I’ve known you. With all the audits I’ve had, I never once used an attorney.

I had in-house counsel that said, “If you need anything, please let us know how we can help.” They would also say, “You know more about this than I do.” I was very fortunate. I had a brilliant mentor at my first company where I did this. And she’s still probably the most intelligent person, when it comes to affirmative action, that I’ve ever known. But then I went on my own when I went to Cardinal Health, and that was at American Electric Power, where I had Mary Cofer as my mentor. Brilliant woman.

But at Cardinal Health, the attorneys… Everybody, both places. The attorneys were like, “If you need us, let us know.” You know, John, I build relationships, so I would build relationships with my compliance officers. I would also do my homework. I made sure that the data that we provided was good data. Okay? So I was one of those contractors. I like to call us the good actors, the good contractors. And you and I have had this discussion on a number of times, and I’ve commented that, well, you don’t maybe know a lot about the good contractors because maybe when you get in trouble is when you need outside assistance.

I know you’re going to slap me across the room here and say, “No!” And I’ve learned. Okay? That was my old thought. And now you’ve heard me say a million times, “Don’t try this on your own.” Get your counsel involved or get-

John C. Fox:

Out-house counsel. Yeah.

Candee Chambers:

… out-house counsel. That’s what I quietly call you. Outside counsel involved. Don’t take on the liability as an HR person on your own. And I still do stand by that knowledge. But the piece that drives me crazy is that the contractors, the HR people that are in charge, don’t know enough to push back, or they’re afraid to push back because these are people from the government. And this is, I think, what drives me craziest. These are people that we expect should know more about the regulations than the contractor.

John C. Fox:

Well, you’ve made several very excellent points there. Let me take the first one. Lawyers versus HR in audits. The nature of the game has changed dramatically over the last 10 years. It used to be all about affirmative action.

Candee Chambers:

Okay. Well, and 10 years ago is when I did my last affirmative action plan. So, okay.

John C. Fox:

It used to be all about affirmative action. It’s now all about non-discrimination either in hiring or in compensation. The affirmative action piece is almost forgotten. I used to kid clients during the Obama administration that if you had called a district director and said, “May I send you the phone book or an affirmative action plan?” they would say, “We don’t care. We’re not going to look at the affirmative action plan. We’re just here for the disparity analyses involving hiring, promotion, and involuntary termination, and your compensation data.” That’s all that counts.

And that’s become more and more accentuated with each passing year, including in the Trump OFCCP, and now the Biden OFCCP. It’s all about the discrimination issues in the case. The happy news is, and I know this would come as a shock to you, Candee, but I do represent many, many contractors that are compliant.

Candee Chambers:

I was sitting here thinking, “Gosh, some of your clients are going to listen to this podcast.” They’re going to say, “What’s she saying?” I really retract that. I don’t mean it as a negative. That used to be my old opinion, so I do stand corrected.

John C. Fox:

Most contractors are in compliance and OFCCP still finds.

Candee Chambers:

They’re just getting stepped on. They’re getting stepped on.

John C. Fox:

OFCCP has only found non-discrimination in about 2% of their cases over the many decades that they’ve been pursuing discrimination, which really dates from the late ’70s, and you know this.

Candee Chambers:

Oh, I know.

John C. Fox:

But 50 years anyway, let’s call it. But it’s not the most prominent finding that they make, because 98% of the time, they find you-

Candee Chambers:

They’d scare them out.

John C. Fox:

… in compliance.

Candee Chambers:

Yeah. Exactly.

John C. Fox:

But the 2% of the time that they don’t, it’s typically about non-discrimination. Now, a new surprise in the Biden OFCCP has been that they have begun to cite a lot of nickel-and-dime affirmative action paperwork violations, and you and I have chronicled those in prior webinars. But it’s a large number of different affirmative action violations, about 20 or 25 of them typically.

Candee Chambers:

Well, yeah. Mandatory job listing is number four, but not for our members, so I just want to be very clear about that because we check those very carefully.

John C. Fox:

Actually, it’s moved up to number two in terms of-

Candee Chambers:

Oh, is it number two now?

John C. Fox:

… the affirmative action side citations.

Candee Chambers:

Wow.

John C. Fox:

And you’re right. Your members haven’t shown up in those numbers since the-

Candee Chambers:

No. Thank goodness.

John C. Fox:

Yeah, because of the fine work that they’re all doing.

