OFCCP Issues New Compensation, Recognition and Certification Directives

On August 24, 2018, OFCCP issued three new Directives, the most important of which rescinded the Obama Administration’s Directive 307, “Procedures for Reviewing Contractor Compensation Systems and Practices.”  The agency also issued Directives creating a program to certify that contractors have prepared an Affirmative Action Plan (AAP) and are in compliance with federal affirmative action program requirements, and an initiative establishing a recognition program for contractors with high-quality and high-performing compliance programs and initiatives.

According to the agency, these Directives are part of the Department’s efforts to maximize the effectiveness of compliance assistance outreach.

  • Clear Guidance for Contractor Compensation Practices:  The new Compensation Directive, Directive 2018-05, rescinds Directive 307 (which had been renamed as 2013-03). Principally, the agency’s compensation analysis will now “mirror a contractor’s compensation system” when the contractor provides sufficient information.  The Directive provides transparency to contractors on OFCCP’s approach to conducting compensation evaluations by further outlining the agency’s practices and approaches to similarly-situated employees, creating pay analysis groups, conducting statistical analysis and modeling, and other analytical matters relevant to conducting sound, compensation compliance evaluations and contractors’ self-audits. The Directive also emphasizes that where OFCCP “believes there are indicators of disparate impact in compensation, it will work collaboratively with the contractor to understand any defense that a policy or practice that caused the disparate impact is job-related and consistent with business necessity, and will fully consider supporting evidence the contractor provides.”  The Directive takes effect for “all reviews scheduled on or after August 24, 2018 and they apply to open reviews to the extent they do not conflict with OFCCP guidance or procedures existing prior to the effective date.”  Directive 2018-05 specifically outlines when information provided to OFCCP will be released as there have been some unauthorized releases of information about ongoing audits.  Specifically, Paragraph 8 states “OFCCP does not release data obtained during the course of a compliance evaluation until the investigation and all subsequent proceedings, if any, are complete.”
  • Affirmative Action Program Verification Initiative: Directive 2018-07 implements a verification process with the objective of ensuring that all covered federal contractors are meeting the most basic equal employment opportunity (EEO) regulatory requirement, namely, the preparation of a written AAP and annual updates to that program.
  • Contractor Recognition ProgramsDirective 2018-06 is re-establishing its contractor recognition program that will now include awards that highlight implementable best or model contractor practices, a contractor mentoring program that uses contractors to help their peers improve compliance, and other initiatives that provide opportunities for contractors to collaborate or provide feedback to OFCCP on its compliance assistance efforts.

The team at FortneyScott is reviewing these Directives in detail and determining what impact these new policies will have on federal contractor compliance and, more importantly, what next steps contractors should take to ensure compliance with the three new directives. Please contact your FortneyScott attorney or send an email to info@fortneyscott.com for more information.

OFCCP Issues Two New Directives Addressing Religious Freedom Protections and Announcing New Focused Reviews

On August 10, 2018, OFCCP’s Acting Director Craig Leen issued two new policy directives aimed at protecting Americans’ religious freedom and announcing new focused reviews. The directives call for protecting the rights of religion-exercising organizations and individuals and more comprehensive reviews of contractor compliance, respectively.

Directive (DIR) 2018-03 instructs OFCCP staff to take into account recent U.S. Supreme Court decisions and White House Executive Orders that protect religious freedom and afford broad anti-discrimination protections to religion-exercising organizations and individuals under the United States Constitution and federal law. The Directive incorporates recent developments in the law regarding religion-exercising organizations and individuals. OFCCP staff are instructed to take these legal developments addressing religious freedoms into account in all their relevant activities, including when providing compliance assistance, processing complaints, and enforcing the requirements of E.O. 11246. For a copy of this Directive, please click here.

