OFCCP’s Regulatory Agenda Has Contractors Seething

By Dietrich Knauth

Law360, New York (September 5, 2012, 5:52 PM EDT) — An ambitious but stalled effort to revamp affirmative action rules for contractors has put President Barack Obama’s Office of Federal Contractor Compliance Programs at loggerheads with federal contractors, and the worsening relationship has bogged down audits and added to the financial strain on both private companies and the agency.

Obama’s OFCCP has proposed 10 major rule changes — far more than the four changes the regulator pushed during the Bush administration — that include widely criticized new rules aimed at boosting affirmative action hires of veterans and disabled workers, and a revised audit policy that seeks more detailed data on employee compensation. But contractors say the regulatory overload and the OFCCP’s combative attitude have hindered real progress.

The disconnect between the regulator and government contractors was on display at the 2012 National Industrial Liaison Group conference in Hawaii, where OFCCP officials including Director Patricia Shiu and Policy Director Debra Carr spoke via teleconference to companies about proposed and pending regulations.

The distance was more than simply physical — while Carr and Shiu both emphasized the importance of communication and outreach, contractors at the conference said they felt ignored, bullied or even lied to by the OFCCP.

“I’ve never seen so much acrimony,” said John Fox of Fox Wang & Morgan PC, who added that the OFCCP had put itself on “war footing” with contractors. “I’ve frankly never seen the contractor community so active and mobilized against a common threat.”

At the ILG conference, Fox characterized the OFCCP as a “broken” agency, and one company representative raised the possibility of “civil disobedience” as a corrective against what he saw as agency overreach during audits.

Valerie Hoffman, head of Seyfarth Shaw LLP’s OFCCP and affirmative action compliance group, said a lack of private sector experience within the OFCCP and the agency’s failure to reach out to contractors had led it to greatly underestimate the costs of compliance with its proposed rules. And the sheer number of proposed reforms has helped slow the pace with which new regulations are enacted, and left contractors nervous and uncertain about delayed changes, she said.

“This administration has the most ambitious regulatory agenda of any recent administration,” Hoffman said. “It looks like they’ve bitten off more than they can chew, and the contractor community is rightly concerned about the breadth of the new regulations and the burdens associated with them.”

The OFCCP has also pursued audits more aggressively than it did during the Bush administration, when it would commonly shut down audits if it didn’t find systematic discrimination that affected 10 or more employees, according to David Cohen of DCI Consulting. Cohen dates the change in attitude to 2010, when the OFCCP renamed its approach from Active Case Management to Active Case Enforcement.

“And OFCCP is wondering why we’re all feeling so anxious?” Cohen said. “I call it the ‘No Lawyer Left Behind Act,’” he said of the OFCCP’s package of proposed reforms.

Making matters worse for both OFCCP and the contractors it oversees, data from the OFCCP’s public enforcement database shows that the OFCCP is burying itself in technical violations that require reporting and burden both the agency and contractors, without bringing any settlement money back to OFCCP, Cohen said.

While the number of audits that resulted in financial remedies rose slightly between 2004 to 2011, from 1.12 percent of audits to 2.5 percent, the percentage of audits that ended in conciliation agreements, without payment to OFCCP or individuals, rose much more sharply, from 5.25 percent to 24.9 percent.

Carr acknowledged that federal budget pressures are weighing on the agency, saying she’s “doing more with less,” and estimating the number of employees in the policy office as “in the mid-20s.”

Fox said the OFCCP is “starving to death” for lack of funds and argued that Carr needs three times as many employees to get the regulations right.

“She can’t do a big job like that with 20 people,” Fox said. “No one can.”

Near the close of the ILG conference, Fox suggested that contractors step up and do the OFCCP’s work for it, writing proposed regulations themselves and submitting them to OFCCP for editing. Everyone agrees that the regulations are out of date, he said, citing the OFCCP’s obsolete sex discrimination rules that don’t even allow the agency to prevent contractors from firing women who become pregnant.

“OFCCP is broken. We all know that,” Fox said, saying contractors should not only write rules, but lend managers to the OFCCP to give guidance and assistance. “Don’t whine any more; just do it. It’s a classic partnership — you fill in where they’re weak, and they fill in where you’re strong.”

Hoffman called Fox’s proposal interesting but said most contractors are “overwhelmed” with their own responsibilities and would likely have few resources to devote to assisting the OFCCP’s policymaking. Sandy Zeigler, a retired OFCCP regional director, added that it would be tough to convince contractors to go through the effort and expense of rewriting regulations without any guarantee that the OFCCP would listen.

Zeigler said the OFCCP should listen more to contractors, rather than “regulate without even thinking about it.”

The agency’s plan to have contractors give veterans and disabled applicants written letters of denial when they are not hired, including a reminder that they are protected classes that can sue for discriminatory hiring practices, was one example of a poorly thought-out requirement Zeigler cited. The change would create recordkeeping burdens, while encouraging contractors to keep the denial letters as bland and uninformative as possible to prevent applicants from getting ideas for lawsuits.

“You’re going to send out a lot of pabulum to a lot of people. That’s a waste of your time, that’s a waste of paper,” Zeigler said. “Why regulate to have a bland statement like that?”

The new recordkeeping burdens and a “gotcha” mentality that focuses on technical violations during audits has damaged the relationship between the agency and federal contractors, and the hostile environment can distract from affirmative action programs that actually work, Zeigler said.

“I don’t want to civil rights to be hurt by people who are intending to help it,” Zeigler said.

Published by Law360

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