Candee Chambers:

Well, I remember Craig Leen telling me… Because I said, “If anybody gets one of those conciliation agreements,” and they say because jobs haven’t been posted, and it’s like, “Well, yeah, they are posted, but they’re listed. And who cares if they’re posted?” And I told Craig Leen, I said, “Well, I just tell the members if they get a conciliation agreement like that to not sign.” And he goes, “Well, they have to sign it.” I said, “Oh no, they don’t.”

John C. Fox:

Right. Well, let me take the last part of what you were addressing because… Let me just reiterate the three issues that are in the audits and then figure out how you think, in light of the way things are going, contractors ought to proceed against their various options. So one is this, are you going to let OFCCP blend everything in the three-part audit into the desk audit and just sit there at their desk, finish the itemized listing, and then start a whole nother round of what used to be called, as you referenced, supplemental data requests, which are emails asking for more documents, which they’re not authorized to do?

What they’re authorized to do under the regs is to come onsite and then gather documents by hand, just lean across the table and say, “Candee, during the audit, I need access to the following 14 personnel files. I need access to these applications. I need the access to this compensation information,” or whatever it is that they want. The second issue is, are you going to hold OFCCP to forcing them to show probable cause to come onsite if and when they choose to come onsite?

So if you think about the contractor’s rights here, it is to say, “I’m only going to give you, during the desk audit, what was requested in the itemized listing and in the transmittal letter that asks actually for the affirmative action plans.” The itemized listing asks for lots of different documents, as you know.

Candee Chambers:

Right.

John C. Fox:

Stop there. And then if they have probable cause, they come onsite and then they get documents that are relevant to that for which they have probable cause to believe that there could be a violation. They’re going to gather that to confirm that or reject that notion. And if there is a violation, they have a right to remove those documents to preserve it as evidence, then force them to the offsite to then reconcile their thoughts and go into negotiation with you about whether there’s a violation or not.

The third issue is, what are you going to do when they are going beyond the regulatory requirements? We have an example from just last Thursday. OFCCP issued a revised directive, 22-01, that they first issued as 01, 22-01. That’s the first-

Candee Chambers:
2022. Yeah.

John C. Fox:

… directive of 2022 that they issued March 15th of this year. They’ve revised it already. The first one was quite a mess. They have cleared that up. But they have said in there now, for the first time in history, that you have to do, quote, “an evaluation of compensation”.

Candee Chambers:

Mm-hmm.

John C. Fox:

The Biden OFCCP is making their mark in audits as compensation. It’s all about compensation. They don’t even care about failure to hire. They find failure to hire along the path that’s an incidental. It’s almost a, “Okay. It’s here. We’ll take care of it.” But their passion, their interest, their focus is all about compensation. And they’ve now said you’ve got to do an evaluation. Of course, the regulations don’t say that, and the regulations, more importantly, don’t specify what the evaluation would be.

Candee Chambers:

Yeah. I was shocked. I was absolutely shocked, John, when they started talking about very technical evaluation techniques that… I mean, I think I’m an intelligent HR person and I’m very familiar with various types of regression analyses, but there were things in there I was just like, “What on earth are they talking about?” Not that I’m stupid, but if I don’t understand some of those, what about people who don’t have the amount of experience that I have?

John C. Fox:

And more importantly, you’ve been through 100 audits,-

Candee Chambers:

Exactly.

John C. Fox:

… and these have never, ever come up.

Candee Chambers:

Ever.

John C. Fox:

That’s the proof of the pudding.

Candee Chambers:

But I did do my compensation review. And just for the record, and I do want to go on record, cohort analyses are by far the absolute best, by far, because you can look at real data. You can look at… And I used to always say, “Put your OFCCP lens on it.” And I’ve used that with our members. I’ve used that with the other people I worked with at the various companies. And I would say, “If it looks funny to you, you know it’s going to look funny to the OFCCP.”

John C. Fox:

And for those who don’t know what a cohort analysis is, it’s a simple comparison of Harry versus Sally,-

Candee Chambers:

Exactly.

John C. Fox:

… whether it’s compensation, you’re comparing the two, whether it’s hiring, you’re comparing their qualifications, et cetera. And it’s the most commonly used analysis in discrimination law, whether it’s the EEOC or OFCCP or any civil rights agency, because most of the data sets, even today, even in big companies, is not subject to systemic or class treatment.

Candee Chambers:

Exactly.