Directive (DIR) 2018-04 provides that the OFCCP will conduct focused reviews of contractor compliance with (1) Executive Order 11246, (2) Section 503 of the Rehabilitation Act of 1973 (Section 503), and (3) the Vietnam Era Veterans’ Readjustment Assistance Act of 1974 (VEVRAA). To ensure compliance, OFCCP will conduct the focused reviews by going onsite and performing a comprehensive review of the particular authority at issue. For example, if it is a Section 503 focused review, the compliance officer would review policies and practices of the contractor solely related to Section 503 compliance. The review would include interviews with employees affected by the policies, as well as those responsible for equal employment opportunity and compliance. OFCCP would also look to evaluate hiring and compensation data. This type of review would be used in each of the three types of focused reviews to ensure compliance with anti-discrimination obligations and equal employment opportunity. For a copy of this Directive, please click here.

The OFCCP’s News Release can be found here. The team at FortneyScott is reviewing these directives in detail and determining what impact these new policies will have on federal contractor compliance and, more importantly, what next steps contractors should take to ensure compliance with the two new directives. Please contact your FortneyScott attorney or send an email to info@fortneyscott.com for more information.

OFCCP Director Ondray Harris Leaves – What to Expect from OFCCP Next?

As July was coming to an end, the U.S. Department of Labor announced that Ondray Harris would leave his role as OFCCP Director, effective July 27.  Thereafter, Deputy Director, Craig Leen, was appointed the Acting Director of OFCCP.  The news came a week before federal contractors and OFCCP representatives gathered in Anaheim, California at the 2018 Industry Liaison Group National Conference. Acting Director Leen took center stage and was the lead spokesperson for the agency at the National ILG Conference.

Acting Director Leen opened the Conference by outlining the agency’s four areas of focus: Transparency, Certainty, Efficiency, and Recognition.  He provided some detail with respect to these general areas.  Leen also discussed his commitment to affirmative action generally.  However, as a strong advocate for individuals with disabilities, he announced that in 2019, the agency will begin conducting focused reviews of contractors’ compliance with Section 503’s affirmative action requirements.  Leen also discussed the contractor’s “Bill of Rights,” which OFCCP issued on August 1.  The Bill of Rights constitutes a significant change in the agency’s stance toward contractors, giving substance to prior promises of greater transparency and consistency and signals an end to the OFCCP’s adversarial approach to compliance evaluations.  Additionally, Leen confirmed that pay equity remains a focus of the agency, announced that OFCCP is in the process of implementing an annual AAP certification, and is considering re-instituting a contractor award program.  Finally, Leen committed to moving compliance reviews more quickly.

Stay tuned for more FortneyScott updates, specifically with regard to official confirmation of a new OFCCP Director, and any further updates on the direction the agency will take moving forward.

Be Sure To Exercise Care In Vetting Your Supply Chain

Now, more than ever before, contractors need to employ good contracting and subcontracting practices to secure their supply chains.  Government contractors are required to deliver what they promise in their proposals and, ultimately, under their contracts.  As a prime contractor, or higher tier subcontractor, you are responsible for the integrity and compliance of your supply chain.  Recent developments may make that supply chain a potential trap for the unwary unless you are taking adequate steps to vet your suppliers:

  • Supply Chain Risk clauses: Department of Defense (DoD) is including several clauses in acquisitions and contracts that warrant your increased attention. DFARS 252.239-7018 Supply Chain Risk clause is being included in DoD information technology procurements. This clause allows DoD to decide not to award a contract, or to cancel one that has been awarded, if DoD considers the prime contractor or its supply chain to pose “the risk that an adversary may sabotage, maliciously introduce unwanted function, or otherwise subvert the design, integrity, manufacturing, production, distribution, installation, operation, or maintenance of a national security system… so as to surveil, deny, disrupt, or otherwise degrade the function, use, or operation of such system.”  DFARS 252.246-7007 Contractor Counterfeit Electronic Part Detection and Avoidance System and DFARS 252.246-7008 Sources of Electronic Parts require contractors to protect against counterfeit electronic parts in all tiers of their supply chain.  Contractors and subcontractors must employ trusted sources, maintain traceability, and report on actual or suspect counterfeit parts. FAR 52.204-21 Basic Safeguarding of Covered Contractor Information Systems, as well as DFARS 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting, require contractors and their subcontractors to comply with specific cyber security controls and cyber incident reporting requirements.
  • DHS Binding Operational Directive (BOD) Ban on Products: The Department of Homeland Security (DHS) has authority to ban the use of certain products that pose risks to the national security. In Fall 2017, DHS issued its first BOD 17-01, requiring government agencies to take steps to scan, identify and remove/replace Kaspersky products in their systems.
  • Other Legal Bans on Products: In December 2017, Congress passed the National Defense Authorization Act for FY 2018, prohibiting the use of any software platform developed in whole, or in part, by Kaspersky Lab. Effective July 16, 2018, FAR 52.204-23 Prohibition on Contracting for Hardware, Software, and Services Developed or Provided by Kaspersky Lab and Other Covered Entities will be included in procurements and resultant contracts; the clause also may be added to existing contracts through a bilateral amendment.
  • Tariffs and Other Actions: President Trump’s National Security Strategy issued in December 2017 identified national security risks posed by certain economic activities of foreign countries. Tariffs and other actions are being taken to address these concerns.
  • Private Lawsuits and Government Investigations: Counterfeit parts continue to infiltrate the market. Counterfeit parts may involve the theft of a company’s intellectual property, and result in the loss of sales and good will for the company’s brand.  In addition, counterfeit parts that do not work as intended pose significant safety and security risks to the United States, other countries, and our citizens. Private companies as well as the Government are seeking to address this problem. For example, in 2018, CISCO Systems filed a lawsuit against two Florida companies for importing and selling counterfeit electronic parts.  One of these companies is a government contractor and is now under investigation by the Defense Logistics Agency.

Key Takeaways –

  • Failing to adequately protect the integrity of your supply chain has untold costs. Take steps to protect your supply chain by vetting your suppliers and their products throughout the procurement lifecycle.
  • Track notices of product and supplier risks and bans to reduce your supply chain risks.
  • Negotiate and include appropriate clauses in your contracts to assure supply chain integrity and to identify appropriate processes and remedies for reporting, correcting and obtaining recourse in the event of a problem.
  • Identify your incident response team members and develop a plan so you can take the necessary steps to prepare for and address any detected quality or performance problem, actual or suspected counterfeit part or cyber incident.

 

A safe and secure supply chain is in everyone’s interest.  If you are a government contractor or subcontractor and have questions about your supply chain responsibilities, or the impact of these supply chain risk rules and requirements, contact Susan Warshaw Ebner, or your FortneyScott contact, for assistance.

Supreme Court Rules in Favor of Cake Baker in Landmark LGBT Case… But Fails to Provide New Guidance

The U.S. Supreme Court ruled in favor of a baker in Colorado who refused to bake a wedding cake for a same-sex couple based on his Christian beliefs in a 7 to 2 decision issued on June 4.  In Masterpiece Cakeshop, Ltd. v Colorado Civil Rights Commission, the majority opinion written by Justice Kennedy concluded that the wedding cake baker did not get a fair hearing on his complaint in the state proceedings, and specifically ruled that there was improper bias by the Colorado Civil Rights Commission.  Although the Supreme Court discussed the tension between the two legal rights – the EEO protections for gay persons on the one hand versus the sincerely-held individual religious beliefs on the other hand – the Court did not rule on the ultimate question as to how such conflicts are to be resolved.  Although the ruling fails to provide any new criteria under which there may be an exemption to the general anti-discrimination laws based on an individual’s sincerely held religious views, the Court reaffirmed that the First Amendment’s protections of religious rights also protects individuals during the proceedings for resolving discrimination claims.

The highly anticipated ruling in Masterpiece Cakeshop comes after years of litigation.  In 2012, David Mullins and Charlie Craig met with bakery owner Jack Phillips to order a custom wedding cake for their reception.  Phillips refused to make them a cake and indicated that the bakery would not sell wedding cakes to same-sex couples.  Subsequently, Mullins and Craig filed complaints with the Colorado Civil Rights Commission, which enforces the Colorado Anti-Discrimination Act (CADA) alleging sexual orientation discrimination.  The Commission then determined that the bakery had violated CADA and Phillips appealed.  In 2015, the Colorado Court of Appeals affirmed the Commission’s ruling over Phillips’ arguments that he had a constitutional right to refuse to bake the cake based on his First Amendment rights.  The Supreme Court granted certiorari on June 26, 2017.

Justice Kennedy, writing for the majority, emphasized that Phillips was entitled to a neutral decision-maker who would give full and fair consideration to his religious objection.  The Court did not discount the impact and significance of CADA but instead, focused on the importance of providing a fair and neutral forum for resolving the claims.  Justice Kennedy noted that it is unexceptional that the CADA “…can protect gay persons in acquiring products and services on the same terms and conditions that are offered to other members of the public, the law must be applied in a manner that is neutral toward religion.”  The Court concluded that the Commission’s treatment of Phillips’ case violated the state’s duty under the First Amendment not to base laws or regulations on hostility to a religion or religious viewpoint.

In the dissent, Justice Ginsburg emphasized that these circumstances do not evidence hostility to religion of the kind the Court has previously held to signal a free-exercise violation.  Additionally, the dissent argued that any comments signaling any sort of hostility cannot justify reversing the judgment below.

While a victory for the baker in this case, the ruling is fact-intensive and based on narrow and unusual facts. Justice Kennedy recognized the narrowness of the ruling stating that, “[T]he outcome of cases like this in other circumstances must await further elaboration in the courts, all in the context of recognizing that these disputes must be resolved with tolerance, without undue respect to sincere religious beliefs, and without subjecting gay persons to indignities when they seek goods and services in an open market.” Indeed, there already are appeals pending, including one before the Supreme Court from a florist in Washington who has appealed a state ruling that found she violated state law for refusing to provide the wedding flowers for a same-sex couple.  We will stay tuned.

For the full update on the Supreme Court’s ruling, click here.

Supreme Court Rules Class Arbitrations Can Be Barred By Agreement

The Supreme Court today ruled that employers may insist on and enforce mandatory arbitration agreements with employees that bar class actions against the employers.  This remains true even if signing such agreements is a condition of employment. The case is Epic Systems Corp. v. Lewis.

The issue before the Court has been brewing since the NLRB’s D.R.Horton ruling in 2012.  In a break with precedent, the Board ruled that class action prohibitions in arbitration agreements violated Section 7 of the National Labor Relations Act’s (“NLRA”) guarantee of collective action and, thus, was a valid exception to the strict requirement of the federal Arbitration Act (“FAA”).  The FAA, a law otherwise broadly supporting arbitrations, includes a “saving clause,” which permits courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.” §2.  Appeals courts have split on whether D.R.Horton expressed the proper application of the FAA in class arbitration cases and the matter was ultimately brought to the Supreme Court.

The Court majority found little ambiguity in the applicable laws.  Among the rationales upon which the majority based its ruling were its conclusions that the saving clause was intended to save defenses arising from state law and federal statutes and, as a law of general application, saving clause in the FAA “permits agreements to arbitrate to be invalidated by ‘generally applicable contract defenses, such as fraud, duress, or unconscionability,'” (citing AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 339 (2011).  The Court noted “this means the saving clause does not save defenses that target arbitration either by name or by more subtle methods, such as by ‘interfer[ing] with fundamental attributes of arbitration.'” Id., at 344.

Thus, the lengthy judicial – and philosophical – battle among jurists and workplace participants has ended.  The “saga” of D.R.Horton has ended and arbitration agreements prohibiting class actions are licit.

The Court also rejected the argument that the NLRA, passed subsequently to the FAA, implicitly “amended” the prior statute or otherwise altered its effect.  Commenting that the NLRA focuses on the right to form unions and bargain collectively, the Court pointedly notes that the NLRA is silent with respect to arbitration and shows no intent to modify the FAA.  The Court dryly states

Our rules aiming for harmony over conflict in statutory interpretation grow from an appreciation that it’s the job of Congress by legislation, not this Court by supposition, both to write the laws and to repeal them. Slip Op.  at 10

and goes on to note that the Supreme Court has consistently rejected attempts to “conjure” conflicts between the FAA and other states.