John C. Fox:

Very few numbers of similarly situated people make up enough of a number count to allow for that. But there is a role for it, but it’s very, very tiny. So the issue with the compensation analysis that occurred on Thursday, and we wrote about in our Week in Review at some length, is that they then tried to backdoor the approach to this by creating a regulation in effect, even though there isn’t one, by telling contractors, “Here’s what we’re going to be looking for in an audit.” And they specify a whole lot of different kinds of analyses that they expect as part of your compensation, quote, “evaluation”.

And as a result, they’re saying, “This is what you have to do to satisfy us in an audit.” So, of course, they’re trying to drive contractors now through this sub-regulatory directive to do an evaluation, number one, and number two, do it of a type and quality that-

Candee Chambers:

That we want.

John C. Fox:

… they’re threatening in an audit. So in the real world, Candee, let’s back up to 30,000 feet for a moment and think about what’s happening here. Before the verification, AAP verification portal that sprang this spring… No pun intended.

Candee Chambers:

No pun unintended?

John C. Fox:

Sprang in the spring, closed that in June 30th of this year, where they caused contractors for the first time in history, by the way without legal authority and a judgment, without issuing a rulemaking, as they should have, but a lot of contractors complied, about half of them.

Candee Chambers:

I think it was 44%. Jenny actually announced that.

John C. Fox:

Yeah. So let’s call it, a little bit more than half did not comply. Almost half complied. But now, a lot of contractors, which did not have their affirmative action plans, have their affirmative action plans. And in the old days, their audits, their AAPs that were summons for audit, would then be prepared, especially again, what I called an audit-ready AAP.

And so, what I think is going to happen now, since you have to have an AAP to verify, is that when it comes to this evaluation of comp that is going to cost you several dozens of hours, if not hundreds of hours, and tens of thousands of dollars of cost, what contractors are going to do is they’re going to verify an AAP that’s bare-bones and then when there’s an audit, they’re going to then prepare an evaluation of comp and other things that are heavier, if they choose to comply with OFCCP’s demands, as opposed to standing on their legal rights. That’s going to be the legal issue.

But the other notion here that’s quite important is that if you read OFCCP’s justification to the Office of Management and Budget, which they have to do every three years in writing and it’s public, seeking permission to continue the right to collect affirmative action plans, they tell us that you’re spending, on average, about 17 hours to prepare that affirmative action plan for minorities and women, that as of last Thursday, they now say that it includes a compensation evaluation that’s going to have all these mini component parts.

And if anybody thinks they’re going to even collect the data in 17 hours, they’re out of their mind. This is going to be a six-figure exercise for many companies, but a five-figure cost for most. I mean, you’re going to be spending 10 to 30, $40,000.

Candee Chambers:

Well, let me just… I took some notes on my phone during Jenny’s presentation at the NILG. And I’m quoted, because somebody else was sitting next to me at our table and they were taking notes as well. She said, “You do not have to do two pay equity audits, as long as you can prove you did it.” So then this directive went into how you’re supposed to prove that you did it. And I think we’ve put the fear of God, I think, in the contractor community. Not we, the OFCCP has.

But, John, really what I want to focus on for the rest of our time together this morning is what advice we give to the contractor community to get through these audits, and you started that. But as I’d gone on record saying… And I really do want to retract. I don’t want anyone to think that only the bad actors need attorneys, because now I do stand on record and say to be smart in a lot of situations where it just gets too difficult to make any sense with your audit situation.

It is wise to get outside counsel or at least your own counsel, your in-house counsel, involved, because I think the OFCCP responds differently to the legal community, as opposed to just a contractor that’s answering a compliance officer’s concerns. But I think the thing that I see the most is that, as I said this before, the contractors are afraid to push back. They expect the OFCCP to know more than they do, as they should. As you and I have both seen, they don’t.

But I’ve always built that relationship. So even when they didn’t know as much as I did, they would listen to me because I had built a relationship with them. Now I think we have had so many contractors who have just gotten beaten up. We’re kind of past the bullying that everybody talked about all the time. I don’t hear people talk about the bullying anymore, but that was a common thread in, not the Trump administration, but the prior administration, the Obama administration, the active case enforcement.

I don’t hear the bullying issues right now, but I also don’t hear the opportunities for the contractor to say, “I don’t think you have the right to ask for that information,” because it’s just assumed that they have to provide it, and they need to go to knowledgeable outside counsel. And I’m saying outside counsel, and I’m not trying to put a sales pitch in for you at all, John, because there’s a lot of knowledgeable attorneys out there in this field.

But it almost forces a contractor to go to outside counsel. And trust me, from working for two companies that will pay for outside counsel if needed… I mean, because both companies did. But when they hire somebody in-house that they expect to know all about affirmative action and then you say, “Oh, I need help,” what do you recommend?

John C. Fox:

Well, realize two things have happened here. You’re going to have to make a judgment case by case as to how serious the audit has the potential to be. Maybe it’s a small establishment in their last selection of contractors for audit. Most of them were very tiny establishments, 50 or 60 employees. You’re not going to have a lot of excitement there. There’s not going to be a lot of hires. There’s not going to be a lot of compensation issues to evaluate. There’s not much meat there. But let’s say you have an evergreen situation.

Candee Chambers:

A Google. A Google. Yeah.

John C. Fox:

You’ve got a lot of hires. You’ve got a lot of applications. I have clients in the manufacturing sector, in the retail sector, where even though it’s hard to find people to hire, they’re going through 2, 3, 4,000 applications a year because they can’t find people that have the qualifications they need for customer service, for various kinds of technical entry-level jobs. So you’ll make a judgment about that.

But let me go through each of the three options and give you my take on what the contractor should be thinking for each of the three and see if you have agreement or some other thing based on your practical experience and HR experience as well. So if you stand on your rights, what you’re going to tell OFCCP is, “We gave you everything in response to the desk audit request, the itemized listing,” as it’s called, “your audit letter request. Now, tell us if you have probable cause if you want to come onsite. No, we’re not going to respond to email requests for more documents because during the desk audit, you don’t have a right for anything more than what’s in the itemized list.”

Candee Chambers:

Even I responded to those.

John C. Fox:

“The desk audit is the desk audit. If you want to do an onsite, let’s talk about that, but let’s see your probable cause. And then when you come onsite, no, you’re not going to go A to Z,” which is what OFCCP wants to do. They want to look at all kinds of issues that are unrelated. They think they’re just doing a full compliance review like they used to do before 1996 when Shirley stopped the onsite, 100-times-out-of-100 approach that OFCCP had always had in place until 1996.

So if you have probable cause to look at a failure to hire issue that does not get you into sexual harassment, that does not get you into compensation, that doesn’t get you into anything else but what the probable cause relates to. And then we’ll give you those pieces of information and whatever witnesses you think are relevant. And then you’re going to go away and you’re going to go through an offsite. The downside of that is that you’re head-knocking.

This is where the bullying came in in the Obama administration as deep dredge took on and people got tired of being accused of being discriminators when they were still only finding it 2% of the time. They were tired of playing fetcher and gofer for lots and lots of documents and spending thousands of hours often. So the second approach to that first option of making them stand on their rights is to-

Candee Chambers:

Just play ball.

John C. Fox:

… make that decision, but you got to have to hold with it. You can’t make that decision and then later cave. That doesn’t really work, and it doesn’t achieve your objective. All you do is get beat up and then relent. So if you’re going to stand on your rights, better have a conversation with your boss and your boss’s boss and be firm about this. Let’s go the other way. Let’s play ball with OFCCP, which is what most contractors have done historically, although they stopped that during the Obama administration because it was getting pretty tough.

I remember vividly a major corporation calling me and saying that they wanted me to take over all of their audits, even the non-problematic ones, because they were going to be problematic within a couple of months. In their experience, they had been going through 30, 40 audits a year.

Candee Chambers:

Wow.

John C. Fox:

They had eight audit defenders and the-

Candee Chambers:

Wow. They’re just done with it, right?

John C. Fox:

… senior labor counsel called me and said, “You got to take them because my last audit defender refuses to defend any more audits. They are so beat up and they’re so done, and I can’t put a bayonet in their back and make them go forward. They’re valued employees, but we have to respect them that they’re just not going to do this work anymore, so we’ve reassigned them to other HR work.” And we took on lots of audits to deal with that.

But second option, play ball with them. And the downside to that is… Well, the upside is going to be, it makes OFCCP very happy. There’s no friction. They’re getting everything they want. The downside is, you’re spending a lot of time. Now, one of the problems for compliance managers to understand… And this is brutal. It’s ruthless. A lot of people up top in the corporation don’t care, because who’s the sacrificial lamb there? It’s the compliance manager.