No report of this decision can be complete without noting the acerbity of the language in both the majority decision and the lengthy dissent.  The 5-4 decision once again split the High Court along ideological grounds and the “battle lines” were once again distinctly drawn: the role of legislative history, the importance of legislative intent, the extent of judicial “activism” or “restraint” on behalf of whom.  Justice Gorsuch also took this opportunity to articulate his position on the limits of the Chevron decision in parsing asserted “statutory ambiguities.”

In sum, Epic Systems can be read as a simple and straight-forward decision permitting the use of arbitration agreements that prohibit class actions.  To careful readers, this decision indicates that a number of battles have yet to be waged on issues of workplace practice and social policy.  And the make-up of the Court may be a chief determinant of the outcomes.

New Jersey Passes Landmark Equal Pay Act

On April 25, New Jersey joined a growing list of states to enact robust equal pay laws.  The Diane B. Allen Equal Pay Act, which takes effect on July 1, 2018, amends the New Jersey Law Against Discrimination in several ways.  The amendments provide broader protections than the federal Equal Pay Act (EPA).

While the EPA prohibits discrimination based exclusively on gender, the New Jersey law extends its protection to workers denied equal pay based on race, creed, color, national origin, nationality, marital status, sexual orientation, gender identity, disability, and age, among others.

The New Jersey law prohibits employers from providing members of a protected class a lower rate of pay “for substantially similar work, when viewed as a composite of skills, effort and responsibility,” a broader standard than the federal EPA’s “equal work” standard.

Like the EPA, the New Jersey law includes specific affirmative defenses, but the defenses under the new law are narrower and may be more difficult for employers to demonstrate.  Specifically, a difference in pay is permitted under the New Jersey law only if it is the result of a bona fide seniority or merit system or the employer can justify a pay difference by demonstrating that:

  • it is based on legitimate factors unrelated to characteristics associated with the employee’s protected status such as training, education or experience, or the quantity or quality of production;
  • the factors are not based on and do not perpetuate a pay differential based on a protected characteristic;
  • all factors are applied “reasonably”;
  • one or more factors explain the entire pay differential; and
  • the factors are job related, based on business necessity and there are no alternatives with less of an impact on pay.

This final catch-all exemption is narrower than the EPA’s catch-all exemption – the pay differential is based on a factor other than sex.

The New Jersey law also provides more generous damages than the EPA.  Prevailing employees are entitled to three times the amount of the pay differential for the entire violation period, which can extend as far back as six years.  In comparison, the liability period under the EPA is two years.

New Jersey joins Massachusetts, Oregon, and Washington in passing comprehensive equal pay legislation that become effective by January 1, 2019 or sooner.  It is critical that employers, particularly those operating in multiple states, quickly get up to speed on their varying obligations.  Moreover, proactive pay audits under the protection of attorney-client privilege and, where appropriate, pay adjustments, will put employers in the best possible position to defend against what we expect will be an increase in complaints of compensation discrimination.

FortneyScott’s Pay Equity practice is dedicated to guiding employers through the changing and challenging world of pay equity. Please reach out to us if we can help you think through these increasingly complex matters, to provide strategic and practical legal advice and counsel, and to help you get pay equity “right.”

EEO-1 Report Deadline Extended

The U.S. Equal Employment Opportunity Commission’s (EEOC) EEO-1 Joint Reporting Committee has extended the deadline for filing the 2017 reports to June 1, 2018.

Employers should check for a communication to the EEO-1 company contact introducing the new EEO-1 survey.  Contact your FortneyScott attorney should you have any questions.