Candee Chambers:

Yeah.

John C. Fox:

It’s like a tree falling in the forest. Nobody’s there to hear it. The poor compliance manager is just spending all of his or her time dealing with this never-ending audit.

Candee Chambers:

Oh, I bet they are. Yeah.

John C. Fox:

And nobody upstairs cares. “Well, get it done, Candee, then let us know if there’s a problem.”

Candee Chambers:

Well, they care when it’s successful.

John C. Fox:

Yeah.

Candee Chambers:

Yeah. Trust me. I always would get emails, “Great job.” I’m like, “Yeah. You don’t know what I did for this.”

John C. Fox:

But they don’t know and see all the anguish. They don’t see you burning up dozens, if not hundreds, of hours, late nights, weekends, other projects getting deferred.

Candee Chambers:

No. That’s not allowed.

John C. Fox:

So the real question is, can you fight and get the third option, a middle ground? And right now, OFCCP is testing the resolve of contractors to resist.

Candee Chambers:

Interesting.

John C. Fox:

They are hoping that you are going to continue to roll over and play ball. But that’s going to be decided by about 1,000 compliance managers in this country, the thousand audits that are in progress, but they’re watching very carefully right now at OFCCP to see if they’re going to get away with it. They’re going to see whether they can get away with stealing first base or whether somebody’s going to call them out and go to the umpire and say, “Stop.”

The umpire, in the worst case here, is an administrative law judge. In the real world, OFCCP is not going to file a suit over the failure to get access to documents during a desk audit, because their lawyer is going to tell them, “We don’t have authority to get supplemental data requests. We don’t have the authority to do anything during the desk audit beyond the itemized listing.” That’s really crisp, really clear. It’s just that nobody historically has wanted to pull the trigger on that.

Candee Chambers:

Has pushed the… Yeah. Well, John, I want to get to the point where we just give our listeners the best advice that we can. And I have to tell you, I’ve kind of done all of these. I pretty much have always played ball with the OFCCP, but I always did it as a prepared contractor. And I said this briefly when we were starting our conversation today, I knew what was in that plan when I sent it.

John C. Fox:

A lot of contractors don’t.

Candee Chambers:

I do. I mean, when I was at AEP, we did our own plans. When I was at Cardinal, we outsourced them. And I think that’s a big problem today. I know we are no longer in the affirmative action planning business, but I am a strong proponent of, once you receive your plans from an outside vendor, and we were very careful with this as well when we had Taapestry up and running, and that’s to educate our clients, our members, our customers as to what’s in that plan and walk them through it, literally walk them through it.

When I was hired at Cardinal Health, the outside vendor that was used for our affirmative action plans was one of the people that interviewed me to see if I really knew what I was talking about, because they didn’t want her to do as much as she had been doing because that’s what they were going to pay me to do. So that was kind of an interesting interview situation, but it was a fun one. And it was someone I knew, so that one was kind of nice.

But the point is, is that it’s so important. Before you ever send that affirmative action plan is, is that you know what’s in that plan, and that you do your compensation review. And that’s what I’m going to say, because I would say 99% of mine were cohort analyses. We’ve already discussed the benefits of that. And there were a few situations that I found and I corrected, before that plan ever went to the OFCCP. So I knew what was in there.

So when I played ball with the OFCCP, it was because I was basically saying, “Give it to me. Come on, bring it. Bring it, because I can handle this.” Now, the one time that I have stood on my rights… And every single day of my job here at DirectEmployers, every single day, I stand on my rights on our rights about the mandatory job listing, because that’s something that… I mean, Pat Shiu stood up and said… Literally, she got a question about it, and it was a session you were giving with Janette Whipper and Melissa Speer, and somebody asked about job listing and Pat Shiu stood up and she said, “Well, you know I could answer that question, but I’m going to… I see Candee Chambers sitting here and she’s probably the country’s expert.”

And I just sat there and went wide-eyed, and she said, “I’m going to let her answer that question.” Do you remember that, John?

John C. Fox:

I do. And sitting right in front of me, because I sat on the podium with two OFCCP regional directors at my right side, was your CEO of the major competitor to-

Candee Chambers:

Oh yeah.

John C. Fox:

… DE, and I-

Candee Chambers:

He didn’t like that.

John C. Fox:

… kind of wondered if Pat was stepping on some…

Candee Chambers:

Oh no, that was Scott back then. Oh, you mean Pat Shiu? Yeah, yeah, yeah.

John C. Fox:

Pat Shiu. Yeah.

Candee Chambers:

Pat Shiu. Yeah. Yeah.

John C. Fox:

And the upshot of it is that you’re right. I think you have to pick and choose your fights. There’s three reasons I have found in my experience that contractors stand on their rights. One is, there’s a small vein of them, but they’re very prominent, and that is people who say, “We’re people of rule of law. We complied with the law. We know our regulatory requirements, and we’re not going to yield on that. Don’t treat us any differently. Don’t treat us as criminals. Don’t treat us beyond what your proper authority is.”

The second, much more popular reason to stand on rights is the extraordinary burden that occurs if you don’t, because the regulatory requirement assumes a certain amount of economic expenditure in this area. And companies rely on that. CFOs rely on it. It’s booked and budgeted in every company. And we know what these are supposed to cost, and these AAPs are supposed to be relatively small, simple, cost-free thing, not a multimillion-dollar exercise. The third reason is if there are bad problems that they don’t want OFCCP to get into.

Candee Chambers:

That’s true. Yeah.

John C. Fox:

I’ve seen that a couple of times. It’s not the major driver. I would say the major driver is number two, the concern for distracting attention. And during the Obama administration, many companies ran out of people within HR to defend multiple audits simultaneously and given how deep they were going and how long they were going, and it became a major budget issue.

Candee Chambers:

Yeah. That is true. I think we’re in kind of a middle ground right now, but I do…

John C. Fox:

Well, the parties are testing each other right now.

Candee Chambers:

Exactly. Yeah. I think that’s a really good point that you make. I think the strongest thing that we can recommend, and I think you and I both agree on this, is make that affirmative action plan a living document and follow what it tells you, your evaluation. When you’ve built that affirmative action plan, follow what it’s telling you are your problems and follow through on what your proposed solutions are, because that is the most important way of seeing improvement.

We talk about DE&I and how that can help you with your affirmative… Or how your affirmative action program can help you with your DE&I strategic efforts. We talk about it being kind of a strategic plan. It literally is you reviewing, what happened last year and what does this tell us we need to do next year? And I think if people can do that… And I don’t think they have to read the CFR, but they do need to know specific regulations.

So with that, John, I want to just close out the conversation with five rapid-fire questions. We did this with you before, but I’ve got new questions. So you know the drill. Just say the first thing that comes to mind.

John C. Fox:

Okay.

Candee Chambers:

All right? We know you’re a big wine guy. Red or white.

John C. Fox:

Oh, definitely red.

Candee Chambers:

Okay. All right. What are you reading currently? And the CFR doesn’t count.

John C. Fox:

That’s got a thrilling ending though.

Candee Chambers:

He uses it as a nighttime story for his kids when they were growing up, right?

John C. Fox:

Yeah. For those who don’t know what a CFR is, that’s the Code of Federal Regulations where all the OFCCP’s rules, among many others, are written. But I’m currently reading a book that Jaime Costilow gave me called The Fox and I.

Candee Chambers:

Oh, okay.

John C. Fox:

It’s a very interesting book by a park ranger from Montana about a fox that happened upon her jogging trail and her ruminations on nature and the essence of life. It’s a fascinating book that nobody’s ever heard of before, until Jaime discovered it somewhere in some obscure bookshop.

Candee Chambers:

Okay. Well, at least you’re reading.

John C. Fox:

Oh, it’s a good read.

Candee Chambers:

Do you know I had an interview one time? And this is in American Electric Power, and the HR director asked me what the last book I read was and I said Clifford the Big Red Dog. And he looked at me and I said, “I know I’m not supposed to talk about having children.” But I said, “I read religiously to my kids, and that was the last book I read. I’m trying to be honest.” So what is the first concert you attended?

John C. Fox:

Oh.

Candee Chambers:

Woodstock?

John C. Fox:

No, no. It was earlier than that. Janis Joplin-

Candee Chambers:

Oh, wow.

John C. Fox:

… at the Fillmore West,-

Candee Chambers:

Oh my-

John C. Fox:

… downtown San Francisco. And I think there were some people that were conscious in that audience, but I’m not quite sure. And yes, she was drinking Jim Beam on the stand.

Candee Chambers:

Oh my gosh.

John C. Fox:

I mean, on the stage.

Candee Chambers:

She was on stage?

John C. Fox:

And yes, she was carried out eventually.