On “Equal Pay Day,” Growing Challenges – and Proactive Steps – For Employers to Consider

For 2018, April 10th is “Equal Pay Day.” That is the day the typical woman must work into 2018 to get paid what the typical man was paid by the end of 2017.  The pay controversy turns on whether there are legitimate reasons for the differences, e.g., one employee produces more widgets than another, or whether the differences are due to unlawful discrimination.  As on past years’ Equal Pay Days, civil rights groups, women’s groups and others will stage a high-profile campaign to highlight and seek to close the national “pay gap” between men and women workers and the even larger pay gap that exists between men and women of color. Here is just one example of the campaign that shines a bright light – for your employees to see – on Equal Pay Day and the continuing pay gap.

But the focus on pay equity and the national pay gap is no longer limited to one day each year on Equal Pay Day.  Pay equality has quickly emerged as one of the most challenging issues employers face today. A growing patchwork of new, often differing, state equal pay laws (14 states passed equal pay laws in the past 18 months and another 18 states have proposed equal pay laws that are right now moving forward in their respective legislatures), increased agency enforcement, a rising tide of pay discrimination litigation, and your employees’ growing awareness of – and expectations for – equal pay all coalesce to make pay equity an issue employers must face proactively, or face the increasing risk of legal exposure and reputational harm.

So what is an employer to do?

One quickly emerging best practice is to conduct a proactive pay analysis – under attorney-client privilege – to identify those pay disparities (all employers have some) that can be explained by legitimate factors and those that can’t. It is the unexplained pay differences you should uncover, investigate and – where appropriate – address through equity adjustments that are thoughtfully designed and well-deployed to close the unexplained gaps while minimizing the chances of “blow back” claims from the employees who receive adjustments and other employees who do not.

FortneyScott’s Pay Equity practice is dedicated to guiding employers through the changing and challenging world of pay equity. Please reach out to us if we can help you think through these increasingly complex matters, to provide strategic and practical legal advice and counsel, and to help you get pay equity “right.”

OFCCP Issues Directive Requiring PDNs

OFCCP Director Ondray Harris? first public act as Director is to require a national, uniform practice at an agency not known for its uniformity.  In Directive 2018-01, Harris directed the Regional and District Directors to issue Pre-Determination Notices (PDN) in every compliance evaluation where the agency believes either individual or systemic discrimination findings may exist.  Contractors will then have 15 calendar days to rebut the OFCCP?s proposed findings.  Further, every PDN must be reviewed by the appropriate Solicitor?s office before being forwarded to the National Office for final review.  The new directive takes effect immediately, and any Notice of Violation (NOV) not yet issued must be withheld until a PDN is first issued ?to allow contractors an opportunity to respond to the agency?s preliminary findings.?

In the past, PDN?s were reserved for matters of systemic discrimination, and the decision to issue a PDN was left to the discretion of the OFCCP District and Region.  This led to varying practices across the country.  Further, where PDNs were not issued, the NOV often curtailed conciliation efforts, and moved the compliance evaluation into a more adversarial posture. Harris? aim, as stated in the Directive, is ?to achieve consistency across regional and district offices, increase transparency about preliminary findings with contractors, and encourage communication throughout the compliance evaluation process.?

Although a great many compliance evaluations are closed without any findings of violations, this Directive is, nonetheless, a significant first step.  Multi-jurisdictional contractors have been seeking greater consistency among the Districts and Regions of the OFCCP for years.  For many of those contractors, working with different Regions of the OFCCP has seemed as if they were dealing with entirely different agencies of the federal government.  As a result, any efforts by OFCCP to bring greater consistency are important.  Further, the promise of an earlier notification of the agency?s findings, and an assurance that contractors will have an early opportunity to respond, holds out the hope that more meaningful communications will take place in a less contested context than that created by a NOV.  Most significantly, the fact that PDNs will be reviewed by the National Office will likely have the effect of tempering the positions of the more aggressive Districts and Regions; all of which may lead to more amicable resolutions of compliance evaluations.

The hope among the contractor community is that this first step is followed by others regarding other facets of the audit process, bringing still more consistency and transparency to a process that has been going in the opposite direction.