Candee Chambers:

Oh, wow.

John C. Fox:

About 2:00 in the morning, she was done. She couldn’t go anymore because she was blotto.

Candee Chambers:

What was your first job, John?

John C. Fox:

Oh, I was a dishwasher at minimum wage. 65 cents an hour, I think.

Candee Chambers:

Oh, okay.

John C. Fox:

Downtown Cannery Row, Monterey, California. The best seat in the house though. I could look at the bay from my Hobart dishwasher machine and got fed out of the kitchen in a-

Candee Chambers:

Wow. Oh, life’s rough, huh? Yeah.

John C. Fox:

… Michelin-rated restaurant.

Candee Chambers:

Oh, I worked at a hospital gift shop for a buck an hour. I was 13.

John C. Fox:

Okay.

Candee Chambers:

And I was a soda jerk next. So, anyway, what is one thing about you that surprises people?

John C. Fox:

Probably that I hand-crank ice cream.

Candee Chambers:

Oh.

John C. Fox:

And a lot of it.

Candee Chambers:

When are you going to hand-crank it for the DE employees?

John C. Fox:

Well, I almost brought my equipment with me on this trip, but I ran out of suitcases. That does travel with me.

Candee Chambers:

Oh, okay.

John C. Fox:

Yeah. There’s a DE hand crank in the future.

Candee Chambers:

Okay. Jordan, you hear that? That means with DE, Recruit Rooster, and RocketBuild.

John C. Fox:

So one canister of Oreo and one canister of vanilla, and everybody will want the Oreo all day long.

Candee Chambers:

Oh, really? I just want one bite. That’s all.

John C. Fox:

If I’ve had one person tell me, I’ve had 500 people tell me, because I do this for kids’ parties, birthday parties, soccer parties, field hockey, you name it, baseball. I usually crank about 150 quarts a summer historically, and I would say, 500-plus people have told me it’s the best ice cream they’ve ever had.

Candee Chambers:

And we’ve never had it.

John C. Fox:

Well, keep working hard and you can get there.

Candee Chambers:

Okay. So, John, I really want to thank you for your time today. We can have this conversation so easily because it’s probably 99% of what we talk about on a regular basis anyway. Agreed?

John C. Fox:

Oh, I agree. Yeah. Well, it’s fun to be here.

Candee Chambers:

Well, good. I appreciate that. As we learned at a recent conference, OFCCP Director Yang is currently hiring 100 more compliance officers to handle upcoming audits. So there’s no better time than the present to analyze your internal efforts ranging from meeting VEVRAA mandatory job listing requirements to positive outreach and recruitment efforts. And if DirectEmployers can help, don’t hesitate to reach out to our team. We have lots of people available that can always assist.

And as always, John, as I just said, thank you for joining us and sharing your unique insight into handling information requests during an audit. With so many people worried about pushing back during the audits that they’re facing, it’s important to arm yourself with education on what’s required and really be ready to illustrate your practices. While the types of audits continue to evolve, it’s important to play the game and play to win, my mantra. I always add, “Play fair and square,” something I’m sure that you will always agree with me on, John, as an attorney yourself.

John C. Fox:

Absolutely.

Candee Chambers:

Okay? So if our listeners would like to connect with you, what’s the best way to get in touch?

John C. Fox:

Oh, just send me an email. Put Fox, Wang, Morgan in your browser and I’ll come up.

Candee Chambers:

Or just jfox@foxwangmorgan.com, correct?

John C. Fox:

Correct.

Candee Chambers:

And I will also share this because a lot of times, John, I get questions from our members, and one thing I want to be very clear about. My attitude has changed and HR people should not take the liability on if you’re not 100% sure of your answer. And I know, John, I call you frequently and get feedback from you before I ever respond to a member, not always.

But if it’s something that I’m just not 100% sure on, I will get information for them. And I don’t charge our members for that. We pay you on a regular basis. But if they would want you for their outside counsel, that would obviously be between you and our member or the client.

John C. Fox:

Oh, of course. Yeah.

Candee Chambers:

Okay. So I thank you again. This is a lot of fun.

John C. Fox:

Okay.

Candee Chambers:

All right. Thank you for tuning in for another episode of the DE Talk Podcast. Stay connected with DirectEmployers on Facebook, Twitter and LinkedIn and subscribe to our emails by visiting DirectEmployers.org/subscribe to receive notifications of new episodes, webinars, events, and more.